GST exemption needed for UPI merchant discount rates: Rangarajan

Former Reserve Bank of India Governor C. Rangarajan has advocated for exempting merchant discount rates (MDR) levied on Unified Payments Interface transactions from GST, arguing the tax creates barriers to digital payment expansion across the country.

Rangarajan's position reflects growing concerns about the fiscal burden imposed on UPI MDR, which are the transaction fees charged to merchants when customers make digital payments. The current tax treatment adds to the cost structure of digital transactions, potentially discouraging their adoption among smaller merchants and retailers.

The recommendation aligns with India's broader push to increase digital payment penetration, particularly in rural and semi-urban areas where traditional cash transactions still dominate. Policymakers have long prioritized making digital payments more affordable and accessible to drive financial inclusion.

Rangarajan's statement adds weight to the debate on how digital payment infrastructure should be taxed. Government agencies have been examining the appropriate tax framework for various digital payment components, balancing revenue considerations with the objective of accelerating the shift toward a less-cash economy.

The issue assumes significance as India continues to expand its digital payment ecosystem, with UPI emerging as a preferred mode of transaction across multiple consumer segments. Industry stakeholders have increasingly called for tax-friendly policies to sustain the growth momentum in digital payment adoption.