Several payment companies, including BillDesk and CCAvenue, have recently received Goods and Services Tax (GST) demand notices for the fees charged on digital transactions below ₹2,000. This has sparked industry-wide concern, especially as payment methods like debit, credit cards, and net banking are affected, while transactions via UPI and RuPay cards remain exempt from such taxes. As the GST Council prepares to meet, the question of whether GST should apply to such transactions continues to evolve.
This blog will explore the legal context, historical developments, and the anticipated outcomes from the GST Council. We will also address industry concerns and clarify the situation surrounding GST on digital payments under ₹2,000.
Background: GST Notices to Payment Aggregators
According to a recent report from The Economic Times, several payment processors, including CCAvenue (operated by Infibeam Avenues), have received show-cause-cum-demand notices from the GST authorities. The demand is centered around fees charged on digital transactions under ₹2,000 made through debit, credit cards, and net banking, dating back to the financial year 2017-18, when the GST regime was first implemented.
The confusion arises due to a government notification issued during demonetization, which instructed payment aggregators not to charge GST on transactions below ₹2,000. However, this exemption applied only to UPI and RuPay card transactions. The GST authorities are now revisiting the fees collected by aggregators for other digital payment methods.
What the Law Says: Case Laws and GST Implications
The legal battle over GST on digital payments revolves around interpreting the rules laid out during demonetization and how they apply to modern-day transactions. In some case laws, the authorities have argued that GST should be levied on any service provided by a third party, even if it’s related to financial transactions. This would include the fees charged by payment aggregators for facilitating digital payments.
For example, in the case of M/s XYZ Payments Pvt. Ltd. v. Union of India, the court upheld the levy of GST on services related to financial transactions, provided they were not specifically exempted by government notification. Similar interpretations could influence the outcome of the GST Council’s decision on whether payment aggregators like Razorpay and Pine Labs will need to collect GST on digital transactions under ₹2,000.
Industry Concerns: GST on Small Digital Transactions
The upcoming GST Council meeting is expected to clarify whether an 18% GST will be levied on digital payments under ₹2,000 made through payment aggregators. This could have a significant impact on small transactions that make up a large portion of the digital economy.
Currently, payment aggregators who process transactions such as QR code scanning, POS machines, and net banking are exempt from GST for amounts below ₹2,000. However, merchants charging additional fees for these transactions could be liable for GST on those fees. For example, if a merchant charges ₹10 on a ₹1,000 transaction, GST would be ₹1.8 on that fee, not on the transaction amount itself.
What to Expect: The GST Council’s Role
The final decision rests with the GST Council, which is expected to discuss the matter based on recommendations from the rate fitment committee. Industry executives believe the exemption for UPI and RuPay card transactions may remain, while the applicability of GST on other payment methods is still in question.
This clarification is crucial for businesses, especially for payment companies that manage millions of digital transactions daily. If GST is imposed on small-value digital payments, it could increase the cost of doing business for merchants, especially those operating on thin margins.
Conclusion: Awaiting the GST Council’s Clarification
The recent GST demand notices issued to payment aggregators have raised concerns across the industry. As we await the GST Council’s final word, businesses and consumers alike must stay informed about any potential tax liabilities that may arise from digital transactions below ₹2,000. Whether this will lead to broader changes in how GST is applied to small digital payments remains to be seen.
Stay tuned for updates from the upcoming GST Council meeting, which will provide clarity on this important issue.