Deductors may sometimes make the mistake of paying TDS or TCS through a challan under the wrong Assessment Year or Tax Year. This can create discrepancies between the challan, the TDS statement and the tax credit reflected in the deductee’s account.

To address such situations, the Income Tax Department has clarified the availability of cross-tax-year challan utilisation within a range of plus or minus one year, subject to the applicable portal validations and available challan balance.

This clarification is particularly relevant for employers, businesses and finance teams dealing with TDS compliance during the transition from the Income-tax Act, 1961 to the Income-tax Act, 2025.

Clarification on Cross-Tax-Year Challan Utilisation

The Department’s clarification addresses the utilisation of eligible challans across adjacent Tax Years within a range of ±1 year.

For example, a challan deposited for FY 2025–26 may be utilised while filing a TDS statement for Tax Year 2026–27, subject to the applicable validation and availability of balance.

Similarly, eligible challans from a later year may be considered for an earlier adjacent year, subject to the relevant TRACES validation and available balance.

However, this facility does not mean that a challan can be utilised for any financial year or tax year. The utilisation is restricted by the applicable year-range validation and other conditions prescribed by the portal.

Challan Tagging vs Changing the Tax Year

It is important to understand the difference between cross-year challan utilisation and correction of the tax year recorded in the challan.

• Challan utilisation or tagging: This refers to using an already-paid challan with an available balance while filing a TDS statement for an eligible adjacent year. The original tax year recorded in the challan does not change merely because the challan is tagged to another year’s statement.
• Changing the challan’s tax year: This refers to formally correcting the Assessment Year or Tax Year recorded at the time of challan payment. It is a separate process and should not be confused with cross-year utilisation.

The Income Tax e-filing portal provides a challan correction facility for specified tax payments, including correction of Assessment Year or Tax Year within seven days of payment. However, this facility does not generally cover TDS and TCS challans.

For TDS/TCS challan-related corrections, the deductor may need to follow the applicable correction procedure through TRACES or approach the Jurisdictional Assessing Officer, depending on the nature of the correction.

The Department’s October 2026 clarification also indicated that a separate cross-tax-year challan correction facility was under development. Deductors should check the latest TRACES or Income Tax Department updates before relying on such a facility.

Who Is This Clarification Relevant For?

The clarification is particularly relevant for:

1. Employers depositing TDS on salaries.
2. Businesses deducting TDS on contracts, professional fees, rent and other payments.
3. Collectors depositing TCS.
4. Finance teams reconciling challans, TDS statements and tax credits.
5. Chartered accountants and tax professionals handling TDS/TCS compliance and corrections.

It is especially useful where a deductor has inadvertently selected an incorrect year while depositing a challan, but the actual tax deduction relates to an adjacent year.

What Should Deductors Verify Before Utilising Challans Across Years?

Before tagging a challan to a TDS statement for an adjacent year, deductors should verify the following:

• The challan has an available balance after considering earlier utilisation.
• The challan year and the statement year fall within the permitted ±1-year range.
• The correct TDS/TCS statement form, quarter and Tax Year have been selected.
• The PAN, section or payment code and amount of deduction are correctly reported.
• The challan has not already been fully utilised in another statement.
• The challan details and payment records are properly reconciled.
• Supporting documents, bank payment proof and reconciliation workings are retained for future reference.

Deductors should also remember that cross-year utilisation does not itself change the original year recorded in the challan. If the challan details require formal correction, the applicable correction procedure should be followed separately.

Conclusion

The clarification on ±1-year challan utilisation provides relief to deductors who have inadvertently deposited TDS or TCS challans under an incorrect year, particularly during the transition to the new Tax Year system.

However, cross-year utilisation and formal challan correction are two different processes. Eligible challans may be tagged to statements for an adjacent year, subject to available balance and portal validation, but this does not automatically correct the original tax year recorded in the challan.

Deductors should reconcile their challans regularly, verify the applicable year-range conditions and initiate formal corrections wherever necessary to avoid TDS/TCS reporting and tax-credit mismatches.

How TaxAcumen Can Help

TaxAcumen provides clear, practical insights on taxation, GST, company law and business compliance. Stay informed with our latest updates to make timely and well-informed decisions. Get in touch with us for a professional consultation.

Disclaimer: This article is for general informational purposes only and should not be treated as legal or tax advice. The applicable law, forms, filing procedures, and correction requirements should be verified against the latest official instructions for the specific transaction and reporting period.

A taxpayer aggrieved by an order passed in GST proceedings may file an appeal before the Appellate Authority under Section 107 of the Central Goods and Services Tax (CGST) Act, 2017. However, payment of the prescribed pre-deposit is a statutory condition for filing the appeal.

Appeals may face defects or delays when taxpayers incorrectly calculate the amount payable or confuse the amount admitted with the disputed tax.

The pre-deposit is not an additional tax. It is a statutory requirement for an appeal under Section 107. The amount payable depends on the amount admitted by the taxpayer and the amount of tax disputed in the impugned order.

What Should Be Deposited?

Under Section 107(6), an appellant is generally required to pay:

1. The full amount admitted: The entire amount of tax, interest, fine, fee and penalty arising from the impugned order that is admitted by the appellant.
2. The disputed-tax pre-deposit: In addition to the admitted amount, 10% of the remaining disputed tax is payable, subject to the applicable statutory cap.

The 10% pre-deposit applies to the disputed tax, not to disputed interest, fine, fee or penalty. The appellant should carefully examine the impugned order and identify which amounts are admitted and which are disputed.

For appeals under Section 107, the maximum pre-deposit is generally capped at ₹20 crore in relation to the relevant tax component. The applicable cap should be checked against the type of tax involved and the law in force when the appeal is filed.

