Banks Recommend New GST Slab Of ₹1 Crore To Curb Merchants Avoiding Digital Payments

In the last few months, the department of financial services (DFS), has sought comments on the existing Goods and Services Tax (GST) slab for filing the tax returns from banks, the Reserve Bank of India and the National Payments Corporation of India with some lenders suggesting higher annual turnover threshold for merchants, according to three banking sources aware of the matter.

Businesses Under GST

A senior government official with the finance ministry told Moneycontrol that the businesses should be registered under GST. It is only for registration purposes. Merchants do not have to pay taxes, so they should not hesitate. The idea is to reduce the compliance; registration also becomes a kind of compliance burden.

GST Portal

As per the current GST ruling, merchants who have an annual turnover of above Rs 40 lakh for goods and Rs 20 lakh for services should register themselves on the GST portal and file returns annually.

Merchant UPI Transactions

The deliberations over the last couple of months have been extensive and ongoing among various stakeholders. The data and feedback are also likely to be used for a possible implementation of a merchant discount rate (MDR) for merchant UPI transactions, the sources said.

MDR is the commission that payment companies impose on merchants to pay for the cost of facilitating digital payments.

GST Slab

According to these sources, it is learnt that financial institutions recommended raising the slab to Rs 1 crore annual turnover. They also recommended that MDR should be applied only to merchants with an annual turnover of over Rs 1 crore.

“DFS wanted to know what the banks think about existing slabs and whether these need to be raised as part of a periodical review,” said a banker whose institution received the DFS communication.

Bank Data Of Merchants

DFS also requested data from banks, RBI and NPCI on how many merchants in the country have an annual turnover above Rs 20 lakh based on banking data such as current accounts. Meanwhile, last month, RBI had also sought details from banks on the cost of running UPI.

Karnataka Commercial Tax Department Notice

The move comes in the wake of the Karnataka Commercial Tax department sending notices to merchants with an annual turnover of over Rs 40 lakh. This prompted several merchants to ditch digital payments in favour of cash, with many in the banking circles seeing this as counterproductive to the country’s aim to formalise business payments.