The debate surrounding the potential imposition of Goods and Services Tax (GST) on Unified Payments Interface (UPI) transactions has ignited a flurry of confusion and speculation among users, merchants, and industry experts alike. Recent reports suggested that the Indian government might soon levy an 18% GST on UPI transactions exceeding ₹2,000, prompting widespread concern about its implications for the burgeoning digital payments ecosystem.
In March alone, UPI transactions in India reached an astounding ₹24.77 lakh crore, highlighting the platform's significance in facilitating everyday financial exchanges. However, the idea of imposing GST on these transactions has raised eyebrows, with various stakeholders questioning the feasibility and impact of such a policy.
Experts have quickly stepped in to clarify the situation, dismissing rumors as misleading. Anand K Rathi, Co-founder of MIRA Money, stated, "It is incorrect to assume that there will be a GST on UPI transactions above ₹2,000. Instead, the platforms providing UPI payment services may start charging a small service fee. The 18% GST would apply on that fee—not the transaction amount itself." He further elaborated that UPI operates as a bank-to-bank transfer, akin to National Electronic Funds Transfer (NEFT) or Immediate Payment Service (IMPS), which typically do not attract GST unless a service fee is involved.
Many users conducting peer-to-peer (P2P) transactions or small-scale person-to-merchant (P2M) payments should remain unaffected by any potential changes. Manish Kumar Goyal, CMD of Finkeda, emphasized that imposing GST would significantly hinder India's cashless economy movement. He remarked, "Current policy still favors free usage for low- and medium-volume merchants," indicating that any charges would primarily impact high-volume P2M transactions.
Concerns about digital inclusion have also surfaced in light of these discussions. Appalla Saikiran, CEO of SCOPE, warned that introducing GST on UPI could backfire, stating, "UPI has drastically improved financial inclusion by offering an accessible and affordable platform for digital payments. Taxing it would directly go against its foundational principles." He cautioned that such a move could raise operational costs for small fintech firms and deter user adoption, particularly among economically vulnerable populations.
Akash Nangia, Co-founder at Techjockey, acknowledged the intent behind formalizing digital transactions but noted, "India’s digital payments ecosystem is a marvel of inclusivity. A sudden GST implementation could disrupt the adoption rate, particularly in Tier 2 and Tier 3 cities." This sentiment was echoed by other experts, who urged the public to refrain from panic, as there is currently no official confirmation of GST on UPI transactions.
So, what does this mean for everyday users? As of now, there is no GST charged on UPI transfers. If any changes are implemented, GST would only apply to service fees rather than the total transaction amount. Most users and small businesses are likely to remain unaffected. To stay informed, users are encouraged to monitor updates from the National Payments Corporation of India (NPCI), Reserve Bank of India (RBI), or the Ministry of Finance.
In a separate but related incident, social media platforms saw a wave of confusion following a report from ET Now on April 18, which suggested that the Union Government was considering imposing GST on UPI transactions above ₹2,000. The report, titled "GST on UPI payments or transactions above Rs 2000? What experts argue," sparked outrage among netizens, particularly those aligned with opposition political parties.
The article itself referred to the situation as "hypothetical," yet it was widely circulated, leading to significant backlash against the government. Users accused the administration of imposing additional burdens on taxpayers, with one tweet from user @IndianGems_ gaining traction, claiming, "Only people with white money use UPI for payments. That money has already been taxed by the government before they can spend it." This tweet was reshared by several others, further amplifying the narrative.
Fact-checking the viral claims revealed that there is no proposal from the Union Government to impose GST on UPI transactions, whether above ₹2,000 or otherwise. Most UPI transactions remain completely free for users, with only a 1.1% service charge applicable to specific transactions made via Prepaid Payment Instruments (PPIs) like digital wallets or credit cards linked to UPI—this charge only applies to transactions exceeding ₹2,000 and is paid by the merchant, not the customer.
As a service charge, the 1.1% fee does attract 18% GST, but only on the Merchant Discount Rate (MDR), not on the transaction amount itself. For standard UPI transactions, including P2P transfers and P2M payments, there are no service charges, hence no GST is applied. The government's commitment to promoting UPI usage aligns with its broader Digital India mission, making the imposition of GST on UPI transactions counterproductive.
Previously, there was a proposal by the GST Council to impose 18% GST on MDR for card transactions below ₹2,000, but this has not been implemented. As it stands, less than 1% of UPI payments are made using wallets or credit cards, meaning that the vast majority of transactions—over 99.9%—are exempt from any service charge.
In summary, the notion of imposing GST on UPI transactions above ₹2,000 appears to be a misunderstanding fueled by speculation and misinformation. Experts agree that any potential charges would apply only to service fees, not the full transaction value. Until an official announcement is made, India’s digital payment landscape, spearheaded by UPI, remains accessible and tax-free for most users.