Example of Pre-Deposit Calculation

Suppose an order demands:

• GST: ₹5,00,000
• Interest: ₹50,000
• Penalty: ₹50,000

The taxpayer admits ₹1,00,000 of the GST and disputes the remaining ₹4,00,000. The taxpayer also admits the interest and penalty amounts.

Particulars	Amount
Admitted GST	₹1,00,000
Admitted interest	₹50,000
Admitted penalty	₹50,000
10% of disputed GST of ₹4,00,000	₹40,000
Total amount payable for the appeal	₹2,40,000

This calculation assumes that the stated admitted amounts are payable under the impugned order and that the statutory cap does not reduce the disputed-tax pre-deposit.

Time Limit and Filing Route

An appeal under Section 107 is generally required to be filed within three months from the date of communication of the order. The Appellate Authority may condone a further delay of up to one month if sufficient cause is shown.

The appeal is filed electronically in Form GST APL-01 on the GST portal, along with the relevant documents. A provisional acknowledgment is generated after electronic filing.

Under Rule 108 of the CGST Rules, a certified copy of the decision or order appealed against is required to be submitted within seven days of filing the appeal. Where the certified copy is submitted within this period, the date of filing is treated as the date of the provisional acknowledgment. If it is submitted after seven days, the date of filing is treated as the date of submission of the certified copy. The applicable portal and submission requirements should therefore be checked carefully.

The appellant should ensure that the required payment is made and the relevant debit is properly reflected in the prescribed ledger before filing the appeal. The taxpayer should retain the payment challan, electronic-ledger entries and debit proof, along with the appeal acknowledgment and supporting documents.

Common Errors to Avoid

Taxpayers should avoid the following mistakes while calculating or filing a pre-deposit:

• Treating the entire demand as admitted tax and paying more than required.
• Applying 10% to disputed interest, penalty, fine or fee instead of the disputed tax.
• Ignoring interest, penalty or fee admitted under the impugned order.
• Using an outdated statutory cap while calculating the disputed-tax pre-deposit.
• Filing the appeal after three months without properly documenting the grounds for seeking condonation of delay.
• Failing to ensure that the required payment and debit are reflected at the time of filing.
• Not uploading the impugned order, payment details and supporting documents as required.
• Missing the seven-day requirement for submitting the certified copy of the order.
• Confusing an appeal under Section 107 with a revision application or another statutory remedy.

Conclusion

The pre-deposit under Section 107 has two principal components: the admitted amounts payable in full and 10% of the disputed tax, subject to the applicable statutory cap. Correctly classifying admitted and disputed amounts can help prevent filing defects and unnecessary cash outflow.

Taxpayers should verify the applicable law and portal requirements, preserve payment records, file within the prescribed time and support the appeal with complete documentation.

How TaxAcumen Can Help

TaxAcumen provides clear, practical insights on taxation, GST, company law and business compliance. Stay informed with our latest updates to make timely and well-informed decisions. Contact TaxAcumen for professional consultation and assistance with GST compliance and appeal-related matters.

Disclaimer: The information provided in this article is for general informational and educational purposes only and does not constitute tax, legal, financial, investment, accounting, or other professional advice. Laws, regulations, tax provisions, and financial information are subject to change and may vary based on individual circumstances. While every effort has been made to provide accurate and up-to-date information, readers should verify the applicable provisions and consult a qualified professional before making any decision or taking any action based on this content. TaxAcumen is not responsible for any loss or consequence arising from reliance on the information provided.

A Digital Signature Certificate (DSC) enables authorised signatories to digitally sign GST applications, returns, refund claims and other eligible documents on the GST Portal. However, taxpayers may encounter errors during the registration or filing process if the DSC token, emSigner utility or system configuration is not properly set up.

A DSC registered on the GST Portal is associated with the authorised signatory of the relevant GST profile. The authorised signatory can use the registered DSC for eligible filings, subject to certificate validation and the applicable requirements of the GST Portal.

Before You Begin

Keep the following items ready before starting the registration process:

1. A valid DSC issued by a licensed Certifying Authority.
2. The DSC USB token or dongle.
3. The appropriate token driver installed on your computer.
4. The emSigner utility downloaded and installed from the GST Portal.
5. GST Portal login credentials of the taxpayer.
6. The authorised signatory’s details correctly updated in the GST registration profile.

Important: emSigner Version 3.3

As per the GSTN advisory dated 19 September 2026, emSigner version 3.3 is required for newly issued DSC USB tokens from 21 September 2026 onwards.

Existing users whose DSC certificates and tokens are valid and working normally may continue using their current emSigner version. However, they may upgrade to version 3.3 if they experience signing failures or if the certificate is not detected despite correct installation of the token drivers.

Version 3.3 is stated to be backward compatible with existing tokens. Users receiving new tokens should also check the system requirements specified in the GSTN advisory, including the requirement for Java 1.8.

The DSC should be valid and the token should be connected to the computer before beginning the registration process. The emSigner service should be running, with administrator permissions wherever required.

Steps to Register a DSC on the GST Portal

Taxpayers can follow these steps to register their DSC:

1. Visit the GST Portal and log in using the taxpayer’s username and password.
2. Navigate to My Profile.
3. Select Register/Update DSC.
4. The portal will display the Register Digital Signature Certificate page.
5. If emSigner is not installed, download the appropriate utility from the GST Portal’s DSC/emSigner help section.
6. Install the utility and run emSigner with administrator permissions.
7. Connect the DSC USB token to the computer.
8. Return to the Register/Update DSC page.
9. Select the relevant authorised signatory from the drop-down list.
10. Select the digital certificate detected by the emSigner utility.
11. Enter the DSC token PIN or password when prompted.
12. Click Sign to complete the registration process.

After successful registration, the DSC will be associated with the selected authorised signatory on the GST profile. Retain the registration confirmation or acknowledgment, if generated, for future reference.

When Should You Update a DSC on the GST Portal?

