The Goods and Services Tax (GST) Council is considering a significant shift in its tax policy that could affect small-value digital transactions processed by payment aggregators (PAs). The proposal on the table involves imposing an 18% GST on transactions up to Rs 2,000 conducted via debit and credit cards. This potential change is slated for discussion at the GST Council’s upcoming 54th meeting, set to take place on September 9.
Payment aggregators play a crucial role in the digital payment ecosystem, enabling businesses to accept online payments from customers. Under the new proposal, these aggregators might face a new tax burden. The GST fitment committee, which includes revenue officials from both central and state governments, has argued that payment aggregators, unlike banks, function as intermediaries in card transactions. Consequently, they believe these intermediaries should be subject to GST.
If the GST Council endorses this proposal, it could have substantial implications for small businesses, particularly those involved in numerous low-value transactions daily. The impact could be particularly harsh for small merchants who may find themselves shouldering the additional cost. Currently, payment gateways charge merchants a transaction fee ranging from 0.5% to 2%. Should the GST be imposed, these fees are expected to rise, as the additional tax burden is likely to be passed on to the merchants.
At present, payment aggregators are exempt from GST on transactions below Rs 2,000. This exemption was put in place in 2016 following the demonetization of Rs 500 and Rs 1,000 notes, which led to the removal of the service tax on such transactions. The introduction of an 18% GST on these transactions would reverse this exemption and could significantly increase the costs associated with digital payments for both businesses and consumers.
The GST Council’s upcoming meeting will be pivotal in determining whether this proposal moves forward. Finance Minister Nirmala Sitharaman, who will chair the meeting, will oversee the discussions and the final decision. The outcome of this decision could reshape the landscape of digital payments in India and affect the operational costs of numerous small businesses that rely on payment aggregators for their daily transactions.
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