GST on UPI Transactions: All You Need to Know (2025 Update)
With the rapid adoption of digital payments in India, especially through platforms like UPI (Unified Payments Interface), many users are curious about the applicability of Goods and Services Tax (GST) on such transactions. While UPI has become a convenient and widely used mode of payment, there is often confusion regarding whether these transactions attract GST. Let’s clear the air with a detailed breakdown.
What is UPI?
Unified Payments Interface (UPI) is a real-time payment system developed by the National Payments Corporation of India (NPCI). It facilitates instant money transfers between bank accounts through mobile devices, without the need for IFSC codes or account numbers. Apps like PhonePe, Google Pay, Paytm, BHIM, and others support UPI.
UPI transactions have become popular for everything—from paying utility bills and groceries to transferring money to friends or small vendors.
Does GST Apply to UPI Transactions?
The direct answer is no—GST is not levied on UPI transactions themselves. That means if you are transferring money from one person to another or making a payment via UPI, you do not pay any GST on that transaction.
However, GST can be indirectly involved in a few scenarios related to UPI. Let’s break those down:
1. Merchant Payments via UPI
When you make a payment to a business or merchant via UPI (for example, buying clothes, food, or electronics), the goods or services you purchase will attract GST, just like any regular sale. However, the GST is on the product or service, not on the mode of payment.
- Example: If you buy a shirt worth ₹1,000 with 5% GST using UPI, you will pay ₹1,050. The ₹50 GST is on the shirt, not on the UPI transaction.
2. UPI Charges by Banks (If Any)
As of now (April 2025), most UPI transactions remain free for regular users, both for sending and receiving money. However, in some cases, banks or payment service providers may impose charges on merchant UPI transactions (especially for P2M, i.e., Person-to-Merchant payments).
If such charges are levied, they may be subject to GST at 18%, which is the standard GST rate on financial services.
- Example: If a bank charges ₹10 for a merchant UPI transaction, GST of ₹1.80 may be added, making the total ₹11.80. These charges are usually absorbed by the merchant, not the customer.
3. Wallet Top-Ups via UPI
If you use UPI to top up a digital wallet like Paytm Wallet or PhonePe Wallet, there’s no GST on the transaction itself. However, if you use the wallet to pay for services (like movie tickets, travel bookings, etc.), GST may be applied on the service, not on the top-up or UPI transaction.
4. Third-Party App Provider (TPAP) Charges
Third-party apps like Google Pay or PhonePe may provide value-added services or premium features. If they charge for such services, GST may apply. However, the basic money transfer service remains free and GST-exempt for the user.
Government Clarification
The Ministry of Finance and NPCI have officially clarified multiple times that there is no GST on regular UPI transactions. UPI is treated as a payment infrastructure, not a taxable service in itself.
UPI for Business and GST Compliance
If you are a business receiving payments via UPI, ensure that:
- You issue proper GST invoices for taxable goods/services.
- You maintain records of UPI transactions for audit and filing GST returns.
- You reconcile UPI settlements with your GST invoices.
UPI makes tax compliance easier due to clear digital trails.
Conclusion
GST on UPI Transactions in 2025, there is no GST on UPI transactions for regular users. GST only applies to the goods or services purchased, and occasionally to service charges (if any) levied by banks or apps for merchant transactions. For most everyday users, UPI remains a completely free and tax-free payment method.
With growing awareness and digitization, understanding how GST interacts with payment modes like UPI is essential for both consumers and businesses. So go ahead and scan that QR code with confidence—your UPI payment is GST-safe!
💳 What Are UPI Merchant Transactions?
UPI Merchant Transactions are payments made from a customer to a business or service provider via UPI. These are also known as P2M (Person to Merchant) transactions.
🧾 Who Pays the Charges?
Typically, merchants may bear the cost of accepting UPI payments in certain scenarios. Regular users (customers) are not charged for sending money to merchants or other users via UPI.
🧮 UPI Charges on Merchant Transactions – 2025 Overview
As of April 2025, UPI merchant transactions can attract charges based on the payment source and type of merchant. Here’s a breakdown:
| Payment Source | Merchant Type | Charges (per transaction) | GST Applicable | Who Bears the Cost? |
| Bank Account | All Merchants | ₹0 | No | No charge |
| RuPay Credit Card | All Merchants | 0.5% – 1% (varies) | Yes (18%) | Usually the merchant |
| Prepaid Wallets (PPI) | Online merchants | Up to 1.1% (above ₹2,000) | Yes (18%) | Usually the merchant |
| Prepaid Wallets (PPI) | Small offline shops | Often waived or subsidized | No/Yes | May be waived temporarily |
🔍 Key Points Explained
1. Bank Account to Merchant (Most Common)
- Still free for both customers and merchants.
- Encouraged by NPCI and RBI to promote low-cost digital payments.
- No GST applies since no fee is charged.
2. UPI via RuPay Credit Card
- Merchants pay a small Merchant Discount Rate (MDR): usually 0.5% to 1% depending on the category.
- Example: If a customer pays ₹5,000, the bank may deduct ₹25 to ₹50 as MDR.
- GST @ 18% is charged on the MDR.
- RuPay Credit Card on UPI is optional for both merchants and users.
3. UPI via Prepaid Payment Instruments (PPI)
- Includes transactions via wallets like Paytm Wallet, PhonePe Wallet, etc.
- Charges up to 1.1% apply only on transactions above ₹2,000.
- These are typically P2M (merchant) transactions and not regular P2P transfers.
- GST @ 18% applies on the fee.
📌 Important Clarifications
- P2P UPI transfers (Person to Person) continue to be free.
- No GST on UPI transactions done via bank accounts for regular users.
- Merchants can choose whether or not to accept RuPay Credit or wallet-based UPI to avoid extra charges.
👨💼 For Merchants: How to Manage UPI Charges
- Accept UPI via bank accounts to avoid MDR and GST costs.
- Use business UPI QR codes linked to current accounts for seamless reconciliation.
- Be aware of charges on wallet or RuPay-based UPI payments, especially for high-ticket items.
✅ Final Word
GST on UPI Transactions in 2025 UPI continues to be a cost-effective and GST-friendly payment method for both consumers and businesses. However, merchants should stay updated on charge structures for wallet-based and credit card UPI transactions, as they may incur small fees and GST, depending on usage and amount.