GST on MDR: How It Is Calculated (with Calculator)

Last updated: 20 September 2026

⚠️ Disclaimer: This page is for informational purposes only and does not constitute financial or legal advice. MDR rates are subject to change. Always verify with your acquiring bank or payment service provider.
Quick Answer: GST applicability on UPI MDR is not confirmed; check with your bank. If your bank charges GST, it is 18% of the MDR amount, not of the transaction value. Merchants pay it. GST-registered merchants can claim ITC.

When a merchant pays MDR (Merchant Discount Rate) on a UPI or card transaction, GST applicability on UPI MDR is not confirmed; check with your bank. If your bank charges GST, it is 18% of the MDR amount, not of the transaction value. This is a key distinction that many merchants misunderstand.

How GST on MDR Is Calculated (If Charged by Bank)

The formula is straightforward:

  1. Step 1: Calculate MDR = Transaction Amount × MDR Rate
  2. Step 2: If MDR exceeds the cap (₹300 for UPI), apply the cap
  3. Step 3: GST on MDR = MDR × 18% (if charged)
  4. Step 4: Total deduction = MDR + GST on MDR
  5. Step 5: Net settlement = Transaction Amount − Total deduction

GST on MDR — Worked Examples (If GST Is Charged)

TransactionMDR (0.4%)GST (18% on MDR)Total DeductionYou Receive
₹1,000 UPI₹0 (below ₹2K)₹0₹0₹1,000
₹3,000 UPI₹12.00₹2.16₹14.16₹2,985.84
₹10,000 UPI₹40.00₹7.20₹47.20₹9,952.80
₹75,000 UPI₹300 (capped)₹54.00₹354.00₹74,646.00
₹1,00,000 UPI₹300 (capped)₹54.00₹354.00₹99,646.00

→ Open the MDR Calculator for instant calculations

GST on MDR vs GST on Transaction Value

GST is charged on the MDR (the service fee), not on the goods or services being sold. These are two separate things:

  • GST on goods/services: 5%, 12%, 18%, or 28% on the product price — paid by the customer (you charge them, then remit to the government)
  • GST on MDR: 18% on the payment processing fee — deducted from your settlement by the bank. This is a cost to you as a merchant.

They are completely separate. A customer paying ₹5,000 for a 18%-GST product does not also pay 18% GST on MDR. The MDR GST is entirely between you and your bank.

Can Merchants Claim Input Tax Credit (ITC) on GST Paid on MDR?

Yes — if you are a GST-registered merchant. The GST paid on MDR is a business expense, and you can claim it as Input Tax Credit (ITC) against your GST output liability.

For example, if your monthly GST on MDR is ₹500, you can reduce your monthly GST payment to the government by ₹500. This significantly reduces the net cost of MDR for registered businesses.

Unregistered merchants (those below the GST threshold, typically ₹20 lakh annual turnover for services or ₹40 lakh for goods) cannot claim ITC and must bear the GST on MDR as a full cost. However, these small merchants are also likely to qualify for the P2PM small merchant exemption (≤ ₹1 lakh/month via UPI QR), which would make their MDR zero anyway.

Is GST on MDR Applicable to All Payment Modes?

GST on MDR applies to most payment modes that have a non-zero MDR:

  • UPI P2M (>₹2,000): GST applicability is not confirmed; check with your bank (if charged, 18% on MDR amount)
  • Debit card (non-RuPay): 18% GST on commercial MDR ✅
  • Credit card: 18% GST on commercial MDR ✅
  • RuPay debit card: Zero MDR → Zero GST on MDR ❌ (not applicable)
  • UPI P2M ≤ ₹2,000: Zero MDR → Zero GST on MDR ❌

GST on MDR — FAQs

Is GST charged on MDR?
GST applicability on UPI MDR is not confirmed; check with your bank. If your bank charges GST, it is 18% of the MDR amount, not of the transaction value. Under standard commercial banking and financial service rules, an 18% Goods and Services Tax (GST) applies to commercial payment gateway fees, calculated strictly on the MDR fee amount itself, never on the gross sale or transaction value.
What is the GST rate on MDR charges?
GST applicability on UPI MDR is not confirmed; check with your bank. If your bank charges GST, it is 18% of the MDR amount, not of the transaction value. For instance, if 18% GST is levied on a ₹20 MDR fee (0.4% on ₹5,000), the tax amounts to ₹3.60, making the total deduction ₹23.60.
How is GST on MDR calculated?

If your bank charges GST, it is 18% of the MDR amount, not of the transaction value. It is calculated using a two-step formula:

  1. MDR Amount: Min(Transaction Amount × MDR Rate, ₹300 Cap).
  2. GST Amount: MDR Amount × 18%.

For example, on a ₹10,000 UPI transaction: MDR (0.4%) = ₹40. If GST is charged (18% of ₹40) = ₹7.20. Total deduction = ₹47.20, and net settlement = ₹9,952.80.

Who pays GST on MDR charges?
The merchant pays the GST on MDR, if charged by their acquiring bank. The bank automatically deducts the MDR plus any applicable GST from the merchant's gross settlement before crediting the merchant's bank account. Retail consumers pay zero extra charges. Banks have been advised that merchants must not pass MDR on to customers as a surcharge.
Can GST on MDR charges be claimed as input tax credit?
Yes. If your bank charges GST on MDR, GST-registered businesses can claim Input Tax Credit (ITC) on the 18% GST paid on MDR and banking processing fees under Section 16 of the CGST Act. The acquiring bank or payment gateway issues a monthly GST tax invoice containing their GSTIN, allowing merchants to offset this input tax against their output GST liability.
How can merchants avoid MDR charges?

Merchants can legally minimize or avoid MDR charges through established provisions:

  • Accept RuPay Debit Cards: Zero MDR is mandated under Section 10A of the Payment & Settlement Systems Act.
  • Keep Transactions ≤ ₹2,000: UPI transactions of ₹2,000 or less carry ₹0 MDR.
  • Small Merchant QR Exemption: QR collections up to ₹1 lakh per month are completely exempt.
  • Claim Input Tax Credit (ITC): Registered businesses can claim back the GST portion on eligible commercial MDR if charged.

Note: Artificially splitting bills to evade MDR thresholds may violate merchant acquiring agreements.

What are UPI MDR charges?
UPI MDR (Merchant Discount Rate) charges are the processing fees paid by merchants on Person-to-Merchant (P2M) payments. Under the Ministry of Finance release of 15 September 2026 (PIB), transactions above ₹2,000 attract a 0.4% MDR (capped at ₹300 per transaction). Transactions at or below ₹2,000, P2P transfers, and small QR merchants remain completely free (0% MDR).
What is MDR tax?
The term 'MDR tax' is a common misnomer. MDR is not a government tax. It is a commercial processing fee paid to banks, network switches (like NPCI), and payment gateways. GST applicability on UPI MDR is not confirmed; check with your bank. If your bank charges GST, it is 18% of the MDR amount, not of the transaction value.
Is 12% GST still applicable on MDR?
No. There is no 12% GST slab for Merchant Discount Rate. Commercial banking, card acquiring, and payment processing services are classified under SAC code 9971 and attract the standard 18% GST rate.
Is 18% GST still applicable on MDR?
GST applicability on UPI MDR is not confirmed; check with your bank. If your bank charges GST, it is 18% of the MDR amount, not of the transaction value. Under Indian GST regulations (SAC 9971), commercial card acquiring and payment processing fees attract an 18% rate strictly on the service charge amount, not on the customer payment total.

📑 Sources & Regulatory References

Last updated: 20 September 2026. Independent informational guide based on published government and regulatory notifications.