A taxpayer may need to register or update a DSC in the following circumstances:

• The existing DSC has expired.
• A renewed DSC has been issued with a new certificate or token.
• The existing token has been replaced.
• The authorised signatory has changed.
• The registered certificate is no longer working or is not being detected by the portal.

In such cases, the taxpayer should log in to the GST Portal and use the Register/Update DSC facility, as applicable. If the authorised signatory has changed, the GST registration profile should first reflect the correct authorised signatory details.

The new certificate must be valid and should correspond to the authorised signatory selected on the GST Portal.

Common Issues During DSC Registration

Taxpayers may face errors while registering or using a DSC due to the following reasons:

• Expired or invalid DSC certificate.
• Incorrect DSC token PIN or password.
• Missing or incorrectly installed token drivers.
• emSigner not running or not launched with the required permissions.
• Incompatible emSigner version, particularly when using newly issued DSC tokens.
• Incorrect authorised signatory details in the GST profile.
• System configuration or Java compatibility issues.

Before attempting to register the DSC again, check the token, certificate validity, driver installation and emSigner version.

Conclusion

Registering a DSC on the GST Portal is a straightforward process when the DSC token, emSigner utility, system configuration and authorised signatory details are correctly set up.

Taxpayers should check their DSC validity and test the signing facility before filing important GST applications or returns. Users receiving newly issued DSC tokens from 21 September 2026 onwards should ensure that emSigner version 3.3 is installed to avoid compatibility issues.

How TaxAcumen Can Help

TaxAcumen provides clear, practical insights on taxation, GST, company law and business compliance. Stay informed with our latest updates to make timely and well-informed decisions. Get in touch with us for a professional consultation.

Disclaimer: This article is for general informational purposes only and does not constitute legal or tax advice. The applicability of the GSTN advisory, appeal limitation period, pre-deposit, and procedural requirements should be assessed based on the specific order and applicable law.

Are UPI payments going to become chargeable? This question has raised concerns among customers and merchants across India. Many people want to know whether they will have to pay additional charges when making or receiving payments through the Unified Payments Interface (UPI).

The key distinction is between charges imposed on customers and the Merchant Discount Rate (MDR) that may apply to eligible merchant transactions. MDR is a merchant-side payment-processing fee and does not automatically mean that customers must pay an additional charge for using UPI.

The reported changes to the UPI MDR framework require merchants to review their payment-processing arrangements, accounting practices and settlement statements. However, the proposed rates and implementation date should be verified against the latest official notifications before being treated as effective.

What Is Chargeable Under the UPI MDR Framework?

The Merchant Discount Rate (MDR) is a fee charged to a merchant for accepting and processing certain payment transactions. It is distinct from a customer transaction fee.

Under the reported UPI MDR framework, the key provisions include:

• Person-to-person (P2P) payments: Transfers between individuals remain outside the scope of merchant MDR.
• Merchant payments up to ₹2,000: These are reported to remain exempt from MDR under the proposed framework.
• Specified merchant payments above ₹2,000: An MDR of 0.4% has been reported for eligible transaction categories, subject to the applicable conditions.
• High-value transactions: A cap of ₹300 per transaction has been reported for transactions of ₹75,000 or more.
• Specified merchant categories: Categories such as railways, telecommunications, insurance and fuel have been reported to attract a flat MDR of ₹5 for qualifying transactions above ₹2,000.
• Eligible small merchants: Qualifying merchants may continue to benefit from zero-MDR provisions, subject to the applicable rules.

These rates, thresholds and exemptions should be confirmed against the relevant official notification or circular before publication.

Importantly, the ₹2,000 threshold is not a general limit on UPI payments. Customers may make payments exceeding this amount, subject to the applicable bank, UPI app and transaction limits. The threshold relates to the reported MDR framework for specified merchant transactions.

Who Pays the MDR Charge?

MDR is a merchant-side charge. Depending on the applicable rules and the agreement with the acquiring bank or payment aggregator, the fee may be deducted from the settlement amount or billed separately to the merchant.

Customers should not automatically be charged an additional fee simply because they choose UPI as their payment method. Merchants should verify the applicable legal and contractual restrictions before attempting to recover payment-processing charges from customers.

Example: MDR on a Merchant Transaction

Suppose a customer purchases goods worth ₹50,000 from a merchant in a category subject to a 0.4% MDR.

The calculation would be:

• Value of goods: ₹50,000
• Assumed MDR rate: 0.4%
• MDR amount: ₹200
• Net settlement before any other applicable adjustments: ₹49,800

The customer pays ₹50,000 for the goods. The merchant receives the settlement amount after the applicable processing fee is deducted, assuming the fee is calculated on the full transaction value and no other deductions apply.

Merchants should review their agreements with acquiring banks or payment aggregators to understand the applicable merchant category, fee calculation, settlement cycle and invoicing arrangements.

GST and Accounting Implications

The use of UPI as a payment method does not, by itself, attract GST on the transfer of money. GST is determined by the nature and taxability of the underlying supply of goods or services.

The following points are important for businesses.

1. GST on the underlying sale

Where a registered merchant makes a taxable supply, GST must be charged and reported in accordance with the applicable provisions. The customer’s choice to pay through UPI does not, by itself, change the GST treatment of the sale.

For example, if a merchant makes a taxable supply worth ₹10,000, the applicable GST treatment will depend on the nature of the supply and the relevant tax rules—not on the use of UPI.

2. GST on payment-processing fees

A payment aggregator or another service provider may charge separate fees for payment processing or related services. GST may apply to these fees, subject to the applicable provisions and exemptions.

A GST-registered merchant may claim input tax credit (ITC) on eligible GST charged on such services, provided the statutory conditions are satisfied and the required documentation is available.

3. Accounting treatment of MDR

Businesses should generally record sales at the gross invoice value and account for payment-processing charges separately.

