After the announcement of 0.4 per cent Merchant Discount Rate (MDR) on merchant UPI transactions above Rs 2,000, concerns were raised over claims that an additional 18 per cent GST on the MDR will be incurred on each transaction.

The government sources told news agency PTI that the tax would be levied but will be largely offset through input tax credit (ITC).

Its impact, therefore, on the overall cost is expected to be limited. The sources added that the Ministry of Finance does not anticipate any significant impact of GST on MDR.

Nevertheless, if any issue related to GST remains unresolved, it would be taken up by the GST Council for consideration.

No cash payment

The report added that the ministry does not expect an increase in cash transactions due to the MDR for UPI.

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According to sources cited by PTI, the imposition decision would not lead to a reduction in UPI transactions as it impacts only 4 per cent of total volume. Besides, the Rupay Debit Cards remain free regardless of the amount.

No foreign cards to benefit

Dismissing the United States' pressure charge, the Finance Ministry said that the latest NPCI guidelines do not offer any advantage to international credit cards over RuPay on the UPI platform as credit card transactions through UPI are permitted on only the Indian payment gateway.

"The NPCI circular of September 15, 2026, does not allow credit transactions on UPI by any other credit card other than the RuPay credit card. There is a clear policy of only allowing the RuPay credit card on UPI to enable the RuPay credit card to become the preferred choice of credit card amongst users in India," the DFS said in a post on X.

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Daily monitoring to ensure no burden on consumer

The finance ministry is also preparing to put a daily monitoring mechanism in place to ensure that the UPI MDR burden is not passed on to customers. The measure would assuage the larger concern of the masses regarding the transfer of MDR charges to end users.

The ministry has already initiated discussions with payment aggregators and other stakeholders in the UPI ecosystem to sensitise them about the MDR and ensure that the burden is not passed on to consumers.