In recent weeks, a wave of confusion swept through social media platforms and messaging apps across India, claiming that the government has imposed a Goods and Services Tax (GST) on Unified Payments Interface (UPI) transactions. With India witnessing over 13 billion UPI transactions in March 2024 alone, any change in policy regarding digital payments inevitably attracts public attention and scrutiny.
However, contrary to widespread rumors, no GST is levied on personal UPI transactions, according to a clarification issued by the Press Information Bureau (PIB) on April 5, 2024. The PIB dismissed viral messages suggesting that the government has introduced an 18% GST on UPI payments as ”fake and misleading.”
What Is Taxed?
To understand the reality behind the claim, it is crucial to distinguish between peer-to-peer (P2P) transactions and merchant payments.
Personal UPI Transfers (P2P): These are transactions between two individuals, such as splitting a dinner bill or sending money to a family member. These transactions do not attract any GST.
Merchant Payments (P2M):When businesses receive payments through UPI, GST may be applicable not on the transaction itself, but on the goods or services sold. For instance, if a customer purchases a product and pays via UPI, the product or service is taxed as per GST norms, irrespective of the payment method.
Further, the National Payments Corporation of India (NPCI) clarified that while UPI is free for most users, large-volume UPI transactions by merchants might involve an Interchange fee applicable to the payment service providers (PSPs), not to customers. This fee structure applies mainly to Prepaid Payment Instruments (PPIs) and not direct bank account-based UPI payments.
Government Stance on Digital Payments
The government has consistently promoted UPI as a zero-cost digital payment method for individuals. In fact, the Union Budget 2023-24 allocated Rs. 1,500 crore to incentivize digital transactions, reinforcing the government’s support for free and accessible digital infrastructure.
Finance Minister Nirmala Sitharaman has also emphasized that digital payments through UPI will continue to remain free for consumers, and no GST will be levied on these transactions.
Legal Perspective
From a legal standpoint, GST is applicable only when a supply of goods or services takes place. Since sending money to a friend via UPI is not a supply under GST law, no tax liability arises. The Central Goods and Services Tax Act, 2017, provides a clear definition of taxable events, none of which include the mere act of transferring money.
Conclusion
The claims about GST on UPI transactions are baseless and arise from a misunderstanding of how digital payments and GST regulations intersect. For the everyday user, **UPI continues to be a free and seamless** way to make digital transactions. However, consumers should stay informed through official channels to avoid being misled by misinformation circulating online.
Sources:
- https://timesofindia.indiatimes.com/business/india-business/no-gst-on-upi-transactions-sitharaman-clarifies/articleshow/99912345.cms
- https://pib.gov.in/PressReleseDetail.aspx?PRID=1917101
- https://pib.gov.in/PressReleseDetail.aspx?PRID=1917101
- https://timesofindia.indiatimes.com/technology/tech-news
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