GST on UPI Payments Above ₹2,000: Everything You Need to Know

With UPI Payments making a daily affair of transactions in India, a development with respect to Goods and Services Tax (GST) on specific UPI transactions has created flutter and apprehension among the digital payment users.

Now the Government has come up with a clarification on its stance, particularly with regards to UPI Payments above ₹2,000, generating debates about the impact on digital commerce and its impact on consumer convenience.

What Triggered the Buzz Around GST on UPI Payments?

Surprisingly, reports in April 2025 claimed that UPI Payments above ₹2,000 will attract GST in case they are made to select merchants. The perceived news went viral, and people were wondering if the government started taxing peer to peer UPI transactions.

This concern though is misplaced as it is borne out of misunderstanding of the GST framework as well as the interplay between the payments to merchants. One vital difference being, is there are personal transactions, and those that involve goods or services.

Government clarifies: Not all UPI payments will attract GST

Shortly afterward, the Ministry of Finance as well as the GST Council came up with clarifications. According to the official stand, GST is not applicable on the mode of payment (cash, card or UPI) as it is a suspension of tax that is essential for implementation rather than a temporary tax structure. In other words, it is charged on the supply of the goods and services.

If you make a UPI payment to a merchant for goods or services and the transaction amount is more than ₹2,000, GST may apply and it will not be due only because you are transacting via UPI but because it is a taxable supply.

For example:

But if you go to a supermarket, pay ₹3,000 for your grocery bills and use the UPI option, GST will be applicable like you normally pay for it because it’s a case where you’re using it for groceries, which is a taxable item.

However, when you send ₹3,000 to a friend using UPI, there will be no GST because it is a personal money transfer and not a commercial transaction.

In fact, this clarification further reiterates that UPI Payments are Continue to be treated as GST-free when it is used to make non commercial and peer to peer transactions.

What Does This Mean for Merchants?

GST on UPI Payments is not something new for the merchants. Irrespective of payment mode, they already have to collect and remit GST on taxable goods and services that they sell. The only thing that has changed now is a possibility of increased surveillance or that their digital UPI based transactions will be clearer with digital audit trails.

If a merchant is accepting UPI Payments which are more than ₹2,000, then he must abide by GST invoicing rules. They should:

• Issue GST-compliant invoices,
• and collect the respective GST rate for the product/service category.
• People will have to file regular returns, including these digital transactions.

Impact on Consumers and Digital Adoption

The consumers, who have been using UPI for their daily needs or even big buys, need not worry. Since UPI is used, there is no additional GST. The GST rate of the goods or the services is entirely dependent on what goods or services that person buys. Broadly speaking, the tax liability is not dependent upon the medium of payment (e.g. UPI, debit card, net banking etc).

The result created confusion that also raised fears that digital payments were actually being discouraged through taxation. This is not the case though. On the contrary, UPI is free for users, UPI transfers themselves are still without any transaction charge or new taxes.

However, financial officials and experts are of the notion that India’s digital payment infrastructure will remain cost-effective and consumer friendly, increasing digital payments adoption in both urban and rural sectors.

Why the ₹2,000 Threshold Is Mentioned

There are no new taxes in the ₹2,000 benchmark; it is simply referred to in:

• Cash transaction restrictions under income tax laws,
• Banking KYC thresholds for higher-value transactions,
• Merchant discount rate waivers, and
• Today, auditing UPI Payments above ₹2,000 would be done digitally for tax compliance.

This threshold is only intended to establish a level of scrutiny of business to consumer (B2C) transactions for accountability purposes; we provide tax transparency because payments are being made with no formal invoicing.

Conclusion

• The fact that payment method is UPI Payments does not mean GST isn’t on the UPI Payments.
• Regardless of the payment mode, the application of GST is applied only when goods or services are sold.
• As far as peer to peer UPI transfers go they remain completely tax free.
• When accepting UPI transactions of value more than ₹2,000, Merchants should stay compliant with GST rules.

These digital payment methods, including UPI Payments, continue to be used without any issues to make the GST regime applicable only to taxable suppliers of services and goods on whose services and goods, the GST has to be levied.

Since India is continuing to be a leader in digital payments, it becomes very important for everyone including users, merchants to update themselves with such clarifications to prevent wrong information. GST liability on an underlying supply does not relate to the method of payment in case of any taxable transaction.