For example, if a merchant records a sale of ₹10,000 and the payment provider deducts an MDR of ₹40, the accounting treatment would generally be:

• Sales revenue: ₹10,000
• Payment-processing expense: ₹40
• Net bank settlement: ₹9,960

The example assumes that ₹40 is the processing fee before any applicable GST on that fee. GST charged on the processing service should be recorded separately, with ITC claimed only where eligible.

What Should Businesses Do?

Businesses accepting UPI payments should take the following steps to maintain accurate financial records and ensure compliance:

• Verify the applicable MDR: Confirm the merchant category, applicable fee and exemptions with the acquiring bank or payment aggregator.
• Review settlement statements: Check MDR deductions, refunds, chargebacks, failed transactions and other adjustments.
• Reconcile transaction records: Match UPI transaction references with sales invoices, payment-provider settlement reports and bank credits.
• Reconcile GST returns: Ensure that sales and taxable turnover recorded in the books are consistent with the relevant GST returns, including GSTR-1 and GSTR-3B, where applicable.
• Maintain supporting documentation: Preserve invoices, settlement reports, fee statements and other relevant records.

Businesses should record sales at the appropriate gross invoice value and account for MDR and any related GST separately.

They should also avoid treating every UPI-related bank credit as a sale. Loans, capital contributions, transfers between own accounts, reimbursements and other non-sales receipts must be classified according to their actual nature.

Merchants should not impose an MDR surcharge on customers without verifying that such a charge is legally permitted under the applicable rules and contractual arrangements.

Conclusion

The introduction of an MDR framework for specified merchant transactions does not mean that all UPI payments automatically become chargeable to customers. The distinction between customer transaction fees and merchant-side processing charges is essential.

The reported framework includes an MDR rate of 0.4% for specified transactions above ₹2,000, along with a reported ₹300 cap for certain high-value transactions. However, businesses should confirm the final rates, exemptions and effective date through official notifications before relying on these provisions.

Merchants should review their payment-processing agreements, reconcile settlement statements and maintain accurate accounting records to minimise compliance risks.

How TaxAcumen Can Help

TaxAcumen provides practical insights into taxation, GST, company law and business compliance. Follow TaxAcumen for regulatory updates, tax explainers and compliance guidance to help your business stay informed and make timely, well-informed decisions. For assistance with specific tax or compliance matters, consult a qualified professional.

Disclaimer: The information provided in this article is for general informational and educational purposes only and does not constitute tax, legal, financial, investment, accounting, or other professional advice. Laws, regulations, tax provisions, and financial information are subject to change and may vary based on individual circumstances. While every effort has been made to provide accurate and up-to-date information, readers should verify the applicable provisions and consult a qualified professional before making any decision or taking any action based on this content. TaxAcumen is not responsible for any loss or consequence arising from reliance on the information provided.

Many businesses in India accept payments through the Unified Payments Interface (UPI) and may incur fees charged by banks, payment aggregators or other payment service providers. With changes to the Merchant Discount Rate (MDR) framework potentially affecting certain merchant transactions, businesses may have questions about whether these charges are deductible as business expenses.

In general, expenses incurred wholly and exclusively for business or professional purposes may qualify for a deduction under the applicable income-tax provisions, subject to the prescribed conditions. UPI-related charges, including eligible payment-processing fees, may therefore be claimed as business expenses when they are incurred for business purposes, properly documented and not otherwise disallowed under the applicable tax laws.

1. When Are UPI Charges Deductible as a Business Expense?

UPI-related charges may qualify as deductible business expenses when the following conditions are satisfied:

• Business purpose: The charges must relate to accepting payments for goods or services supplied in the course of business or profession.
• Actual expense or liability: The expense must be incurred or become payable in the relevant accounting period, in accordance with the applicable accounting method and tax provisions.
• Proper documentation: Businesses should retain merchant agreements, settlement reports, bank statements, fee invoices and other relevant records to substantiate the expense.
• Revenue rather than capital expenditure: Routine payment-processing charges are generally revenue expenses. However, expenditure relating to the acquisition of a capital asset must be examined separately under the applicable tax rules.

Example: Accounting for UPI Charges

Suppose a merchant makes a sale of ₹10,000 and the payment aggregator deducts a processing fee of ₹40 before transferring the balance to the merchant’s bank account.

The accounting treatment would generally be as follows:

• Sales revenue: ₹10,000
• Payment-processing expense: ₹40
• Net bank settlement: ₹9,960

The merchant should record the gross sale value as revenue and account for the processing fee separately. Any GST charged on the processing fee should also be recorded separately, with input tax credit claimed only where eligible.

The example assumes that ₹10,000 is the total sale value and that ₹40 is the processing fee before any applicable GST on that fee.

2. GST Applicability on UPI Charges

The use of UPI as a payment method does not, by itself, create an additional GST liability. GST is determined by the nature and taxability of the underlying supply of goods or services.

Businesses should consider the following points:

• GST on sales: Where a business makes a taxable supply, GST must be charged and reported in accordance with the applicable provisions. The customer’s choice to pay through UPI does not, by itself, change the GST treatment.
• GST on processing fees: Banks, payment aggregators or other service providers may charge GST on payment-processing or related services, subject to the applicable provisions and exemptions.
• Input Tax Credit (ITC): A GST-registered business may claim eligible ITC on GST charged on these services if the statutory conditions are satisfied, including the relevant documentation and business-use requirements.
• No additional GST merely for using UPI: Businesses should not add a separate GST charge solely because a customer chooses UPI. GST, where applicable, relates to the underlying supply and other taxable services provided.

Businesses should review their service-provider invoices and the applicable GST provisions to determine the correct treatment of processing fees and related ITC.

