Former RBI Governor says merchant discount charges on larger UPI transactions should not attract GST.
Former Reserve Bank of India Governor C Rangarajan has said that the proposed merchant discount rate (MDR) on UPI transactions above ₹2,000 should not attract Goods and Services Tax (GST).
Rangarajan made the remarks at the launch of Cashless Nation: How UPI Changed Everything, a book chronicling the introduction and evolution of India’s Unified Payments Interface.
He argued that once a charge is imposed on UPI merchant transactions, it could be treated as a price paid for a service and consequently become subject to GST. He urged the GST Council to clarify that such charges should not attract the tax.
The former RBI Governor also acknowledged that operating and maintaining the UPI infrastructure involves costs. He said the broader question of whether merchants should be charged for transactions needs to be considered separately from the issue of GST.
The discussion comes as UPI continues to expand its role in India’s digital payments ecosystem. The payment system has enabled consumers and businesses to conduct transactions digitally at scale and has significantly increased access to electronic payments.
Industry representatives at the event also highlighted the importance of maintaining security while expanding digital payments into remote and underserved areas.
The debate over MDR comes as policymakers and the payments industry consider how to balance the cost of maintaining India’s digital payments infrastructure with the objective of keeping UPI transactions accessible to consumers and merchants.
