Introduction
The 54th GST Council meeting, set to take place on September 9 in New Delhi, will deliberate on a significant proposal: to clarify that an 18% GST should be levied on payment aggregators facilitating digital transactions below ₹2,000. This includes transactions made through debit cards, credit cards, and other payment methods. The proposal stems from the GST Council’s fitment committee, which has analyzed the role and functioning of payment aggregators like PineLabs, Razorpay, and others.
Why the New GST Proposal?
Payment aggregators, companies that provide digital payment infrastructure, have thus far enjoyed exemptions from GST on transactions below ₹2,000. This exemption was introduced in 2017 to promote digital payments, particularly for small merchants. However, the fitment committee has now proposed to subject payment aggregators to an 18% GST, arguing that they fall under the category of intermediaries and should not be exempt from taxation.
What Do Payment Aggregators Do?
Payment aggregators play a vital role in the digital economy, handling payments for businesses of all sizes—from small street vendors to large e-commerce platforms. Their business model involves charging a small fee for processing digital transactions, and they work closely with merchants to ensure card payments are processed smoothly.
Given their importance in the payment ecosystem, aggregators facilitate QR code scanning, POS machines, and net banking, among other methods. They are regulated by the Reserve Bank of India (RBI) and act as intermediaries between consumers and merchants.
Current Exemption: A Historical Perspective
The exemption on transactions below ₹2,000 was introduced with the goal of supporting merchants who were shifting to digital payments. The intent was to prevent the additional GST burden from falling on small merchants using card-based payment services. However, with increasing volumes of digital payments, the government is reconsidering this exemption.
The Fitment Committee’s View
According to sources, the GST fitment committee believes that payment aggregators are neither banking companies nor NBFCs, but rather intermediaries. As per Indian tax laws, intermediaries are subject to GST, and this should extend to payment aggregators as well. Hence, the fitment committee has proposed that the 18% GST be applied to the income earned by payment aggregators on transactions below ₹2,000.
At present, it is expected that this tax would not directly impact consumers, as it is levied on the income of payment aggregators. However, merchants could potentially pass on the additional cost to consumers in the form of higher transaction fees.
Possible Impact and Concerns
Many experts believe that while this GST is technically levied on payment aggregators, it could be passed on to merchants, who in turn may pass it on to consumers. This could increase the cost of small-value digital transactions, which runs counter to the government’s original goal of promoting digital payments.
The fitment committee’s recommendation now awaits the decision of the GST Council, which has the final authority to either accept, reject, or defer the proposal.
Relevant Case Laws and Precedents
Several legal precedents have examined the intermediary nature of service providers under GST laws. The law stipulates that intermediary services must be taxed, which strengthens the argument of the fitment committee. Additionally, rulings such as the case of GoDaddy India Pvt Ltd vs. Union of India have helped define the scope of intermediaries under GST, which could influence the council’s final decision.
Conclusion
The upcoming 54th GST Council meeting could bring a significant change in the way payment aggregators are taxed in India. While the fitment committee has recommended imposing an 18% GST on transactions below ₹2,000, the final decision rests with the GST Council. Payment aggregators play a crucial role in the digital payments ecosystem, and the council’s decision will have far-reaching implications for merchants and consumers alike.