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Former RBI Governor C. Rangarajan reportedly urged India’s GST Council to clarify that GST should not apply to a new UPI merchant discount rate (MDR). His comments were a policy recommendation—not a GST Council decision or settled tax ruling. As of 7 October 2026, the government had announced a framework for certain merchant transactions, scheduled to begin on 15 October; personal UPI transfers and many merchant transactions were to remain outside MDR.
What Rangarajan said about GST on UPI MDR
At the 5 October 2026 Chennai launch of Cashless Nation: How UPI Changed Everything, Rangarajan reportedly asked the GST Council to make clear that GST should not be imposed on UPI MDR. He argued that once a merchant pays a charge, GST would apply to that cost. The remarks were reported by Webnewswire on 6 October 2026; they should be read as his view, not as an official tax determination.
Rangarajan also recognized that running UPI infrastructure has costs and treated who should bear them as a separate policy question. His reported comments included both that UPI is a public good and that this does not automatically mean it should never be charged for.
Does GST apply to UPI payments above ₹2,000?
Not simply because a UPI payment exceeds ₹2,000. The announced threshold relates to certain merchant payments and the MDR charged to the merchant. It does not make GST a tax on every UPI transfer or on the full amount a customer sends. The distinction matters: MDR is a payment-processing charge, while GST treatment discussed in September reporting concerns that charge.
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- Person-to-person (P2P) transfers: The Ministry of Finance said these remain free under the announced framework, regardless of amount.
- Merchant payments up to ₹2,000: The Ministry’s framework sets zero MDR for these transactions.
- Some merchant payments above ₹2,000: MDR may apply depending on the transaction category and the merchant’s eligibility. News reporting attributed the position that GST would apply to MDR payments to government sources; it did not establish that GST is charged on the underlying UPI payment.
India Today reported that eligible businesses could claim input tax credit on GST paid on MDR. This is a reported account of the tax treatment, not personalized tax advice or a detailed GST ruling. The Ministry’s framework release does not itself provide a full GST determination for every merchant or transaction.
What the announced MDR framework covers
The Ministry of Finance’s 15 September 2026 release describes the following categories. The framework was announced, not yet in force, on the 7 October 2026 information date; news reports said it was scheduled to take effect on 15 October 2026.
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| Transaction or merchant category | Announced MDR treatment |
|---|---|
| P2P UPI transfers | Zero MDR regardless of amount. |
| Merchant transactions up to ₹2,000 | Zero MDR. |
| Specified merchant transactions above ₹2,000 | 0.4% MDR, capped at ₹300 for transactions of ₹75,000 or more. |
| Railways, telecom, insurance, fuel and agricultural inputs, above ₹2,000 | Flat ₹5 MDR, according to the Ministry release. |
| Mutual funds, securities, stockbrokers and dealers | 0.02% MDR, capped at ₹300. |
| Small merchants receiving up to ₹1 lakh monthly through UPI QR codes under P2PM | Zero MDR on all transactions, according to the Ministry release. |
The small-merchant provision is based on monthly UPI QR receipts and P2PM status; a single transaction above ₹2,000 does not by itself establish that a merchant must pay MDR. The categories and rates above are those described in the Ministry’s 15 September 2026 release.
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MDR is described as a merchant-side charge distributed among participants in the payments ecosystem. The Ministry says customers are not to pay MDR, and reporting says merchants should not pass the charge on to consumers. That is the announced policy position; it is not evidence from a price study that indirect effects on prices cannot occur.
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The Ministry estimates that about 96% of merchant transactions will remain unaffected by the framework and says P2P transactions account for about 70% of total transaction value. These are Ministry figures published on 15 September 2026, not independently audited estimates in the available materials. The release also says an amount equivalent to 5% of MDR collections will go to a dedicated small-merchant fund.
Why the 2025 statement is not the current framework
On 18 April 2025, the Ministry of Finance said no MDR was then charged on UPI person-to-merchant transactions, so no GST was applicable to those transactions at that time. That statement described the position in April 2025; it should not be applied as if nothing changed after the Ministry’s September 2026 framework announcement. The historical statement is available in the Ministry’s 18 April 2025 release.
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What is settled—and what remains a policy question
Rangarajan’s reported recommendation does not settle whether GST will apply to MDR under the new framework. The Ministry has announced MDR categories and says customers are not to be charged the fee; India Today reported GST treatment on MDR based on government sources. The materials available by 7 October 2026 do not include a GST Council ruling, detailed GST notification or primary NPCI circular specifically resolving every tax consequence of the new framework. For a merchant’s own filing or eligibility, consult current official guidance or a qualified tax adviser.
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