Former RBI Governor C. Rangarajan Advocates for Exemption of GST on UPI MDR Charges

The recent discussion led by former RBI Governor C. Rangarajan at the launch of the book ‘Cashless Nation – How UPI Changed Everything’ emphasizes the proposed imposition of a merchant discount rate (MDR) on UPI transactions exceeding ₹2,000, which he argues should not incur any GST. Rangarajan’s comments highlight the complexities involved in pricing UPI services, suggesting that treating the UPI system as a public good complicates the rationale for charging merchants for transactions. This dialogue comes at a crucial time as digital payment systems continue to evolve and shape the financial landscape of India.

This development is significant for the common citizen and the market as it surfaces critical concerns regarding transaction costs and the overall accessibility of digital payments. Eliminating GST on MDR could maintain lower costs for merchants, which in turn can be beneficial for end-users through lower prices and enhanced services. Additionally, Rangarajan’s assertion that charging for UPI services should be recognized could set a precedent for future pricing models within the digital payments ecosystem, influencing operational strategies for businesses and investment decisions for financial institutions.

Looking forward, the government and the RBI must navigate these discussions carefully to ensure that UPI remains a widely accessible system while also addressing the financial sustainability of its infrastructure. The call for clarity from the GST Council on this issue will be crucial, as it will shape the regulatory framework governing digital payments. Moreover, strengthening security measures in the UPI ecosystem, as mentioned by other speakers at the event, will be essential to maintain user trust and promote wider adoption, particularly in underserved regions.

Source: The Hindu

(Expert Note: This report was independently prepared by the Wealthova Economy team.)