3. Accounting and Record-Keeping Requirements

Accurate accounting and regular reconciliation of UPI transactions help businesses maintain reliable financial records and meet their tax-compliance obligations.

Businesses should follow these practices:

• Match sales invoices with UPI transactions: Ensure that collections can be traced to the relevant invoices or sales records.
• Reconcile settlement reports with bank statements: Account for settlement delays, deductions and other differences between transaction values and bank credits.
• Record processing fees separately: Identify MDR and other payment-processing charges instead of adjusting them against sales without proper accounting.
• Track refunds and failed transactions: Record refunds, reversals, chargebacks and failed payments accurately.
• Reconcile GST returns: Compare sales and taxable turnover recorded in the books with the relevant figures reported in GSTR-1 and GSTR-3B, as applicable.
• Maintain supporting documents: Preserve transaction references, settlement statements, invoices and other records needed for audit and verification.

Not every credit received in a business bank account or UPI account represents a sale. Loans, capital contributions, transfers between the business’s own accounts, reimbursements and customer advances should be identified and classified according to their nature. Their accounting and tax treatment may differ from that of ordinary sales receipts.

4. Common Errors Businesses Should Avoid

Businesses should be careful to avoid the following mistakes when accounting for UPI collections and related charges:

• Recording only the net bank settlement as sales instead of recording the gross sale value and the processing fee separately.
• Automatically classifying payment-processing charges as part of the cost of goods sold without considering the appropriate accounting treatment.
• Claiming ITC on GST charged on processing fees without satisfying the applicable statutory conditions.
• Treating loans, capital contributions or internal transfers as business turnover.
• Failing to reconcile UPI transaction records, payment-provider settlements, bank statements and GST returns.
• Adding a separate surcharge to customer bills solely to recover MDR or other payment-processing charges without checking the applicable legal and contractual restrictions.

A consistent reconciliation process can help businesses identify errors early and maintain accurate financial and tax records.

5. Conclusion

UPI-related payment-processing charges incurred for business purposes may generally qualify as deductible business expenses, subject to the applicable income-tax provisions and proper documentation. Businesses should record sales at the appropriate gross invoice value, account for eligible processing fees separately and claim input tax credit on GST charged on those fees only where permitted.

Maintaining an adequate audit trail and reconciling UPI transactions with invoices, bank statements, settlement reports and GST returns can help businesses improve the accuracy of their financial reporting and reduce compliance risks.

Businesses should also verify the latest official notifications and circulars before relying on changes to the MDR framework, including any new rates, transaction thresholds or effective dates.

How TaxAcumen Can Help

TaxAcumen provides practical insights into taxation, GST, company law and business compliance. Follow TaxAcumen for regulatory updates, tax explainers and compliance guidance to help your business stay informed and make well-informed decisions. For assistance with specific tax or compliance matters, consult a qualified professional.

Disclaimer: The information provided in this article is for general informational and educational purposes only and does not constitute tax, legal, financial, investment, accounting, or other professional advice. Laws, regulations, tax provisions, and financial information are subject to change and may vary based on individual circumstances. While every effort has been made to provide accurate and up-to-date information, readers should verify the applicable provisions and consult a qualified professional before making any decision or taking any action based on this content. TaxAcumen is not responsible for any loss or consequence arising from reliance on the information provided.

The Unified Payments Interface (UPI) has transformed digital payments in India by enabling businesses to receive payments quickly and conveniently. From small retailers to large enterprises, businesses increasingly rely on UPI to manage their day-to-day transactions.

However, questions remain about UPI charges, the applicability of Goods and Services Tax (GST), accounting treatment and income-tax compliance. Understanding these aspects can help businesses maintain accurate financial records and meet their statutory obligations.

1. Understanding Merchant Discount Rates (MDR)

The Merchant Discount Rate (MDR) is a fee that merchants may pay for accepting and processing certain digital payments. The applicable charges depend on the payment instrument, merchant category, transaction type and the terms agreed with the acquiring bank or payment service provider.

The following points are important for businesses:

• Person-to-person (P2P) payments: These are generally not subject to merchant discount charges.
• Bank-account-based UPI payments: These generally operate under the zero-MDR framework.
• Merchant payments: The applicable charges may vary depending on the payment instrument and the relevant regulatory framework.
• RuPay credit card payments through UPI: These may be governed by different merchant-acquiring and credit-network arrangements.
• Eligible small merchants: Specific exemptions or zero-MDR provisions may apply, subject to the applicable conditions.

Businesses should verify the applicable charges with their acquiring banks or payment service providers. Any new MDR rates, transaction thresholds or fee caps should be confirmed through an official notification or circular before being treated as effective.

2. GST Applicability on UPI Transactions

GST is generally levied on taxable supplies of goods and services, rather than on the payment method used to settle a transaction. Therefore, receiving payment through UPI does not, by itself, create an additional GST liability on the transfer of money.

Businesses should consider the following points:

• GST on sales: GST is applicable to the underlying supply of goods or services, subject to the relevant provisions. The payment method does not, by itself, change the taxability of the supply.
• Payment-processing fees: Fees charged by banks, payment aggregators or other service providers may attract GST, depending on the nature of the service and any applicable exemption.
• Input Tax Credit (ITC): A registered business may claim eligible ITC on GST charged on payment-processing services, provided the statutory conditions are satisfied.
• No additional GST merely for using UPI: Businesses should not charge GST solely because a customer chooses UPI as the payment method. GST should be determined by the underlying supply and the applicable tax provisions.

Businesses should review their service-provider invoices and the relevant GST provisions to determine the correct tax treatment of payment-processing charges.

3. Accounting Treatment of UPI Receipts

Proper accounting and reconciliation of UPI transactions are essential for accurate financial reporting, GST compliance and statutory audits.

