Rangarajan Urges Zero GST on UPI MDR, Calls for Digital Payment Boost

Former Reserve Bank of India Governor C. Rangarajan on [date] recommended that the Goods and Services Tax (GST) should not be imposed on the Merchant Discount Rate (MDR) for Unified Payments Interface (UPI) transactions. Speaking at an event in [city], Rangarajan emphasized that taxing MDR would discourage digital payments and place an unnecessary burden on merchants, particularly small businesses.

Rangarajan, who served as RBI Governor from 1992 to 1997 and later as Chairman of the Prime Minister's Economic Advisory Council, has been a vocal advocate for financial inclusion. Currently, UPI transactions are free for merchants, but banks and payment service providers have been pushing for a revenue model. The GST Council has been deliberating on the applicability of GST on MDR, with some states arguing that it would generate revenue. However, Rangarajan's stance aligns with industry bodies like NPCI and digital payment firms that argue that any tax on MDR would stifle innovation and adoption.

The recommendation comes at a critical time when India's digital payment ecosystem is witnessing exponential growth, with UPI processing over 10 billion transactions monthly. If accepted, it could accelerate the government's Digital India vision and provide a fillip to small businesses. However, it remains to be seen whether the GST Council will heed this advice, as it balances revenue considerations with the goal of a less-cash economy. Global observers are watching India's policy moves as a potential model for other developing nations.