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Former RBI Governor C. Rangarajan has reportedly urged the GST Council to clarify that GST should not apply to a new UPI merchant discount rate (MDR). His comments are a policy recommendation, not a GST Council decision. As of 7 October 2026, the government’s newly announced MDR framework was scheduled to begin on 15 October; it does not mean GST is being added to every UPI payment.
What Rangarajan said about GST and UPI MDR
At the 5 October 2026 Chennai launch of Cashless Nation: How UPI Changed Everything, C. Rangarajan reportedly argued that if merchants are charged MDR, GST could apply to that cost. He urged the GST Council to state clearly that GST should not be imposed on UPI MDR. The remarks were reported by Webnewswire on 6 October 2026; they are not a ruling, a Council decision or a settled interpretation of the new framework.
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Rangarajan also recognized that operating UPI infrastructure has costs and treated who should bear them as a separate policy question. His argument therefore concerns both the tax treatment of a merchant charge and whether merchants should be charged in the first place.
Does GST apply to UPI payments above ₹2,000?
Not simply because a UPI payment exceeds ₹2,000. The announced framework distinguishes transfers between individuals (P2P) from payments to merchants (P2M), and the reported GST question is about GST on an MDR payment—not a new GST on the full amount paid by a consumer. The Ministry says customers are not to pay MDR. India Today reported that government sources expected GST to apply to MDR payments, with eligible businesses able to claim input tax credit. That is a reported account of the tax treatment; the material available does not establish a detailed GST notification or Council ruling for the framework.
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The Ministry of Finance said on 18 April 2025 that no MDR was then charged on UPI P2M transactions and consequently no GST applied to those transactions at that time. That statement described the position in April 2025, before the new framework was announced; it should not be read as describing the framework due to start in October 2026.
What the announced UPI MDR framework covers
The Ministry of Finance’s release of 15 September 2026 describes these categories. The reported effective date was 15 October 2026, so the framework was announced but not yet in force on 7 October 2026.
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| Transaction or merchant category | Announced MDR treatment |
|---|---|
| P2P transfers | Remain free regardless of amount. |
| P2M payments up to ₹2,000 | Zero MDR. |
| Specified P2M payments 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. |
| 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. |
These categories and figures come from the Ministry of Finance release dated 15 September 2026. Eligibility for the small-merchant exemption is based on monthly UPI QR receipts under P2PM; a single payment above ₹2,000 does not by itself determine whether a merchant qualifies. The release says merchants should not pass MDR on to customers. That is the stated policy, not evidence from a study of actual retail prices.
How broad is the change?
The Ministry estimates that approximately 96% of merchant transactions will remain outside MDR under the announced framework. It also says P2P transfers account for approximately 70% of total transaction value and remain outside the framework. Those are government-published estimates, not independently audited findings in the materials cited here. The Ministry further says an amount equivalent to 5% of MDR collections will go to a dedicated small-merchant fund.
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Why the April 2025 statement is not the last word
When the Ministry issued its April 2025 clarification, its statement was that UPI P2M transactions had no MDR and therefore no GST applied to them then. It also described government incentive allocations for promoting low-value digital payments: ₹1,389 crore for FY2021–22, ₹2,210 crore for FY2022–23 and ₹3,631 crore for FY2023–24. Those historical allocations help explain the earlier no-MDR context, but they do not determine the tax treatment of the later announced framework.
The Ministry’s September 2026 announcement changes the policy context by describing MDR for specified merchant transactions, with exemptions and rates by category. Rangarajan’s reported appeal asks the GST Council to clarify the treatment of that charge. Until an applicable official tax clarification is available, the careful distinction is between the announced MDR schedule and the reported GST treatment of MDR payments.
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Sources
- Webnewswire, 6 October 2026, reporting Rangarajan’s remarks at the book launch.
- Ministry of Finance, 15 September 2026, announcing the UPI MDR framework.
- India Today, 17 September 2026, reporting on the planned start date, consumer pass-through and GST on MDR.
- Ministry of Finance, 18 April 2025, describing the then-current no-MDR position and incentive allocations.
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