Are you wondering if you have to pay 18% GST on UPI payments? The short answer is no! UPI transactions are GST-free, even in 2025. The confusion about an 18% GST originated from a 2024 proposal that discussed taxing service charges by payment aggregators. This article explains:

• Are UPI transactions GST-exempt?
• What the 18% GST proposal means
• When GST applies (only in specific fee-based cases)
• What merchants and small businesses need to know

Is GST Applicable on UPI Transactions?

As of July 2025, you’ll be charged 18% GST on UPI payments, no matter how much you are paying or who you are paying. The receiving party can be a friend, a local store, or a business; it doesn’t matter. The same rule applies to all UPI payments.

Why the 18% GST Proposal on UPI Payments Created Confusion?

Back in September 2024, the GST Council discussed the idea of adding an 18% GST, but not directly on UPI transactions. Instead, the proposal focused on service fees that payment aggregators (such as Razorpay, Paytm Business, etc.) may charge for handling small-ticket UPI transactions, particularly those below ₹2,000. This charge, known as the Merchant Discount Rate (MDR), is sometimes applied to business payments processed through UPI. It created confusion regarding GST on UPI payments above ₹2,000 or those under ₹2,000. However, even this GST proposal hasn't been finalised. The GST fitment committee is still reviewing it. To clarify, there is no GST on UPI payments, and no final decision has been announced regarding the GST on MDR-related transactions either.

How Does GST Affect UPI Users?

If you are a regular user, whether you are sending money to friends or shopping at a local kirana store, there is no GST on UPI payments. You can transfer money or pay for services without worrying about any hidden tax added on top. However, if you are using an app that charges a service fee (e.g., for certain wallet top-ups or premium payment services), that fee may be subject to an 18% GST. But again, that’s not UPI-specific. It’s about the extra service, not the UPI transfer itself.

How Does GST Affect Merchants?

For merchants and small business owners, things get slightly more nuanced. If you are accepting UPI payments via a payment aggregator, and they apply a transaction charge, that charge may include 18% GST. Here’s the good news: if you are registered under GST, you can claim that tax as input credit. It means it doesn’t have to be an extra cost if your GST filings are in order. However, for smaller businesses below the GST threshold, this GST might end up as an additional operational cost, depending on how the aggregator structures their fees.

GST on UPI Payment vs GST on Online Payments

Here’s where the real difference kicks in.

• UPI transactions are GST-free when done through apps like BHIM, PhonePe, or Google Pay, especially for P2P and basic P2M payments.
• Other online payment methods, such as credit cards, net banking, or wallet-based transactions, often include service charges, and GST is levied on these service charges.

Example: You make a ₹5,000 payment via a wallet. The provider adds a ₹50 convenience fee. That ₹50 is subject to 18% GST, bringing the total tax to ₹9 extra. This is not the case with UPI payments (unless that same provider starts charging for UPI as well).

Benefits of GST on Digital Transactions

While GST on UPI payments doesn’t apply (at least for now), here’s how GST benefits the broader digital payment space:

1. Transparency in Digital Payments

   When GST is applied clearly to service charges, it helps users and merchants see exactly what they are paying for, improving trust in digital platforms.

2. Simplified Tax Structure

   GST helps streamline indirect taxes across services. Therefore, if you are a business owner, tracking your GST input and output is easier, even with digital payments.

   Related read: Income Tax on UPI Transactions

3. Boosts Government Revenue

   Taxing digital services helps build a more robust financial system while increasing government revenue. This ultimately leads to improved infrastructure, increased subsidies, and enhanced digital expansion.

So, is GST applicable on UPI payments? No, not on the transaction itself!

There may be service fees applied by payment gateways or aggregators, which may also incur an 18% GST. However, that’s not something the average user or peer-to-peer sender needs to worry about for now.

Still, it’s smart to keep an eye on official updates from the GST Council, especially if you are a merchant using payment platforms for your business. As always, read the fine print in your payment app or aggregator dashboard before assuming any costs.

FAQs

1. Is there any tax on UPI transactions?

   No. UPI payments do not attract any GST unless a platform charges a separate fee, which is rare for standard peer-to-peer or business-to-consumer transactions.

2. What is the GST rate for online transactions?

   If a payment aggregator or wallet provider charges a service fee, that fee is subject to 18% GST, not the transaction value itself.

3. How can merchants submit claims for GST input on UPI fees?

   If you are GST-registered and your payment aggregator charges GST on service fees, you can claim that as input tax credit in your GST returns.

4. If I use UPI payment systems and fail to register for GST, would I be penalised?

   Yes. If your business exceeds the GST turnover threshold and you are not registered, penalties and interest charges may be applicable. This is true, even if you are using UPI as your payment method.

5. Does GST registration apply to all businesses accepting UPI payments?

   GST registration applies only to those that meet the required annual turnover as per GST rules. Accepting UPI payments doesn’t automatically make registration mandatory. Turnover does!

6. Does the GST on UPI payments raise the cost of transactions?

   Not directly. But if you are using a service that charges MDR or transaction fees, and GST applies to those fees, it could slightly raise your costs.

7. What impact does GST have on retailers who accept UPI payments?

   If your payment provider charges a fee with GST, and you are not registered or eligible to claim input credit, it may increase your transaction costs.