GST Council mulling 18% GST on low value transactions made via RazorPay, PayPal and more. Here's how it will impact you
Sep 6, 2024, 22:44 IST
In its next meeting, slated for 9th September, the GST (Goods and Services Tax) Council may decide over imposing an 18% charge on payment aggregators (PAs) like RazorPay, Stripe, PayU, Pine Labs, and more. Reportedly, these charges will be levied on small value transactions of up to Rs 2,000, which are made via debit and credit cards. Until now, all payment aggregators were exempt from GST on all transactions up to Rs 2,000. We decode what it means for you, and how it will impact your pockets.
What's happening?
The fitment committee, which is made up of revenue officials from both center and states, is considering levying an 18% GST on payment aggregators. This is because officials feel that PAs are mere facilitators and intermediaries for card-based transactions, unlike banks, and thus, should be brought under GST purview.
At present, they are exempt on paying GST on transaction of value less than Rs 2,000. But, if the proposal goes through in the 54th GST Council meeting, every transaction you make through your credit or debit cards going ahead via such PAs will become costlier.
Who are payment aggregators?
PAs are essentially third-party service providers that let customers pay, and allow businesses to collect payments made via UPI, credit/debit cards or more. They are the interface between the customers and the merchants, allowing customers to opt for multiple, secure payment options, and also letting merchants manage and track fund collections and refunds. For their services, PAs levy a payment gateway fee, which ranges between 0.5% to 2% for each transaction.
Post demonetisation in 2016, when currency notes of Rs 500 and Rs 1,000 were discontinued with immediate effect, the government had waived off taxes on credit and debit card transactions of up to Rs 2,000, in order to boost digital payments. If GST is levied, PAs are likely to pass on this cost to merchants.
Will UPI be affected?
No. Currently, UPI does not currently have a MDR, or merchant discount rate. UPI will continue to remain a lucrative option for PAs and merchants, especially for transactions under Rs 2,000, since they will not attract GST. PAs charge MDR to businesses for processing credit and debit card transactions on their behalf.
What will change?
The move is likely to affect small businesses the most, who thrive on multiple, low value transactions. Think of this. Say you make a payment of Rs 1,500 via your credit card on Razorpay. If the PA sets its fee at 1% of each transaction, the business will have to pay Rs 15 to the PA. But now, with the potential additional 18% GST applicable, the business will have to pay Rs 2.7 more, or about Rs 17.7 to these PAs. This might not seem much at first, but compounded over multiple transactions, might snowball into a significant cost for small businesses.
Advertisement
What's happening?
The fitment committee, which is made up of revenue officials from both center and states, is considering levying an 18% GST on payment aggregators. This is because officials feel that PAs are mere facilitators and intermediaries for card-based transactions, unlike banks, and thus, should be brought under GST purview.
At present, they are exempt on paying GST on transaction of value less than Rs 2,000. But, if the proposal goes through in the 54th GST Council meeting, every transaction you make through your credit or debit cards going ahead via such PAs will become costlier.
Who are payment aggregators?
PAs are essentially third-party service providers that let customers pay, and allow businesses to collect payments made via UPI, credit/debit cards or more. They are the interface between the customers and the merchants, allowing customers to opt for multiple, secure payment options, and also letting merchants manage and track fund collections and refunds. For their services, PAs levy a payment gateway fee, which ranges between 0.5% to 2% for each transaction.
Post demonetisation in 2016, when currency notes of Rs 500 and Rs 1,000 were discontinued with immediate effect, the government had waived off taxes on credit and debit card transactions of up to Rs 2,000, in order to boost digital payments. If GST is levied, PAs are likely to pass on this cost to merchants.
Advertisement
Will UPI be affected?
No. Currently, UPI does not currently have a MDR, or merchant discount rate. UPI will continue to remain a lucrative option for PAs and merchants, especially for transactions under Rs 2,000, since they will not attract GST. PAs charge MDR to businesses for processing credit and debit card transactions on their behalf.
What will change?
The move is likely to affect small businesses the most, who thrive on multiple, low value transactions. Think of this. Say you make a payment of Rs 1,500 via your credit card on Razorpay. If the PA sets its fee at 1% of each transaction, the business will have to pay Rs 15 to the PA. But now, with the potential additional 18% GST applicable, the business will have to pay Rs 2.7 more, or about Rs 17.7 to these PAs. This might not seem much at first, but compounded over multiple transactions, might snowball into a significant cost for small businesses.