The government of India is reportedly reviewing a proposal that could bring Unified Payments Interface (UPI) transactions exceeding ₹2,000 under the ambit of Goods and Services Tax (GST). If this move is approved, it could significantly alter the landscape of digital payments in the country.

Why is GST Being Considered for UPI?

As per multiple media reports, the GST Council is evaluating whether to apply GST to high-value UPI payments, with the threshold reportedly set at ₹2,000. The proposal aims to ensure better tax compliance, widen the tax net, and integrate more digital transactions into the formal economy.

The government's thinking is rooted in the belief that many high-value digital transactions are escaping taxation, especially when no invoice or formal documentation is generated. By including such UPI transactions under GST, the government aims to capture these flows and ensure appropriate revenue collection.

What Could the GST Rate Be?

If the new tax rule comes into effect, the GST rate is likely to be 18 per cent, which is the standard rate applied to digital services in India. This tax could be imposed on:

• Peer-to-peer (P2P) transfers exceeding ₹2,000

• Merchant transactions via UPI crossing the ₹2,000 mark

However, officials have not confirmed an implementation date, and the plan is still under review. No clarification has been issued on whether it will be the payer or the recipient who will bear the GST cost, or how exemptions (if any) will be structured.

Implications for the Public

If approved and implemented, this rule could affect millions of Indians who frequently use UPI for daily payments, especially those who prefer digital methods over cash. Although ₹2,000 might appear a high threshold for some, in urban areas, many daily expenses such as groceries, dining, fuel, and travel bookings easily cross this mark.

While small-value transactions may remain untouched, it’s the larger digital payments that the government wants to track more rigorously.

This could also affect businesses and freelancers receiving payments via UPI. The addition of 18% GST on those transactions could potentially make them less viable unless input credit mechanisms or rebates are also introduced.

Push for Formalisation of the Digital Economy

This proposal is part of a broader push to bring the booming digital economy into India’s formal tax structure. With UPI dominating the payments space — over 13 billion UPI transactions were recorded in March 2025 alone — the government sees a significant opportunity to expand the GST net without directly increasing rates or burdening salaried taxpayers.

By capturing higher-value UPI payments, authorities expect to:

• Monitor unreported income flows

• Reduce tax evasion via informal digital payments

• Promote invoice-based accounting even in digital channels

This would align with India's digital tax reforms and the vision of a cashless, compliant economy.

India's GST Performance in 2025

The backdrop to this proposal is the rising GST revenue India has been collecting. In February 2025, India's gross GST collections rose 9.1% year-on-year to ₹1.84 lakh crore, as per data released on March 1. This includes:

• ₹35,204 crore from Central GST

• ₹43,704 crore from State GST

• ₹90,870 crore from Integrated GST (IGST)

• ₹13,868 crore from Compensation Cess

These figures show a robust GST framework, and the government is keen on enhancing these numbers further through better digital oversight.

Digital Payments and Financial Inclusion

UPI has been a flagship success for India’s fintech space. Introduced by the National Payments Corporation of India (NPCI), it has drastically simplified peer-to-peer and merchant transactions, even in rural and semi-urban regions.

By taxing only high-value UPI transactions, the government aims to maintain ease of access for low-income users while ensuring that large, tax-free digital transactions are not left unchecked.

This also resonates with earlier government policies that exempt digital payments from service charges and promote financial inclusion. Thus, a balanced structure is expected, possibly with thresholds, exemptions, or sector-specific relaxations.

Reactions and Concerns

So far, there has been no official confirmation or statement from the Finance Ministry or GST Council. However, industry insiders and digital payments experts have expressed concern about the potential impact:

• Startups and SMEs fear additional compliance

• Consumers worry about hidden costs during payments

• Fintech firms foresee a drop in user engagement if digital payments become expensive

Others believe it could push back the momentum UPI has built over the years, especially with its zero-cost model being one of its strongest selling points.

What Comes Next?

Currently, the proposal is under discussion, and a formal recommendation or decision by the GST Council is awaited. If cleared, rules, guidelines, exemptions, and rollout timelines will be published.

The government may also introduce consultations with stakeholders, including digital wallet companies, banks, and fintech bodies, to design a sustainable framework that ensures tax compliance without disrupting convenience.

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