GST on UPI Payments in 2025: Charges, Limits & Implications

In just a few years, the Unified Payments Interface (UPI) has become a part of daily life in India. 

From a quick scan for a morning cup of tea to transferring large sums for business, its speed has revolutionized how we make everyday payments. 

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Despite the widespread use of UPI, many people remain confused, particularly regarding taxes.

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Does the government take a cut of your digital transactions?

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This comprehensive guide will explore the fundamental principles and provide detailed examples to illustrate exactly when, how, and to whom GST on UPI payments might apply.

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What is GST on UPI payments?

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Let’s address the most pressing question right away.

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As a regular user, do you pay GST when you scan a QR code to pay for your groceries or send money to a friend?

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The answer is simple.

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No, there is no GST on the value of UPI transactions for individuals.

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The entire conversation around GST on UPI payments is not about taxing the transaction amount itself. 

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Instead, it concerns the applicability of GST on any service charges or fees that banks or payment service providers levy for facilitating these transactions. 

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The principle is straightforward: GST is levied on the supply of goods or services. A UPI transfer is a movement of money, not a service you are billed for. 

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However, if a financial institution charges a fee for a specific type of UPI transaction, that fee is considered a service, and it is this fee that falls under GST.

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GST on UPI Transaction Charges

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For the vast majority of users and merchants, UPI transactions remain free. 

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This is a deliberate policy by the Indian government to encourage digital payments. The government has mandated a zero Merchant Discount Rate (MDR) on UPI transactions. 

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MDR is a fee that merchants traditionally pay to banks for processing digital payments. Since the underlying charge (MDR) is zero, there is no value on which to apply GST.

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This is the primary reason why discussions about GST on UPI transaction charges often lead to the conclusion that there is no tax for most common scenarios.

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However, it is important to note that if a payment aggregator or a bank decides to levy a specific platform or a convenience fee for providing UPI services, that fee would be subject to GST, which is currently 18%. For standard bank-to-bank UPI payments, this is not the case.

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GST on UPI Payments Above ₹2,000

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A significant amount of confusion surrounds larger transactions. Let us be clear: there is absolutely no special GST on UPI payments above ₹2,000.

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The rumours about an indirect tax on such transactions are false and have been repeatedly debunked by the Ministry of Finance. You do not pay any extra tax for sending or receiving more than ₹2,000 via a standard UPI bank transfer.

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The source of this confusion stems from a circular by the National Payments Corporation of India (NPCI). This circular introduced a 1.1% interchange fee on UPI transactions greater than ₹2,000, but it applies only when the payment is made to a merchant through a Prepaid Payment Instrument (PPI), such as a digital wallet.

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This is a business-to-business charge. The merchant's bank pays this fee to the wallet provider. It does not apply to regular bank account-to-bank account UPI transfers, which constitute over 99% of all UPI transactions. 

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The end customer is not required to pay this fee. The GST, if applicable, would be on this 1.1% interchange fee.

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GST on International UPI Transactions

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As UPI expands its global footprint, the GST implications become more direct. When you use UPI for cross-border payments, you will likely incur two types of charges.

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1. Currency Conversion Fee: The bank facilitating the transaction will charge a fee for converting Indian Rupees (INR) to the local currency.
2. Transaction Processing Fee: The service provider may levy a fee for processing this international payment.

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Both of these charges are considered services and are subject to an 18% GST. Therefore, when discussing GST on international UPI transactions, it is accurate to say that while the payment amount itself is not taxed, the associated service fees for currency conversion and processing are taxable.

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Check out the list of countries that accept UPI payments.

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When Does GST Apply to UPI Transactions?

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To summarise and provide clarity, GST is applicable in the following specific instances related to UPI:

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• On any convenience or platform fee charged by a payment aggregator or merchant for facilitating a transaction
• On interchange fees for specific business-to-business transactions, such as PPI-based merchant payments over ₹2,000
• On currency conversion and processing fees associated with international UPI payments

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The core takeaway for the average citizen is that your daily UPI usage remains free from the direct impact of GST on UPI payments.

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GST Implications for Businesses Accepting UPI

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For merchants and businesses, the integration of UPI payments into their operations has GST implications beyond potential service fees. The most significant is the calculation of aggregate turnover.

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All payments received via UPI, whether from customers or other businesses, are considered part of the business's turnover. 

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This is crucial because if a business's annual turnover crosses the prescribed threshold (₹40 lakh for goods and ₹20 lakh for services in most states), it becomes mandatory to register for GST. 

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Authorities monitor bank accounts and UPI receipts, and failure to register can lead to significant penalties.

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On the positive side, if a business does pay any GST on UPI transaction charges (for instance, on fees for using a specific payment gateway), it can claim this amount as an Input Tax Credit (ITC). 

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What is Exempt from GST in UPI Payments?

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To avoid any ambiguity, let us clearly list what is exempt from the purview of GST on UPI payments:

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• The Transaction Value: The actual amount of money being transferred from one bank account to another is not taxed. 
• Peer-to-Peer (P2P) Transactions: Sending money to friends, family or any other individual is completely free and has no GST component.
• Most Peer-to-Merchant (P2M) Transactions: Standard payments made from a customer's bank account to a merchant's bank account via UPI are not subject to any charges for the customer and thus no GST.

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Government Policy on UPI and GST (2025 Update)

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The Government of India's stance, as of early 2025, remains consistent. The Ministry of Finance has repeatedly clarified that it has no intention of levying GST on UPI transactions for consumers. 

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The primary objective is to foster a robust and accessible digital payment ecosystem to enhance financial inclusion and transparency.

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The government actively promotes UPI usage through various incentive schemes. Taxing the very mechanism they are trying to popularise would be counterproductive to this national goal.

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Final Word

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The narrative around GST on UPI payments is filled with more myths than truths. For the vast majority of India's population, UPI remains the simple and free payment mechanism it was designed to be. 

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The tax implications that do exist are nuanced and predominantly affect specific business-to-business charges or international transaction services, not the everyday user.

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Frequently Asked Questions

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1. Is there GST on sending money via UPI?

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No, sending money to another individual (a peer-to-peer transaction) via UPI is completely free and does not attract any GST.

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2. Do I pay GST when I pay a merchant via UPI?

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No, you do not directly pay any GST when you pay a merchant using a standard bank-to-bank UPI transfer. The transaction is free for you. Any applicable service charges and the GST on them are a cost to the business entities involved.

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3. Are UPI payments above ₹2,000 taxed under GST?

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No, the transaction value of UPI payments above ₹2,000 is not taxed under GST. An interchange fee may apply to merchants for payments over ₹2,000 made via a PPI wallet, and this fee has GST. However, this charge is not a tax on the customer or the transaction amount.

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4. What is the GST on UPI transaction charges for businesses?

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If a business is charged a service fee, platform fee, or interchange fee for a UPI transaction, that charge is subject to 18% GST. The business can typically claim the GST amount from the UPI transaction as an input tax credit.

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5. Is there GST on using UPI internationally?

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Yes. While the payment value itself is not taxed, the service fees charged for currency conversion and international transaction processing are subject to an 18% GST.

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