The government has clarified that transactions made through the Unified Payments Interface (UPI) exceeding ₹2,000 will not be subject to the Goods and Services Tax (GST). This announcement resolves any previous ambiguity surrounding the applicability of GST on such digital payments.
The claims that the Government is considering levying Goods and Services Tax (GST) on UPI transactions over ₹2,000 are completely false, misleading, and without any basis. Currently, there is no such proposal before the Government.
GST is levied on charges, such as the Merchant Discount Rate (MDR), relating to payments made using certain instruments.
Effective January 2020, the Central Board of Direct Taxes (CBDT) has removed the MDR on Person-to-Merchant (P2M) UPI transactions through the Gazette Notification dated 30th December 2019.
Since currently no MDR is charged on UPI transactions, there is consequently no GST applicable to these transactions.
The Government remains committed to promoting digital payments via UPI.
To support and sustain the growth of UPI, an Incentive Scheme has been operational from FY 2021-22. This scheme specifically targets low-value UPI (P2M) transactions, benefiting small merchants by alleviating transaction costs and promoting wider participation and innovation in digital payments.
The total incentive payouts under this scheme over the years reflect the Government’s sustained commitment to promoting UPI-based digital payments. Allocation under the scheme over the years has been:
• FY2021-22: ₹1,389 crore
• FY2022-23: ₹2,210 crore
• FY2023-24: ₹3,631 crore
These measures have significantly contributed to India’s robust digital payments ecosystem.
According to the ACI Worldwide Report 2024, India accounted for 49% of global real-time transactions in 2023, reaffirming its position as a global leader in digital payments innovation.
UPI (Unified Payments Interface)
UPI (Unified Payments Interface) is a real-time payment system in India that allows instant transfer of funds between two bank accounts on a mobile platform. Developed by the National Payments Corporation of India (NPCI) in 2016, it has revolutionized digital transactions in the country.
Here’s a detailed overview of UPI transactions:
UPI: Key Features and Functionality
Instant Real-Time Transfers: UPI enables immediate transfer of funds 24/7, 365 days a year.
Peer-to-Peer (P2P) and Person-to-Merchant (P2M) Transactions: Users can send and receive money from individuals (friends, family) and make payments to merchants (shops, online services).
Single Mobile Application: Multiple bank accounts can be linked to a single UPI application on a user’s mobile device.
Virtual Payment Address (VPA/UPI ID): Transactions can be initiated using a unique VPA, eliminating the need to share sensitive bank details like account numbers and IFSC codes, thus enhancing privacy. For example, a VPA might look like yourname@bankname.
QR Code Payments: UPI supports QR code-based payments for quick and contactless transactions at merchant locations. Each user account can have a specific QR code.
Multi-Factor Authentication: UPI uses a secure single-click 2-factor authentication process. A UPI PIN (Personal Identification Number) is required to authorize transactions. Biometric authentication like fingerprint or facial recognition is also increasingly being integrated for enhanced security.
UPI Lite: This is a simplified version of UPI designed for small-value transactions, allowing faster and easier payments. The per-transaction limit for UPI Lite is ₹1,000, and the overall wallet limit is ₹5,000.
UPI 123Pay: This feature enables UPI payments even on feature phones without internet connectivity, using options like interactive voice response (IVR), missed calls, and proximity sound-based payments. The per transaction limit is ₹10,000 with a maximum of 20 transactions per day.
e-RUPI: This is a digital voucher-based payment system built on the UPI infrastructure, allowing for cashless and contactless voucher redemption.
UPI has become a cornerstone of India’s digital payments ecosystem, processing billions of transactions every month and playing a vital role in the country’s move towards a cashless economy. Its ease of use, security features, and interoperability have made it a popular choice for individuals and businesses alike.
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