GST Council to Impose GST of 18% on Payment Aggregators for Transactions below Rs.2,000

The Goods and Services Tax (GST) Council is allegedly considering a plan to impose an 18% tax on payment aggregators (PAs) for facilitating some small value digital transactions.

According to sources, the plan includes charging Payment Aggregators 18% GST for transactions up to INR 2,000 made with debit and credit cards. The Council will make a final decision after considering the suggestions of the rate fitment committee, as per the report.

The report indicated that the fitment panel feels that payment aggregators function as facilitators for such transactions and hence cannot be considered banks. As a result, the fitment committee supports levying GST on these Payment Aggregators.

Payment aggregators are now excluded from GST for transactions of less than INR 2,000.

In 2016, following demonetisation, the Centre eliminated the service tax on debit and credit card transactions under INR 2,000 to encourage digital payments. The exception was announced in late 2016, approximately eight months before the implementation of the Goods and Services Tax in July 2017.

The decision to impose GST on minor value transactions might have a direct impact on several fintech businesses with PA licenses, including Pine Labs, Razorpay, PayU, and Infibeam, among others.

While these fintechs incur payment gateway costs ranging from 0.5% to 2% for each transaction, they may face additional levies that are subsequently passed on to customers or merchants.

The change may increase regulatory obligations for their clients and place a cost burden on end users.

The development comes at a time when the Reserve Bank of India (RBI) is rapidly clearing PA licence applications from fintech businesses. In June, the central bank approved Aurionpro and Hitachi Payment Services to operate as a PA.

Since December of last year, more than 20 firms, including Groww, Zoho, Juspay, Decentro, CRED, PayU, Enkash, Pine Labs, and Amazon Pay, have acquired approval to operate as payment aggregators.

Earlier in the day, PayGlocal also acquired approval from the RBI to operate as an online merchant payment company.

Interestingly, in April 2024, the RBI issued draft documents to regulate offline payment aggregators, soliciting opinions and recommendations from fintechs and industry associations. However, several fintech startups have expressed worry about the draft guidelines’ demand for merchants to undergo physical KYC verification.

According to the report, the Indian payment gateway market is expected to reach $2.66 billion by 2029.