UPI MDR: 18% GST to add cost for exempt businesses, hit thin-margin sectors

Contributing sentiments towards policy:

62% : UPI MDR charges will attract 18% GST, with the tax generally available as input tax credit for businesses making taxable supplies.
60% : The tax treatment of the merchant discount rate (MDR) applicable to merchants using the Unified Payments Interface (UPI) is likely to create a compliance and cost burden for select businesses, tax experts said.From a tax treatment perspective, an 18% GST will apply separately on the 0.4% MDR charged on transactions above Rs 2,000.
54% : Typically, it will have to be booked as a payment processing or bank charge under operating expenses by merchants, tax experts said.
53% : The charge will be treated similarly to the charges banks levy on merchants for credit and debit card settlements and will be borne by businesses.However, tax experts said the GST paid on MDR would generally be available as input tax credit (ITC) for businesses making taxable supplies."The merchant who makes supplies that are subject to GST, i.e. has a taxable business, should be eligible to claim input tax credit of such GST.
53% : The ITC would be subject to various conditions, key ones being that a tax invoice is raised and received by the merchant and that the same is reported by the acquiring bank in their GST returns on a timely basis," said Smita Bhandari, tax partner, EY India.Bhandari added that the practical challenge would be to establish a well-oiled ecosystem, similar to the one created by Visa and Mastercard for credit card transactions, for the issuance and settlement of MDR invoices.Another contentious area is how the settlement between intermediaries will work.
53% : Interestingly, these are also businesses where transaction values can frequently cross the INR 2,000 threshold," said Amit Baid, Head of Tax, BTG Advaya.
52% : Tax experts also flag compliance challenges around MDR invoicing and GST settlement across the UPI ecosystem.
50% : For organised retail, pharmacy chains and travel, where net margins are two to three percent, a 0.4% charge on a meaningful slice of collections is a genuine line item."The board question therefore is not whether to absorb it but whether the customer's payment mix can be nudged, and that is a commercial decision with tax consequences attached," he said.

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