Who will have to pay GST on UPI, who will get exemption?: 18% tax will be imposed on the entire amount or only MDR fees, know – answers to such questions

Question: What is going to change in the rules of UPI payment from October 15?

answer: Merchant Discount Rate (MDR) will be applicable on select UPI transactions above ₹2,000 from October 15. However, this charge will have to be paid only by the traders i.e. merchants.

In most cases, the MDR rate has been kept at 0.4%, with a maximum limit of ₹300 per transaction. It will be flat ₹5 for certain sectors and 0.02% for capital market transactions.

Question: Will general customers have to pay any charges for paying through UPI?

answer: No, customers will not have to pay any charges. Person-to-person (P2P) payments between common people will remain completely free as before. Apart from this, there will be no charge on making UPI payment up to ₹ 2,000 to any shop or merchant. According to the government, about 96% of person-to-merchant (P2M) transactions will not be affected.

Question: Will ₹2,000 or the entire UPI transaction amount attract 18% GST?

answer: No, 18% GST will not be applicable on the entire UPI payment amount but only on the service fee charged as MDR. For example, if a customer makes a payment of ₹10,000 to a merchant and the MDR is 0.4% i.e. ₹40, then 18% GST will be levied only on this ₹40 (which is ₹7.20). In this way the merchant will have to pay a total processing charge of ₹ 47.20.

Question: If MDR is levied at a flat rate of ₹5, then how much will be the GST?

answer: In transactions where MDR is kept flat at ₹5, there will be a tax of 90 paise at 18% GST. In such cases, the merchant will have to pay a total of ₹5.90 including MDR and GST.

Question: Can traders claim input tax credit of this GST?

answer: Yes, businesses that are registered under GST can claim Input Tax Credit (ITC) of GST paid on MDR as per the terms and conditions.

According to experts, this GST will not be a permanent or additional cost for registered traders. However, for businesses that are not registered with GST, this will become an extra cost.

Question: What effect will this have on small shopkeepers and businessmen?

answer: This will not have any significant impact on most small traders. Under the zero-MDR framework, the MDR for small merchants who receive payments up to ₹1 lakh per month through UPI QR code will remain zero.

According to the Finance Ministry, 99% of merchants with an annual turnover of less than ₹40 lakh have UPI transactions of either less than ₹2,000 or fall within the ₹1 lakh per month exemption limit.

Question: Can MDR be imposed on any businessman with turnover less than ₹ 40 lakh?

answer: Yes, there may be some cases. If the annual turnover of an unregistered merchant is less than ₹ 40 lakh, but he is receiving UPI payments of more than ₹ 1 lakh per month, then he will not get the exemption of small merchant.

In such a situation, he will have to pay MDR and GST on payments above ₹ 2,000. Officials say that the number of such traders is very less and this issue can also be raised before the GST Council.

Question: Can shops or merchants charge MDR from customers?

answer: no way. The government has given clear instructions that merchants cannot transfer this MDR charge to customers. Banks and payment providers have been given strict instructions to ensure that merchants do not levy any extra charges from customers.

Question: How should companies and shopkeepers enter this in their accounts?

answer: Experts recommend that businesses should maintain four things separately while keeping track of their UPI payments…

Additionally, the settlement reports of banks should be regularly reconciled with their bank statements and GST portals (GSTR-2B).

Know what is merchant discount rate

merchant Discount Rate i.e. MDR is the fee that a merchant or shopkeeper pays to banks and payment service providers in exchange for using debit/credit card or digital payment facility (point of sale machine or payment gateway).

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