• The Finance Ministry clarified that it is not mulling to levy GST on UPI transactions above Rs 2,000.

• Currently, there is no such proposal before the government, the ministry said responding to certain reports.

• 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.

• Since currently no MDR is charged on UPI transactions, there is consequently no GST applicable to these transactions, the ministry added. 

• UPI transaction values have seen an exponential increase, growing from Rs 21.3 lakh crore in FY 2019-20 to Rs 260.56 lakh crore by March 2025.

What is Unified Payments Interface (UPI)?

• Before 2016, India used a number of different systems to transfer money between banks. The traditional forms included National Electronic Funds Transfer (NEFT) and Real-Time Gross Settlement (RTGS). With the plethora of systems, rules and growing paper burden, there was a need for a unified system that could automate and standardise India’s payment platforms.

• In 2016, the National Payments Corporation of India (NPCI) set out with a mandate to change the face of India’s payment systems. It developed the Unified Payments Interface (UPI) as an architecture framework with a set of standard Application Programming Interface (API) specifications to facilitate online payments. 

• The aim was to simplify and provide a single interface across all NPCI systems, thereby creating interoperability and a superior customer experience.

• The pilot programme, with 21 member banks, was launched on April 11, 2016.

• The UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing and merchant payments into one hood. 

• It also caters to the “peer to peer” collect request which can be scheduled and paid as per requirement and convenience. 

• It facilitates immediate money transfer through mobile devices round the clock.

• 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.

• In 2023-24, the government paid Rs 3,631 crore under the scheme, up from Rs 2,210 crore in 2022-23.

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