The GST Council’s recent proposal to introduce an 18% GST on card payments for transactions below ₹2,000 may significantly influence payment habits, pushing more small merchants towards Unified Payments Interface (UPI).
Under this new proposal, payment aggregators (PAs) would pass the GST burden on to merchants, potentially making card transactions more costly. With most PAs charging a commission of 1-3% on transactions, an additional 18% GST could substantially impact the overall cost for merchants. For instance, on a ₹100 transaction where the PA’s commission is ₹2, the added GST would increase the total cost to ₹2.36.
While the move aims to encourage UPI usage, which is currently more cost-effective for small transactions, payment aggregators are concerned about the potential retrospective application of this tax. Payment aggregators, whose margins typically range between 0.04% to 0.05%, might face reduced profitability due to the additional tax burden.
The GST Council’s decision is still pending as the proposal has been referred to the fitment committee for further evaluation. If implemented, it is expected to accelerate the adoption of UPI among small merchants, who might find it financially advantageous to switch from card payments to UPI transactions.
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