Former RBI governor C. Rangarajan calls for explicit GST exemption on merchant discount rate fees for UPI transactions above ₹2,000, amid ongoing debates on charges and financial inclusion.
Former Reserve Bank of India governor C. Rangarajan has urged the GST Council to make its position explicit on UPI merchant fees, saying tax should not be applied to the Merchant Discount Rate for transactions above ₹2,000. Speaking at the launch of a book marking 10 years of the Unified Payments Interface, Rangarajan said the council, which was due to meet within days, should state clearly that GST would not be levied on those fees.
His remarks come as a new UPI payment framework is due to introduce a 0.4% MDR on person-to-merchant transactions above ₹2,000 from October 15, 2026. Rangarajan said there was no dispute that digital payment systems carry costs and those expenses must eventually be recovered, but argued that the timing mattered. With about 75% of UPI transactions still below the ₹2,000 threshold, he suggested the industry might have been better served by waiting until the system was more deeply embedded before imposing charges.
The debate matters because the government and the National Payments Corporation of India have already sought to soften the impact on merchants. According to the clarification reported by NDTV Profit, GST paid on MDR can be adjusted against the GST merchants owe on the goods they sell, and businesses with monthly UPI receipts of up to ₹1 lakh are exempt from MDR altogether. Government sources quoted by Mint have also said customers should not be made to absorb merchant payment charges, underscoring official concern that fees do not creep back into consumer prices.
The discussion was part of a wider reflection on how far India’s digital public infrastructure has come and who benefits from it. Soumya Swaminathan, chair of the M.S. Swaminathan Research Foundation and former chief scientist at the World Health Organisation, warned that the spread of digital systems and artificial intelligence could deepen existing inequalities if access remains uneven, particularly for women and lower-income groups. V. Kamakoti, director of IIT-Madras, said UPI’s rollout had demonstrated scale, equity and the democratisation of opportunity.
The book at the centre of the event, Cashless Nation: How UPI Changed Everything, is written by Santanu Paul, a computer scientist and entrepreneur, and B. Sambamurthy, a retired banker and former chairman of NPCI. The volume examines the policy and regulatory choices that shaped UPI, including the tensions between banks and fintech firms and the role NPCI played in settling those disputes.
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