On April 18, 2025, the Indian government issued a definitive statement clarifying that Goods and Services Tax (GST) will not be applicable on Unified Payments Interface (UPI) transactions exceeding Rs 2,000. The Ministry of Finance categorically dismissed rumors suggesting otherwise, labeling such claims as "completely false, misleading, and without any basis." The ministry emphasized that there is currently no proposal under consideration to impose GST on UPI transactions.
The clarification comes in response to widespread speculation that the government might introduce GST on UPI transactions above the Rs 2,000 threshold. According to the finance ministry, GST is typically levied on charges associated with payment processing, such as the Merchant Discount Rate (MDR). However, effective January 2020, the Central Board of Direct Taxes (CBDT) removed the MDR on Person-to-Merchant (P2M) UPI transactions. As a result, since no MDR is charged on UPI transactions, there is consequently no GST applicable to these transactions.
The government reiterated its commitment to promoting digital payments through UPI, which has seen explosive growth in recent years. UPI transaction values surged from Rs 21.3 lakh crore in the fiscal year 2019-20 to an astonishing Rs 260.56 lakh crore by March 2025. This remarkable increase reflects the growing adoption of digital payment methods among both merchants and consumers, highlighting India's leadership in the global digital payments landscape.
To further bolster the growth of UPI, the government has implemented an Incentive Scheme aimed specifically at low-value P2M transactions. This initiative, operational since FY 2021-22, is designed to benefit small merchants by alleviating transaction costs and encouraging broader participation in digital payments. The total incentive payouts under this scheme have seen a steady increase over the years, demonstrating the government's sustained commitment to enhancing UPI-based digital transactions.
In the fiscal year 2021-22, the government allocated Rs 1,389 crore for the incentive scheme. This allocation increased to Rs 2,210 crore in FY 2022-23 and further rose to Rs 3,631 crore in FY 2023-24. These figures underscore the government's focus on promoting digital payments and supporting small merchants in the evolving financial landscape.
According to the ACI Worldwide Report 2024, India accounted for a staggering 49% of global real-time transactions in 2023, reaffirming its position as a global leader in digital payments innovation. The rapid growth of UPI transactions can be attributed to various factors, including increased consumer confidence in digital payment methods and the convenience that UPI offers.
Despite the government's efforts to promote and facilitate digital transactions, there have been calls from industry representatives for a reconsideration of the MDR structure. The Payments Council of India (PCI), which represents digital payments players in India, recently wrote to the Prime Minister advocating for a 0.30% MDR on transactions made through UPI at larger merchants. They also proposed introducing an MDR structure on RuPay debit card transactions applicable to merchants of all sizes.
This demand for an MDR comes in light of a reduction in the government's outlay for incentives to promote low-value transactions. The government allocated only Rs 1,500 crore for FY 2025 for promoting low-value BHIM-UPI transactions, a significant decrease from the Rs 3,268 crore approved in FY 2024. This reduction has raised concerns among stakeholders in the digital payments ecosystem about the sustainability of UPI's growth and the support available for small merchants.
The finance ministry's recent clarification serves to reassure the public and stakeholders in the digital payments sector that the government is committed to maintaining a favorable environment for UPI transactions. By eliminating the MDR on P2M UPI transactions, the government aims to encourage more users to adopt digital payment methods, thus fostering a cashless economy.
As UPI continues to thrive, the government's ongoing support through incentive schemes and policy measures will be crucial in sustaining its growth trajectory. With transaction values reaching unprecedented levels, the future of digital payments in India looks promising.
In conclusion, the government's firm stance against imposing GST on UPI transactions over Rs 2,000, coupled with its commitment to promoting digital payments, reflects a strategic approach to enhancing the financial landscape in India. As UPI usage expands, it is essential for policymakers to consider the needs of all stakeholders to ensure that the benefits of digital transactions are accessible to everyone.
