Government Confirms No GST on UPI

- The clarification was made in the Rajya Sabha by Minister of State for Finance, Pankaj Chaudhary, on July 22, 2025. He confirmed that the GST Council, the constitutional body that decides tax rates, has never recommended levying GST on UPI transactions. - The rumors gained traction after the Commercial Taxes Department in Karnataka issued thousands of GST demand notices to small and medium vendors based on their UPI transaction volumes from 2021-22 onwards. This led to fear and a noticeable drop in digital payments among some small traders, with a study in Bengaluru finding over 64% of vendors reduced or stopped using UPI after receiving or hearing about the notices. - Legally, GST is levied on the supply of goods or services, not the mode of payment. A UPI transfer is considered a method of settlement, similar to cash, and not a taxable service in itself. - To encourage digital payments, the government implemented a zero Merchant Discount Rate (MDR) policy for UPI and RuPay transactions starting in January 2020. MDR is a fee merchants typically pay to banks for processing digital payments, which for credit and debit cards can range from 0.9% to 2%. - To compensate for the zero-MDR policy, the government provides financial support to the digital payment ecosystem through an incentive scheme. The payout for this scheme grew from ₹2,210 crore in FY 2022-23 to ₹3,631 crore in FY 2023-24. - While standard bank-to-bank UPI payments are free, an interchange fee of 0.5% to 1.1% applies to merchant transactions over ₹2,000 made via prepaid wallets (PPIs). This fee is paid by the merchant's bank to the payer's wallet issuer, not by the customer. - The scale of UPI is substantial, with transactions in December 2025 reaching a record 21.63 billion transactions worth nearly ₹28 lakh crore. As of early 2026, UPI accounts for approximately 70-80% of all digital payments in India.