GST Council May Impose 18% GST On PAs For Small Payments

SUMMARY

The Council may consider a proposal that seeks to impose 18% GST on payment aggregators for processing transactions up to INR 2,000 made via debit and credit cards

The fitment panel believes that the PAs act as intermediaries for such transactions and can’t be treated as banks

In the wake of demonetisation, the Centre waived off the service tax on debit and credit card transactions under INR 2,000 to boost digital payments

The Goods and Services Tax (GST) Council may reportedly consider a proposal that seeks to impose an 18% levy on payment aggregators (PAs) for facilitating certain small value digital transactions.

Sources told CNBC-TV18 that the proposal includes charging PAs 18% GST for processing transactions up to INR 2,000 made via debit and credit cards. As per the report, a final decision will be taken by the Council post the recommendations of the rate fitment committee.

The report added that the fitment panel believes that the payment aggregators act as intermediaries for such transactions and can’t be treated as banks. As a result, the fitment committee is in favour of levying GST on these PAs.

Under the current rules, payment aggregators are exempted from GST on transactions below INR 2,000.

In 2016, in the wake of demonetisation, the Centre waived off the service tax on debit and credit card transactions under INR 2,000 to boost digital payments. The exemption was announced in late-2016, nearly eight months before the introduction of the Goods & Services Tax in July 2017.

The move to impose GST on small value transactions could have a direct bearing on multiple fintech startups with PA licences, including Pine Labs, Razorpay, PayU, Infibeam, among others.

While these fintechs charge anywhere between 0.5% to 2% as payment gateway fees per transaction, they may be saddled with additional levies, which could eventually be passed on to the customers or merchants.

The move could increase compliance burdens for their clients and add financial burden on end customers.

The development comes at a time when the Reserve Bank of India (RBI) has been approving PA licence applications of fintech startups in droves. In June, the central bank gave its nod to Aurionpro and Hitachi Payment Services to operate as a PA.

Since December last year, more than 20 companies including Groww, Zoho, Juspay, Decentro, CRED, PayU, Enkash, Pine Labs, Amazon Pay, among others have also received approval to operate as a payment aggregator.

Earlier in the day, PayGlocal also received nod from the RBI to operate as online merchant payments company

Interestingly, the RBI, in April 2024, also issued draft papers to regulate offline payment aggregators and sought feedback and comments from fintechs and industry bodies. However, multiple fintech startups have voiced their concerns over the mandatory physical KYC verification requirement for merchants in the draft rules.

As per a report, the Indian payment gateway market is projected to grow to a size of $2.66 Bn by 2029.

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