Payments companies BillDesk, CCAvenue handed GST bill for transactions below Rs 2,000
Sep 7, 2024
Synopsis
More than 80% of the total digital payments in India are of less than Rs 2,000 in value. The payments aggregators have not been charging tax on the service they provided to merchants on such transactions, following a government notification issued during demonetisation in 2016.
Large payment aggregators like BillDesk and CCAvenue have received notices from the goods and services tax authorities, demanding GST on the fee they charged merchants for processing digital transactions of under Rs 2,000, three people in the know told ET.
“Yes, we have received a show-cause-cum-demand notice,” said Vishwas Patel, joint managing director of Infibeam Avenues which runs payments processor CCAvenue, responding to ET’s queries. “Our teams have responded to the notice,” he said.
BillDesk did not respond to an email seeking comment.
More than 80% of the total digital payments in India are of less than Rs 2,000 in value. The payments aggregators have not been charging tax on the service they provided to merchants on such transactions, following a government notification issued during demonetisation in 2016.
The authorities are now seeking tax from fiscal 2017-18, when the GST regime was introduced. This also comes at a time when there is a buzz around the GST Council likely issuing a clarification on taxing such transactions after its meeting next week.
Humongous task
“Some of the players have already received the notice. We are anticipating notices too, since the entire industry did not charge merchants and pay GST on sub-Rs 2,000 digital payments transactions abiding by government norms,” the chief executive of another payments firm said on the condition of anonymity.
While ET could not ascertain the exact amount of GST being demanded, the payments firm CEO estimated that companies which process transactions worth billions of dollars annually could face claims of a couple of hundred crore rupees in taxes for all these years.
Large players in the payments industry include Pine Labs, Paytm, Razorpay, Cashfree, BillDesk and CCAvenue.
Typically, the tax component is collected from the merchants while processing their fees, industry insiders said. If the government is asking for GST from payments companies, that means they will have to recover it from the merchants who are the source of the payment flow, they said.
The issue is only on transactions done via debit cards, credit cards and net banking. