Controversy continues regarding the new rules of UPI. Under the new rule, now the merchant will be charged Merchant Discount Rate i.e. MDR on UPI payments of more than Rs 2,000. Along with this, the merchant will also have to pay 18% GST on these charges, this rule will be applicable from October 15. Let us tell you that recently the government has released a new framework regarding UPI. Under this, MDR will be applicable on some big merchant transactions.
MDR has been fixed at 0.4 percent on general business transactions or merchant transactions of more than Rs 2000. 18% GST will also be applicable on this MDR. Let us tell you that GST will not be imposed on the entire UPI payment, but on the fees charged as MDR.
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GST will be imposed on MDR, not on entire UPI payment.
Suppose if a customer makes a UPI payment of Rs 10,000 and 0.4% MDR is applicable on it, then the MDR will be Rs 40. On this Rs 40, 18% GST i.e. Rs 7.20 will be charged. In this case, the fee including MDR and GST will be Rs 47.20. Let us tell you that this amount is not to be taken separately from the customer, but will be the cost of the merchant.
After this, GST registered and eligible traders can take input tax credit (ITC) of GST paid on MDR. This means they can adjust this GST against their other GST liabilities. Therefore, the actual tax burden on every businessman will not be the same.
Separate arrangements have been made for some special areas. Fixed concessional MDR of Rs 5 applicable on transactions above Rs 2,000 in categories like Railways, Telecom, Insurance and Fuel.
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What is MDR? Who will be affected?
MDR i.e. Merchant Discount Rate is a fee for processing payments and settlement of funds and is not a tax imposed by the government or National Payments Corporation of India (NPCI). The money from this fee is received by different stakeholders like banks associated with the payment system, payment service providers and UPI app providers.
According to tax experts, big businessmen registered in GST can avail ITC of GST paid on MDR. This may reduce their total tax cost. Apart from this, its impact may be different on small traders, traders who are not registered under GST or those dealing in goods and services exempted from GST.
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With this arrangement, the government can get gross GST revenue ranging from Rs 3,500 to 4,000 crore to more than Rs 5,000 crore every year. However, the actual additional revenue to the government due to ITC being received by eligible businesses may be less than this.
Let us tell you that the impact of MDR and GST will not be the same on every businessman. This will depend on whether the businessman is registered in GST or not, what kind of business he does and whether he can get the benefit of ITC or not.