Will The Finance Ministry Apply GST To UPI Transactions Above Rs 2,000?

The Finance Ministry has officially clarified that there will be no Goods and Services Tax (GST) applied to UPI transactions above Rs 2,000, contrary to recent rumors circulating across various media platforms. This definitive statement was issued on April 18, 2025, to address growing concerns among digital payment users in India about potential taxation on UPI transactions.

Will The Finance Ministry Apply GST To UPI Transactions Above Rs 2,000?

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Official Government Stance On GST For UPI Transactions

The Finance Ministry has explicitly stated that claims suggesting the government is considering levying GST on UPI transactions over Rs 2,000 are "completely false, misleading, and without any basis." The ministry emphasized that there is currently no such proposal under consideration by the government. This clarification comes amidst widespread speculation that had caused concern among millions of UPI users across the country.

The ministry's statement further explained that GST is only levied on charges such as the Merchant Discount Rate (MDR) relating to payments made using certain instruments. Since January 2020, the Central Board of Direct Taxes (CBDT) has removed the MDR on Person-to-Merchant (P2M) UPI transactions through a Gazette Notification dated December 30, 2019. This policy decision means that currently no MDR is charged on UPI transactions, and consequently, no GST is applicable to these transactions regardless of their value.

Background On MDR And Its Relation To GST

The Merchant Discount Rate (MDR) is a fee that merchants pay to banks or payment processors for handling electronic payment transactions. Under the current regulations, since the MDR on UPI transactions has been eliminated, there is no basis for applying GST to these transactions.

The Finance Ministry has clarified that GST would only be applicable if there were service charges being levied on the transactions. Since the government has specifically removed these charges to promote digital payments, there is no foundation for the application of GST on UPI payments.

Misinformation About New UPI Tax Rules

Despite the clear stance from the government, misinformation has been circulating claiming that from June 1, 2025, a 1.5% GST would be applied to all UPI transactions above Rs 2,000. These reports suggested that a supposed notification was issued by the Finance Ministry in March 2025, which would allegedly generate an additional annual revenue of approximately Rs 15,000 crore.

According to these erroneous reports, the new tax would work by adding the 1.5% GST to the transaction amount, meaning a Rs 5,000 payment would effectively cost the sender Rs 5,075, with the extra Rs 75 being routed to the government. However, multiple official sources, including direct statements from the Finance Ministry, have categorically debunked these claims.

Timeline Of Clarifications

The Finance Ministry issued its clarification on April 18, 2025, in response to the spreading rumors. This prompt response underscores the government's commitment to transparency regarding taxation policies affecting digital payments. The ministry took to official channels, including social media platforms, to ensure the accurate information reached the public quickly.

Government's Continued Support For Digital Payments

The government has reaffirmed its commitment to promoting digital payments via UPI. To support and sustain the growth of UPI, an Incentive Scheme has been operational since the fiscal year 2021-22. This scheme specifically targets low-value UPI Person-to-Merchant transactions, benefiting small merchants by alleviating transaction costs and promoting wider participation and innovation in digital payments.

Allocation Of Funds For UPI Promotion

The total incentive payouts under this scheme reflect the government's sustained commitment to promoting UPI-based digital payments. Allocations under the scheme have increased over the years:

Rs 1,389 crore for FY 2021-22

Rs 2,210 crore for FY 2022-23

Rs 3,631 crore for FY 2023-24

These measures have significantly contributed to India's robust digital payments ecosystem. According to the ACI Worldwide Report 2024, India accounted for 49 percent of global real-time transactions in 2023, reaffirming its position as a global leader in digital payments innovation.

Impact Of UPI Growth On The Indian Economy

UPI transaction values have seen an exponential increase, growing from Rs 21.3 lakh crore in FY 2019-20 to Rs 260.56 lakh crore by the latest reported period. This tremendous growth highlights the critical importance of UPI in India's journey toward a less cash-dependent economy.

As of March 2025, UPI processes transactions worth over Rs 12 lakh crore monthly, with more than 58 billion transactions flowing through the platform in the previous year. The average transaction value stands at approximately Rs 1,800, highlighting how deeply embedded UPI has become in the daily financial activities of Indians.

GST Council Discussions And Future Possibilities

While there is no current proposal to levy GST on UPI transactions above Rs 2,000, it is worth noting that the GST Council did discuss, in September 2024, the possibility of imposing an 18% GST on service fees charged by payment aggregators for transactions below Rs 2,000. However, no final decision has been made on this matter, and it remains under review by the GST fitment committee. This discussion should not be confused with applying GST on the actual transaction amount, which is not being considered.

Conclusion

The Indian government has categorically denied any plans to impose GST on UPI transactions above Rs 2,000. The Finance Ministry has labeled such claims as false and misleading, emphasizing that there is no proposal under consideration to tax UPI transactions. The government continues to support the growth of digital payments through incentive schemes and the removal of transaction charges like MDR.

Users of UPI can continue to make payments without worrying about additional GST charges being applied to their transactions, regardless of the amount. The government's clarification serves as an important reminder to verify information from official sources, especially regarding taxation policies that affect millions of citizens.