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Understanding GST Applicability on UPI Transactions and Associated Charges

The article clarifies the current stance on Goods and Services Tax (GST) for UPI transactions in India, noting that while direct UPI payments are exempt, any service fees charged by payment aggregators are subject to an 18% GST. It highlights exemptions for person-to-merchant transactions over ₹2,000, details compliance needs for businesses, and explains GST's impact on international UPI payments. The Ministry of Finance's position aims to keep UPI usage cost-effective, supporting its significant growth.

📖 3 min read read🏷️ UPI Payments

The Unified Payments Interface (UPI) has become a popular online payment method for both individual consumers and small businesses, owing to its convenience, rapid processing, and promotional benefits. Recently, discussions have emerged regarding the potential application of Goods and Services Tax (GST) on UPI transactions. While UPI transactions themselves are generally free from direct taxation, this discussion will explore the applicability of GST to any service charges linked with UPI usage, relevant exemptions, and current policy updates in India concerning this digital payment system.

Is Goods and Services Tax Applicable to UPI Transactions?

Goods and Services Tax is not applied to UPI transactions, regardless of the amount transferred or whether the transaction occurs between two individuals (P2P) or between an individual and a business (P2M). Nevertheless, if payment aggregators, such as Razorpay, PhonePe, Google Pay, or Paytm, impose any service fees, these fees fall within the purview of GST. Although a proposal to impose an 18% GST on UPI service charges for transactions exceeding ₹2,000 was deliberated in 2024, the GST Council has not yet enacted this measure.

Goods and Services Tax on UPI Transaction Fees

The table below outlines how GST applies to various UPI transaction scenarios: | Transaction Amount | Transaction Fees | GST Applicable? | Value of Supply | GST Rate ||---|---|---|---|---|| Up to Rs.2,000 | Not Applicable | Not Applicable | Not Applicable | Not Applicable || More than Rs.2,000 | Potentially charged by payment intermediaries | Yes, on the transaction fees | Payment gateway charges | 18% |

It is important to remember that GST is imposed solely on the payment gateway charges applied by payment aggregators, not on the total value of the transaction itself.

UPI Transaction Exemptions

In a recent press release issued on April 18, 2025, the Ministry of Finance confirmed that there are no current plans to levy GST on person-to-merchant transactions exceeding ₹2,000. Since December 2019, the government eliminated the merchant discount rate (MDR), which are transaction fees. Consequently, without a value of supply to tax, GST does not apply in such instances.

GST Compliance for Businesses Utilizing UPI

Businesses that accept payments through UPI are required to maintain accurate accounting records, adhering to GST guidelines and other relevant laws. Payments collected via UPI are generally categorized by authorities as part of a business's aggregate turnover. Should a business receive payments that do not qualify as income or turnover, it is crucial to meticulously document these transactions to prevent potential legal disputes. An illustrative case involves a street vendor who received a GST notice because their total UPI receipts exceeded ₹40 lakhs.

Goods and Services Tax on Cross-Border UPI Transactions

Initially designed for domestic use, UPI has expanded to facilitate receiving payments from international sources. For such cross-border transactions, businesses typically face two types of costs: transaction fees imposed by the payment aggregator and currency conversion charges applied by the banks involved. Both of these charges are subject to GST.

Impact of Goods and Services Tax on UPI Users and Merchants

As per the Ministry of Finance's clarification, the government currently does not plan to impose merchant discount rates or transaction fees on UPI, meaning no GST is presently applicable. However, if the government were to introduce merchant discount rates on UPI transactions, this would represent an additional expense for UPI users. For example, if an individual makes a ₹20,000 payment to a vendor and a 1.5% merchant discount rate or platform fee is applied, the total transaction cost, including 18% GST, would amount to ₹354. Consequently, the individual would pay ₹20,354. This scenario mirrors the charges typically associated with credit card payments. Furthermore, GST-registered businesses paying suppliers via UPI could claim GST on platform usage charges as an eligible [input tax credit](/glossary/a-comprehensive-g uide-to-input-tax-credit-itc-under-gst-in-india). Despite this, merchant discount rates or platform fees would still constitute an additional cost for the business.

The Ministry of Finance's recent announcement has brought clarity regarding the application of GST to UPI transactions. The total value of UPI transactions has shown remarkable expansion, increasing over tenfold in five years, from ₹21.3 lakh crore in FY20 to ₹260.56 lakh crore in FY25. The government consistently supports the growth of UPI, allocating ₹3,631 crore in FY23 and ₹2,210 crore in FY22 to promote this platform.

Further Reading

Frequently Asked Questions

What is GST and how does it function in India?
GST (Goods and Services Tax) is a comprehensive indirect tax levied on the supply of goods and services in India. It replaced multiple cascading taxes levied by central and state governments, aiming to streamline the tax structure and create a common national market. It is a consumption-based tax applied at the point of sale.
Which types of transactions are typically subject to GST in India?
GST is generally applicable to most transactions involving the supply of goods and services for consideration. This includes manufacturing, sales, purchases, imports, and services rendered, unless specifically exempted by the government. Exemptions often apply to essential goods and services or certain sectors.
Are there different GST rates for various goods and services?
Yes, India's GST system features a multi-tiered rate structure. Common GST rates are 5%, 12%, 18%, and 28%, applied to different categories of goods and services based on their nature and essentiality. There are also specific rates for certain items like precious stones, and some goods are entirely exempt.
How can a business register for GST in India?
Businesses exceeding a specified aggregate turnover threshold (currently ₹20 lakh or ₹10 lakh for special category states) are mandated to register for GST. The registration process is online through the GST portal, requiring submission of documents like PAN, Aadhaar, business registration proof, and bank account details.
What is an Input Tax Credit (ITC) under the Indian GST regime?
Input Tax Credit (ITC) allows GST-registered businesses to claim credit for the GST paid on the procurement of goods and services used for their business operations. This mechanism avoids the cascading effect of taxes, meaning tax is paid only on the value added at each stage of the supply chain.

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