Businesses should follow these practices:

• Record sales accurately: Record sales against the relevant invoices or sales records, rather than treating every bank credit as a new sale.
• Reconcile settlement statements: Match UPI transaction records and payment-provider settlement reports with the corresponding bank credits, allowing for settlement delays.
• Maintain transaction references: Preserve UPI transaction IDs, settlement references, invoices, refund records and relevant supporting documents.
• Account for processing charges separately: Record applicable MDR and other processing fees separately from sales revenue.
• Reconcile GST returns: Compare sales recorded in the books with the relevant GST returns and investigate discrepancies.

For example, if a business makes a sale of ₹10,000 and the payment provider deducts a processing fee of ₹40 before settlement, the business would generally record ₹10,000 as sales revenue and ₹40 as a payment-processing expense. Any GST charged on the fee should be recorded separately, with ITC claimed only where eligible.

Maintaining a clear audit trail helps businesses identify discrepancies, verify settlements and support the figures reported in their financial statements and tax returns.

4. Income-Tax Implications of UPI Receipts

UPI is a payment method and does not independently determine the income-tax treatment of a receipt. Businesses must classify receipts according to their actual nature and comply with the applicable provisions of the Income-tax Act, 2025.

4.1 Business Turnover and Gross Receipts

Payments received through UPI against business sales or professional services should be recorded as business turnover or gross receipts, as applicable. However, not every credit appearing in a bank account constitutes turnover. Loans, capital contributions, transfers between own accounts and genuine refunds should be identified and classified separately.

4.2 Presumptive Taxation

Section 58 of the Income-tax Act, 2025 contains presumptive-taxation provisions for eligible taxpayers. The applicable scheme, eligibility conditions and prescribed method of calculating presumptive income must be examined before claiming any benefit.

Receiving payments through UPI does not automatically make a taxpayer eligible for a lower presumptive-tax rate. The applicable rules concerning the type of business or profession, receipt mode and other statutory conditions must be satisfied.

4.3 Tax Audit Requirements

Section 63 of the Income-tax Act, 2025 deals with tax audit requirements. Whether an audit is necessary depends on the applicable turnover or gross-receipts thresholds, prescribed cash transaction limits, presumptive-taxation conditions and other relevant provisions.

Businesses should assess their individual circumstances rather than assuming that accepting digital payments automatically exempts them from a tax audit.

4.4 Tax Deduction at Source (TDS)

Businesses must also review their TDS obligations when making payments to professionals, contractors and other service providers. The applicability of TDS depends on the nature of the payment, the payer’s status and the relevant statutory thresholds and conditions.

The payment method, including UPI, does not by itself determine whether TDS is required.

5. Conclusion

UPI has simplified payment collection for businesses across India. However, businesses must understand the applicable merchant charges, GST treatment, accounting requirements and income-tax implications to ensure accurate reporting and regulatory compliance.

While the use of UPI does not, by itself, create an additional GST liability on the transfer of money, the underlying supply and any separately charged payment-processing services must be assessed under the applicable tax provisions.

Businesses should regularly reconcile UPI transactions with invoices, bank statements, settlement reports and GST returns. They should also verify the latest official notifications and circulars before relying on changes to MDR rates or other compliance requirements.

How TaxAcumen Can Help

TaxAcumen provides practical insights into taxation, GST, company law and business compliance. Follow TaxAcumen for regulatory updates, compliance guidance and informative articles to help your business stay updated on important legal and tax developments.

Disclaimer: The information provided in this article is for general informational and educational purposes only and does not constitute tax, legal, financial, investment, accounting, or other professional advice. Laws, regulations, tax provisions, and financial information are subject to change and may vary based on individual circumstances. While every effort has been made to provide accurate and up-to-date information, readers should verify the applicable provisions and consult a qualified professional before making any decision or taking any action based on this content. TaxAcumen is not responsible for any loss or consequence arising from reliance on the information provided.

Customers can make UPI transactions from a linked bank account or, where available, a RuPay credit card. For merchants and finance teams, the real-world question is whether the payment source affects charges, GST treatment or income-tax reporting. The underlying sale is taxed the same way in both cases, but the charges on the payment source and the settlement treatment could differ.

This distinction is important, as a credit card UPI transaction represents a credit, whereas a bank account UPI payment is funded directly from the customer’s account. Merchants should therefore assess their payment agreements and settlement statements rather than assuming that both routes have the same cost.

How the Two Routes Work

A UPI payment from a bank account debits the customer’s savings or current account and credits the merchant with the UPI system. A UPI payment from a RuPay credit card spends the customer’s credit limit on the card. The customer repays the card issuer later, subject to his card agreement.

NPCI’s RuPay Credit Card on UPI product lets a customer link his RuPay credit card to pay a merchant by scanning a UPI QR code and authenticating with a UPI PIN. NPCI also says that credit-card UPI payments are for merchant payments and are not permitted for categories like person-to-person transfer, cash withdrawal, mutual funds, IPO and certain others.

For a merchant, the customer’s payment source doesn’t affect the invoice value or the GST treatment of the sale. The merchant should recognise the full sale value and charge GST where applicable on the underlying supply.

Charges and MDR

A bank-account UPI payment and a credit-card UPI payment can have different merchant-side cost arrangements. MDR is a fee charged to a merchant for accepting a payment, which depends on the payment instrument, merchant category, and acquiring arrangement.

Under the UPI MDR framework effective from 15 October 2026, specific person-to-merchant UPI transactions above ₹2,000 may incur a MDR at 0.4%. Additionally, the MDR for person-to-merchant UPI transactions of ₹75,000 or more will be capped at ₹300 per transaction. Certain notified categories may have a flat ₹5 MDR above ₹2,000. Eligible small merchants under the applicable P2PM framework may continue to enjoy zero MDR. Credit-linked UPI products, such as RuPay credit cards, will be governed by credit-network terms.

