In the upcoming GST Council meeting scheduled for September 9th, a significant change may be introduced that could impact how small-value transactions are handled in India. The council is expected to deliberate on whether to impose an 18% Goods and Services Tax (GST) on payment aggregators (PAs), such as Razorpay, Stripe, PayU, Pine Labs, and others. These aggregators facilitate online payments made via debit and credit cards, and the proposed tax would apply specifically to transactions valued at Rs 2,000 or less. Until now, payment aggregators have enjoyed an exemption from GST on these small transactions. This article breaks down what the potential change means and how it could affect consumers and businesses alike.
RazorPay, PayPal, and other low-value transactions might be subject to 18% GST, according to the GST Council. This is what it will do to you.
The Proposed Change
The fitment committee, which consists of revenue officials from both central and state governments, is currently reviewing the possibility of implementing an 18% GST on PAs. The rationale behind this proposal is that payment aggregators are seen as intermediaries facilitating card-based transactions rather than being equivalent to banks. As a result, officials believe they should be brought under the GST regime.
If the proposal is approved during the 54th GST Council meeting, consumers can expect their transactions made through credit or debit cards to become more expensive when processed by PAs. Currently, payment aggregators are exempt from paying GST on any transaction below Rs 2,000, but this exemption would no longer apply under the new rules.
What are Payment Aggregators (PAs)?
Payment aggregators act as third-party service providers that enable businesses to collect payments from customers through various methods, including UPI, credit, and debit cards. They serve as intermediaries, ensuring that transactions are completed securely and efficiently. Customers benefit from the flexibility to choose different payment options, while businesses gain the ability to track and manage transactions, refunds, and fund collections. In exchange for these services, PAs charge businesses a payment gateway fee, which typically ranges from 0.5% to 2% of each transaction.
Historical Context: The Push for Digital Payments
Following India's demonetization in 2016, when Rs 500 and Rs 1,000 currency notes were withdrawn from circulation, the government temporarily removed taxes on transactions of up to Rs 2,000 made via credit and debit cards. This move was part of a broader effort to promote digital payments. However, if the GST is applied to payment aggregators, they are likely to pass these additional costs onto businesses.
Will UPI be Affected?
Unified Payments Interface (UPI), another popular digital payment system in India, will remain unaffected by the proposed GST changes. Currently, UPI transactions do not incur a merchant discount rate (MDR) charge, which is the fee businesses pay for card-based payments. This means UPI transactions below Rs 2,000 will continue to be an attractive option for merchants, as they will not be subject to the new GST rules.
Impact on Small Businesses
Small businesses that rely on numerous low-value transactions are likely to feel the brunt of this change. For example, imagine a merchant processes a Rs 1,500 payment through Razorpay using a credit card. If the payment aggregator charges a 1% fee, the business would typically pay Rs 15. With the introduction of an 18% GST, the total fee would increase by Rs 2.7, bringing the total cost to Rs 17.7. While this difference may seem small, when multiplied across hundreds or thousands of transactions, it could add up to a substantial financial burden for small businesses.
In conclusion, the imposition of GST on payment aggregators could make card-based transactions more expensive for both businesses and consumers, particularly for small businesses dealing with frequent low-value payments. However, UPI transactions remain exempt, which may incentivize businesses to adopt this mode of payment for smaller transactions to avoid the additional costs.








