18% GST Proposal on Payment Aggregators for Small Card Transactions Raises Concerns in India

The recent discussions that the GST Council held to levy an 18% GST on payment aggregators on card transactions below Rs 2,000 has created a stir in the digital payments industry. Though the final decision has gone to the Fitment Committee for re-evaluation, industry circles have already begun discussing implications for digital payments in India.

Implications of GST for the payment aggregators

Payment aggregators (PA), like BillDesk and CCAvenue, charge 0.5% to 2% on every transaction that they process to the merchant. If 18% GST is levied, then this will add cost for the merchants. For instance, if a PA charges Rs 2 on a Rs 100 transaction, the new GST would add 36 paise more. This may seem like a small amount, but for small shop owners with a lot of sales, these little charges could amount to a lot of money. 

Before demonetization in 2016, there was an 18% service tax for every card transaction, to encourage digital transactions, the government exempted this duty for under Rs 2,000 transactions. 

With Government support, UPI has been made the most popular way to execute a digital payment. Once GST is levied on card-based payments, more people will shift gradually towards UPI. This will discourage many customers who will see lower fees for UPI and will choose that option instead.

However, it seems that not everyone thinks this policy change will make much of a difference. The average ticket size for a credit card payment is Rs 5,276 and Rs 2,642 for a debit card, far larger than the Rs 656 average for a UPI payment according to the Worldline report. Many shops would still allow card payments because of the benefits accruing therein in the form of credit and reward points.

Fitment Committee to Decide

The matter is presently under consideration by the Fitment Committee, and they are yet to take a decision. According to Uttarakhand Finance Minister Premchand Aggarwal, “No decision has been taken yet in the 54th GST meeting about putting 18% GST on small online transactions.” The Minister said this while stating that due consideration is being given to the matter, and the committee would report for due consideration.

The debate on the levy of GST on small transactions through PAs is not just about an 18% tax. It’s about how this change is going to impact digital payments in India. Large shops can afford the additional cost due to their higher amount of transactions and also the tax benefits, but small ones may not be able to afford it, and this may push them to ask for UPI instead of card payments. While the Fitment Committee is studying the matter, businesses and payment firms can only speculate on how this would affect their future.

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