For Now Relief For Merchants As GST Council Defers Levying Tax On Digital Payments Of Under Rs 2000

Much to the relief of millions of customers and small traders, no decision was taken on this. 

"The Goods and Services Tax (GST) Fitment Committee will further deliberate on the matter before any decision is taken", Revenue Secretary Sanjay Malhotra said after the council meeting, chaired by Finance Minister Nirmala Sitharaman. 

The bulk of digital payments – about 80 per cent of the total – are for sums of the value of Rs 2,000 or less.

“Many of my customers come to purchase small items like flowers for 'Puja' and often pay even small sums like Rs 100 through a card. In case a GST is imposed, it would mean that the customers will have to bear the additional burden…now in such cases, it will impact usage of debit or credit cards,” Bhuvan Saini, 54, a small florist in Gurugram told The Secretariat. 

Following the demonetisation exercise, the government in a bid to encourage a cashless ecosystem, waived off the service tax on debit and credit card usage for transactions under Rs 2,000.

The GST Fitment committee, which has been underlining that payment aggregators should be treated as intermediaries and not banks, was in favour of GST imposition on digital transactions of even less than Rs 2000.

Concerns For Payment Aggregators

What is bothering the payment aggregators is also the possibility of retrospective applicability of the charges.

Earlier this month, newspapers reported that large payment aggregators including BillDesk and CCAvenue received notices from the tax authorities, demanding GST on the fee they charge merchants for processing digital transactions of under Rs 2,000.

In 2023-2024, about 164 billion digital payments were recorded across India compared to 12.5 billion transactions in 2019-20.

Since the demonetisation exercise in 2016, digital transactions have zoomed in India. The Covid-19 pandemic further pushed this payment mode.

Implementation Of GST Retrospectively May Be Damaging

Besides denting the usage of plastic money, the issue has once again brought the larger question of lack of consistency and clarity in important economic and tax policies to the fore.

Payment aggregators would have to resort to recovering the tax – if imposed retrospectively – from merchants even for past transactions. “This will lead to multiple challenges and litigation. The authorities need to keep that in mind,” a director with a leading PSU bank said, on condition of anonymity.

The GST Fitment panel must weigh all pros and cons before taking any decision on the retrospective implementation. This will not only lead to hydra-headed problems for the country’s merchants and payment aggregators but more importantly tarnish India’s image as a policy-consistent nation.

At a time when India is looking to position itself as a lucrative investment destination, it needs to ensure that ease of doing business is further improved and there is consistency in policy making.   

Other Decisions By The GST Council

The council also decided to reduce GST rates on cancer drugs such as Trastuzumab Deruxtecan, Osimertinib and Durvalumab from 12 per cent to 5 per cent. Sitharaman, addressing the press conference, said that the move will make cancer treatment more affordable. 

The GST Council among other decisions recommended setting up a new Group of Ministers (GoM) on GST on health insurance. The GoM is expected to submit a report on the issue by the end of next month.

The council has also decided to form a GoM to study the future of compensation cess.

Officials also said no decision on GST on online gaming or compensation cess was taken at the meet, contrary to news reports on the issue.