18% GST On Transactions Up To Rs 2,000: Payment Aggregators Rue Lack Of Clarity, Merchants Concerned

The Goods and Services Tax (GST) Council is considering a proposal to impose an 18% GST on payment aggregators (PAs) for processing small digital transactions up to Rs 2,000 via debit and credit cards. This proposal is expected to be discussed at the Council’s meeting on September 9, according to a CNBC-TV18 report. As per ET, large payment aggregators have already received notices demanding GST on fees charged to merchants for processing transactions under Rs 2,000.

Reports suggest that if GST is applied retrospectively, payment aggregators may issue legal notices to millions of merchants nationwide to recover the tax. In response, merchants could be forced to approach GST tribunals to challenge the legitimacy of the previous service tax waiver notification.

According to reports, the government is preparing to recover GST from merchants, even on small digital transactions that were previously exempted. This move has raised concerns about the consistency of government policies at the central level, as there appears to be a lack of clarity.

An official notification issued on December 18, 2016, had waived service tax for payments made via credit card, debit card, or any other payment card for transactions up to Rs 2,000 in a single transaction. The exemption was part of a broader initiative to promote digital payments and encourage merchants to accept card transactions.

According to the Financial Express, several payment aggregators, speaking anonymously, have confirmed receiving GST demand notices. However, they expressed their inability to challenge the notices and stated that if the GST is implemented retrospectively, they will have no choice but to recover the tax from merchants for past transactions.

The GST Council has a meeting scheduled for Monday, where the issue is expected to be discussed. Government sources suggest that a decision may be made on whether to implement the GST demand notice for transactions below Rs 2,000, and if so, whether it will apply retrospectively or only to future transactions.

According to reports, merchants are primarily concerned that payment aggregators may attempt to recover GST for the past seven years if the tax is applied retrospectively. Reports indicate that if retrospective GST taxation is enforced and merchants receive recovery demands or legal notices from payment aggregators, millions of merchants may be forced to approach GST tribunals. The merchants may look to challenge the legal validity of the Union Government’s 2016 service tax waiver notification, which exempted transactions up to Rs 2,000 from such taxes.