UPI Transactions in India: A Strategic Look at GST and Digital Payments
Introduction to UPI Transactions in India
UPI, or Unpayments by Payment, is a payment method where a merchant pays for goods using another merchant’s card. This innovative payment system has gained significant adoption across India, particularly among small merchants. However, the landscape of digital payments in India is complex, with various transactions and schemes shaping its dynamics.
The Government’s View on GST
The Central Board of Direct Taxes (CBDT) implemented several measures to modernize the Indian financial ecosystem. One notable move was removing the Merchant Discount Rate (MDR) from P2M UPI transactions effective January 2020. This decision aimed to streamline transactions and reduce administrative burden, focusing instead on tax compliance.
The Controversial MDR in UPI Transactions
Before CBDT’s announcement in January 2020, there was no MDR charged on UPI transactions. Starting from that year, the CBDT removed the MDR on P2M UPIs. This action effectively eliminated GST on these transactions. However, this claims to challenge a recent assertion by the user stating that claims of GST levying on UPI over ₹2k are completely false.
The Incentive Scheme for UPI Growth
To counterbalance the lack of GST, the CBDT introduced an Incentive Scheme starting FY 2021-22. This scheme provided financial incentives to low-value P2M transactions, mitigating transaction costs and fostering broader participation in digital payments. Over the years, payouts under this scheme were ₹13.89 crore (FY2021-22), ₹22.1 crore (FY2022-23), and ₹36.31 crore (FY2023-24).
The Benefits of UPI Transactions in India
The growth of UPI transactions since FY 2019-20, with values rising to ₹260.56 crore by March 2025, has been significant. P2M transactions reached ₹59.3 crore that year, reflecting a surge in merchant adoption and consumer confidence in digital payments.
Challenges and Considerations
While UPI’s initiatives have been beneficial, they involve low transaction costs. This can sometimes hinder innovation but also reduce administrative overhead. Despite this, the CBDT’s focus on user-centric solutions has contributed significantly to India’s robust digital ecosystem.
Conclusion: A Balanced Perspective
The debate over GST regarding UPI transactions remains a point of interest and concern for the government. However, the Incentive Scheme and UPI’s expansion in digital payments have provided substantial benefits, highlighting their importance despite challenges.
In conclusion, while the claims about GST levying on UPI transactions over ₹2k are controversial, UPI’s initiatives to support small merchants and digital payments innovation provide a positive outlook for the future. The CBDT’s efforts in tax compliance and user-centric solutions underscore India’s strategic approach to modernizing its payment landscape.