GST on UPI Payments: Applicability, Charges and Exemptions

Unified Payments Interface, commonly known as UPI, is one of the most favoured online payment methods for retail consumers and small businesses. It is due to the convenience, speed, attractive cashback and coupon offers that UPI has to offer. It has recently been in the spotlight again due to the proposed applicability of GST on UPI transactions. 

While UPI remains tax-free, in this article, we will cover the applicability of GST on associated service charges for the usage of UPI, related exemptions, and recent policy developments in India.

Is GST Applicable on UPI Transactions?

There is no GST levied on UPI transactions, irrespective of the transaction amount or whether the transaction is between two individuals (peer-to-peer or P2P) or between an individual and businesses (peer-to-merchant or P2M). 

However, if any service charges are levied by payment aggregators (for example, Razorpay, PhonePe, Google Pay or Paytm), such charges are covered under the scope of GST.

A proposal to levy GST at 18% on UPI service charges for transactions above Rs.2,000 was discussed in 2024, but the same has not yet been implemented by the GST Council.

GST on UPI Transaction Charges

It is pertinent to note that GST shall be levied on payment gateway charges levied by payment aggregators and not on the transaction value. 

Exemption on UPI Transaction

Recently, the Ministry of Finance, through its press release dated 18/04/2025, clarified that it does not intend to levy GST on transaction value exceeding Rs.2,000 on person-to-merchant transactions. The government has removed the merchant discount rate, or simply its transaction fees, since December 2019. Since there is no value of supply, GST shall not be applicable.

GST Compliance for Businesses Using UPI

Merchants using UPI must maintain proper accounting records in compliance with not only GST but also other applicable laws and regulations. Payments received via UPI are usually considered as a part of aggregate turnover by authorities. If a business receives any payment that is not in the nature of income or turnover, it should document such transactions carefully to avoid any future litigation. A classic example of a street vendor who recently received a GST notice since his gross receipts from UPI were more than Rs.40 lakhs.

GST on International UPI Transactions

UPI, which initially was used for domestic transactions, now can also be used for receiving payments from cross-border countries. A business will typically incur two costs in such a transaction, i.e., transaction costs levied by the payment aggregator and currency conversion charges levied by the respective banks. Both these costs are covered under the scope of GST.

How does GST affect UPI Users and Merchants?

As clarified by the Ministry of Finance, the Government does not intend to charge any merchant discount rates or transaction fees, so there would be no GST applicable right now. 

Assuming the Government levies merchant discount rates on UPI transactions, it will be an additional cost to UPI users. For instance, if an individual seeks to pay a vendor Rs.20,000 and a 1.5% is levied as merchant discount rates or platform fees. The total transaction cost (including GST at 18%) shall be Rs.354. Accordingly, an individual will pay Rs.20,354. A similar mechanism was noted when credit cards were used for payments.

Even GST-registered businesses that paid for their suppliers via UPI can claim GST on the platform usage charges as an eligible input tax credit. However, merchant discount rates or platform fees shall be an additional cost to the business.