GST on UPI transactions in India

The Unified Payments Interface (UPI) has become a central component of India's digital payment landscape. It has fundamentally changed how Indians transfer money, making transactions quick, simple, and secure. However, as more people adopt UPI, questions continue to arise about the GST rules for these payments.

This guide provides a closer examination of GST on UPI transactions, explaining its implications for both users and merchants.

Are UPI payments subject to GST?

As of now, no GST is charged on UPI transactions in India. The Finance Ministry explained this in April 2025—UPI payments of any amount are not subject to GST. Any claims that GST has been charged on UPI, above or below ₹2,000, are entirely false.

Since January 2020, the government has removed the Merchant Discount Rate (MDR) on all Person-to-Merchant UPI payments. Consequently, payment aggregators do not charge service fees on UPI. Without any service fees, there is no GST. If you pay ₹1,000, the recipient receives ₹1,000—no deductions, no additional charges.

As far as GST 2.0 is concerned, in September 2025, the GST framework was overhauled. The older four tax slabs were substituted with two base rates (5% and 18%), along with an additional 40% tax rate for luxury and "sin" products. The aim is to make the taxation system more streamlined and reduce compliance burdens. None of these modifications touch UPI payments. UPI transactions are still not under the GST regime.

GST rates for UPI transactions

Currently, no MDRs are charged on the UPI transaction. Suppose the companies start charging the MDRs. Can this ever happen? Only if payment aggregators bring back service charges. In which case, GST would be charged on the service charges—not on the amount transferred itself. Merchants and payment providers would pay GST on charges, and individual consumers would have no GST on their UPI transfers.

So, the takeaway is: currently, you can send and receive money—either for business or personal use—using UPI without GST or additional fees. with 'UPI transactions are currently free for users and merchants.

Impact of GST on UPI users and merchants

Here's how the GST application affects UPI users and merchants:

Individual Users

As someone using UPI for daily transactions, you won't directly feel the impact of GST on UPI transactions. What does this translate to for you, the customer? No GST, no service fee, and no deductions on your payments. UPI remains the easiest digital mode of payment in India.

Merchants

Merchants also gain. Companies and shopkeepers who receive UPI payments do not have to pay MDR charges or GST. This makes UPI all the more appealing for small firms and solo professionals, as it is cost-effective and simple to operate.
Take a thought experiment scenario for the sake of explanation. Let's say service charges are reintroduced in the future:

For Individuals

If you buy something for ₹1,000 through UPI, and you pay a 1% service charge (₹10), and 18% GST on the charge, the shop would receive ₹11.80 in total fee and tax. The shop could then hike its price to ₹1,010 to recover this. But that is not the situation today. Today, you pay ₹1,000, and the shop gets the full amount.

For Merchants

Likewise, for traders/ merchants: suppose a shop makes 1,000 UPI payments in a month, each of ₹2,000. With a service charge of 1%, that works out to ₹20,000 in charges, and ₹3,600 GST, making ₹23,600 in deductions. But now, there are no deductions of that nature. The shop gets the entire ₹20 lakhs without any deductions.

Advantages of GST on digital transactions

Although UPI transactions themselves aren't covered by GST, GST does come into India's broader digital payment landscape:

Better payment transparency

For services that are subject to GST, payments are clearer, records are simpler, and compliance is simpler. Companies benefit from GST-compliant invoices, improved cost traceability, the use of input tax credit, and simpler cash flow management.

Simpler tax filing and business advantages

The​‍​‌‍​‍‌​‍​‌‍​‍‌ businesses get benefits from the digital payment services that are subject to GST:

• Payment providers issuing GST-compliant invoices
• Having the ability to keep an accurate track of the expenses
• Using the input tax credit to reduce the overall GST payable
• Improved cash flow, especially for small businesses, freelancers, and ​‍​‌‍​‍‌​‍​‌‍​‍‌start-ups

Example scenario of GST on a UPI transaction

Let's see precisely how GST works in a typical UPI payment:

Purchase and Payment

• The customer buys an item worth ₹1,000
• Pays through UPI

From the merchant's side

• The shop gets ₹1,000 via a payment company (like PhonePe, Razorpay)
• No MDR charges are deducted
• Hence, no GST is applicable

The final amount to the merchant

• The shop receives ₹1,000

Hence, simple, transparent and cost-free.

Axis Bank provides smooth GST payment options for all customers. You can pay GST through any of the options below:

• Net Banking: Sign in to your Axis Bank account online, locate the GST section, and pay securely.
• NEFT/RTGS: Transfer money from your Axis Bank account to the GST account, ensuring you include the GSTIN and challan details.
• Branch payment: Visit any Axis Bank branch, fill out the form and pay GST directly.

With these options, GST Payment becomes easier, enabling you to manage your tax obligations easily.

Also Read: Taxable income vs gross income: Know the real difference

Conclusion

If you’re involved in India’s digital payments scene, it’s important to understand how GST applies to UPI transactions. As of October 2025, With the introduction of GST 2.0, the government has removed MDR fees on UPI payments. This means both users and merchants can continue using UPI without any additional tax.

The zero-cost nature of UPI has turned it into one of the most popular payment modes, hugely increasing financial inclusion across the nation. Even post-GST 2.0 reforms—where nearly everything is taxed at either 5% or 18%—UPI payments are not yet charged GST. If you pay through UPI, you don't have to worry about GST.

Frequently Asked Questions

Does GST on UPI payments increase transaction costs?

There's just no GST on UPI payments. The reason is evident: as there are no MDR charges on UPI, there's nothing on which GST can be charged.

What is the tax rate for UPI transactions?

The government has assured this, and regardless of how many UPI transactions you perform or the amounts, none of them are subject to GST.

What is the limit of UPI transactions per year without GST?

Currently, there is no specific yearly limit for exemption from GST on UPI transactions. All UPI transactions are GST-free.

How is GST on UPI payment services calculated?

GST is not calculated on UPI payment services because no service fees (MDR) are charged on UPI transactions. UPI payments are completely free from GST.

Can I face penalties for not registering under GST while using UPI payment systems?

If you have a business, then yes, you do need to think about GST registration, but that depends on your annual turnover, not how you take payments. You have to be registered in most states if your business turnover exceeds ₹40 lakhs in a year; in special category states, it's ₹20 lakhs. Whether you receive payments through UPI, credit or debit cards, or any other means, it’s your turnover that determines GST registration, not how you get paid. So, UPI payments stay straightforward and untaxed.

Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article

Tax and GST regulations are subject to change. The information in this article is based on applicable laws, rules, notifications, and interpretations in force as on the date of publication and may change due to amendments, judicial decisions, or regulatory updates.