A uniform rate for MDR for all credit card UPI payments cannot be specified since the applicable rate depends on the category and acquiring arrangement. Merchants must verify the exact charge with their acquiring banks or aggregators and must not presume a credit card UPI payment carries the same MDR as a bank account UPI payment.

GST and Accounting Treatment

A GST does not apply because the customer has paid by UPI. GST applies to a taxable supply of goods or services. If a registered business sells goods worth ₹10,000 and GST and receives the money in UPI, the GST will apply to the taxable supply regardless of whether the customer has paid by a bank account or a credit card.

If the payment aggregator charges MDR or other fees, GST may apply to these. A registered merchant can claim a credit for GST charged on such a fee, provided the statutory conditions are met, such as a valid tax invoice and receipt of service, business use, etc.

For accounting, the revenue should be recorded on the gross invoice value. If a customer pays ₹10,000, but the payment provider deducts ₹40 for MDR, then ₹10,000 should be accounted for as sales and ₹40 should be accounted for as a payment-processing charge. The GST charged on the MDR invoice should be accounted for separately and subject to eligibility for input tax credit.

Income Tax and Compliance Points

In terms of income tax, the receipts from the sale of goods and services through UPI would form part of business receipts, whether collected through a bank account or credit card.

However, it may not represent turnover in all cases. Payments received through UPI should be examined to identify loans, capital contributions, advances, transfers, repayments, and refunds, and these should be segregated.

The merchants should also reconcile the UPI reference numbers with sales, bank credits, payment-aggregator settlements and GST returns to identify sales that may not have been recorded and refund credits, duplicate credits and MDR charges.

Conclusion

A sale through UPI using a credit card or a bank account will have no bearing on the GST or income tax liability. The difference will be in the customer’s payment method and the merchant’s processing charges. The merchants must check their MDR terms and ensure that the settlement process is transparent and that the fees are accounted separately.

How TaxAcumen Can Help

TaxAcumen provides clear, practical insights on taxation, GST, company law and business compliance. Stay informed with our latest updates to make timely and well-informed decisions. Get in touch with us for a professional consultation.

Disclaimer: The information provided in this article is for general informational and educational purposes only and does not constitute tax, legal, financial, investment, accounting, or other professional advice. Laws, regulations, tax provisions, and financial information are subject to change and may vary based on individual circumstances. While every effort has been made to provide accurate and up-to-date information, readers should verify the applicable provisions and consult a qualified professional before making any decision or taking any action based on this content. TaxAcumen is not responsible for any loss or consequence arising from reliance on the information provided.

The proposed Merchant Discount Rate (MDR) framework for certain high-value Unified Payments Interface (UPI) transactions has raised questions among consumers and businesses across India.

The National Payments Corporation of India (NPCI) announced on 13 October 2026 that the Merchant Discount Rate (MDR) on UPI tarnsaction will be implemented post Diwali.

Under the announced framework, a 0.4% MDR would apply to eligible person-to-merchant (P2M) UPI transactions exceeding ₹2,000, subject to specified exemptions and a maximum charge of ₹300 per transaction. The fee is intended to be borne by merchants rather than customers.

However, the planned implementation date of 15 October 2026 is reportedly under reconsideration, with reports indicating a possible postponement to January 2027. The final implementation date should be verified against an official announcement before businesses make changes to their payment systems.

What Does the Proposed UPI MDR Framework Mean?

The announced framework includes the following provisions:

• Person-to-person (P2P) transfers: These are not covered by the proposed merchant MDR.
• Merchant payments up to ₹2,000: These remain exempt under the announced framework.
• Eligible merchant payments above ₹2,000: A 0.4% MDR would apply, subject to the prescribed cap and exemptions.
• Transactions of ₹75,000 or more: The MDR would be capped at ₹300 per transaction under the announced structure.
• Eligible small merchants: Merchants qualifying under the specified P2PM category would receive zero-MDR treatment.
• Specified sectors: Certain transactions, including those in railways, telecom, insurance and fuel, have been assigned special rates under the announced framework.

Who Pays the Merchant Discount Rate?

MDR is a payment-processing charge associated with eligible merchant transactions. Under the announced framework, the merchant bears this cost rather than the customer.

For example, a ₹50,000 eligible merchant payment would attract a calculated MDR of ₹200 before considering any applicable tax or other prescribed adjustments. A ₹1,00,000 eligible payment would reach the announced ₹300 cap.

Consumers should not assume that every UPI payment will attract a fee. The framework concerns specified merchant transactions and does not impose a ₹2,000 limit on how much a person can transfer.

What Should Businesses Do?

Merchants should take the following steps:

1. Confirm the implementation date and applicable rates with their acquiring bank or payment service provider.
2. Review their merchant category and eligibility for any exemptions.
3. Check how payment-processing charges will appear in settlement statements.
4. Avoid passing on charges to customers contrary to applicable rules.

Conclusion

The proposed UPI MDR framework could affect payment-processing costs for businesses accepting certain high-value UPI payments. However, the announced implementation date is reportedly under review.

Businesses should monitor official updates from NPCI, the Ministry of Finance and their acquiring banks before changing their pricing or payment procedures.

How TaxAcumen Can Help

TaxAcumen provides practical insights on taxation, company law and business compliance to help businesses stay informed and make better decisions. Follow TaxAcumen for regulatory updates and professional guidance.

Disclaimer: The information provided in this article is for general informational and educational purposes only and does not constitute tax, legal, financial, investment, accounting, or other professional advice. Laws, regulations, tax provisions, and financial information are subject to change and may vary based on individual circumstances. While every effort has been made to provide accurate and up-to-date information, readers should verify the applicable provisions and consult a qualified professional before making any decision or taking any action based on this content. TaxAcumen is not responsible for any loss or consequence arising from reliance on the information provided.

Anyone who has ever filed an income tax return knows the small fear of a mismatch notice. After claiming a TDS credit, the department’s records show an error, and all of a sudden you’re chasing a bank or employer for a fix that should have been discovered weeks before. Form 168, which has replaced the previous Annual Information Statement under the Income Tax Act, 2025, is the document that helps identify this before it becomes a notice as of April 1st, 2026.

What Form 168 Actually Is

Form 168 is prescribed under Rule 245 of the Income Tax Rules, 2026, and uploaded under Section 510 of the new Act. It’s an auto-generated statement sitting in your registered e-filing account, pulling together TDS and TCS entries, specified financial transactions, tax payments, refunds, demands, and details of pending or completed proceedings. You don’t prepare or file it yourself; the department generates it based on what employers, banks, and other reporting entities submit against your PAN.

For anyone used to the older AIS, the shift is largely one of name and legal basis rather than function. AIS continues for periods governed by the 1961 Act, up to Assessment Year 2026-27, while Form 168 takes over from Tax Year 2026-27 onwards. TDS deducted in March 2026 still shows up in the older AIS. Anything deducted from April 2026 flows into Form 168 instead.

How to Reconcile TDS Entries

Reconciliation really comes down to comparing what Form 168 shows against what you already know from your own paperwork. A few practical steps make this easier:

• Pull every TDS or TCS certificate you’ve received during the year, whether from an employer, a bank, a tenant, or a property buyer.
• Match each certificate’s deducted amount and deposit date against the corresponding entry in Form 168.
• Check that the PAN, the Tax Year, and the nature of payment listed in Form 168 line up correctly with your own records
• Flag any TDS you know was deducted but doesn’t appear in the statement yet, since reporting entities upload information within 90 days of receiving it, not instantly.

A gap here often points to a delay on the deductor’s side rather than an error on your part, but it still needs chasing before you file your return, since an unreflected credit simply can’t be claimed.

What to Do When Something Doesn’t Match

If an entry looks wrong, the fix has to happen at the source. Contacting the employer, bank, or other deductor and asking them to correct their original TDS statement is the only way the figure in Form 168 actually changes. Typing a different number directly into your return doesn’t correct the underlying record, and it can create exactly the kind of mismatch that draws a notice later. Keep your certificates and bank statements on hand while this gets sorted, since you’ll likely need to show them to the deductor or, if it comes to it, to the department.

Conclusion

Form 168 provides you with a single spot to verify whether the TDS you anticipate matches what the department has on file; nevertheless, it is best used as a starting point for verification rather than a definitive response. By going over your certificates line by line, identifying any gaps early, and sending revisions back to the source before submitting, you can transform what could have been a stressful notice later into a routine check now.

Disclaimer: The information provided in this article is for general informational and educational purposes only and does not constitute tax, legal, financial, investment, accounting, or other professional advice. Laws, regulations, tax provisions, and financial information are subject to change and may vary based on individual circumstances. While every effort has been made to provide accurate and up-to-date information, readers should verify the applicable provisions and consult a qualified professional before making any decision or taking any action based on this content. TaxAcumen is not responsible for any loss or consequence arising from reliance on the information provided.

Paying TDS on time has always been part of running a compliant business, but the process changed significantly from 1st April 2026. With the Income Tax Act, 2025, now in force, the income tax portal introduced a new challan system, complete with a fresh Act selection screen, new challan forms, and revised steps. If you’re still following the old routine, you might get stuck or generate a challan under the wrong act. This guide explains how to properly create a TDS challan under the new system.

Before You Start

Make sure you have the following ready before logging in:

• Your TAN and portal login credentials
• The deductee’s PAN details
• The exact TDS amount, along with any interest or late fee, if applicable
• A stable internet connection and an updated browser

Logging in with your TAN is recommended over the login-free “Quick Links” route, since it keeps a proper record of your payment history on the portal.

Steps to Generate the Challan

Once you’re ready, follow these steps on the income tax e-filing portal:

1. Log in using your TAN and password, then go to the Dashboard.
2. Click on e-File, then select e-Pay Tax. This takes you to the Act Selection screen.
3. Choose the applicable act. Select the Income Tax Act, 2025, for any transaction where TDS was deducted or credited on or after 1st April 2026. If the deduction relates to March 2026 or earlier, select Income Tax Act, 1961, instead, and use the older challan form.
4. Click Continue, then select New Payment on the e-Pay Tax page to start a fresh challan.
5. Pick the correct tax year. For transactions from April 2026 onwards, this will be Tax Year 2026-27.
6. Click Proceed on the Pay TDS/TCS tile. You’ll then reach the Select Deductee Type screen, where you choose the relevant major head and the deductee’s residential status.
7. Select the applicable section (392, 393, or 394) and the specific payment code that matches your transaction, along with the TDS rate.
8. Enter the deductee’s PAN, the payment amount, the TDS amount, and any interest or late fee that applies.
9. Choose your payment method, such as net banking, RTGS or NEFT, a debit card, or UPI, and complete the transaction.

After Payment

Once the payment goes through, a Challan Reference Number gets generated, and you can download the receipt right away. This receipt carries the BSR code and challan serial number, both of which you’ll need later when filing your quarterly TDS return. It’s a good habit to check your Payment History tab periodically to confirm the challan reflects correctly, and to verify the deductee’s PAN status beforehand, since an inoperative PAN attracts a higher TDS rate.

Keep in mind that mixing old-Act and new-Act transactions on a single challan won’t work. If you have payments falling under both periods, generate separate challans for each.

Conclusion

Generating a TDS challan under the new system isn’t complicated once you know where the Act selection screen sits and which payment code applies to your transaction. Taking a few extra minutes to pick the right Act, Tax Year, and section keeps your challan valid and your quarterly return free of errors. As more businesses get used to this routine, it will start to feel just as familiar as the old process once did.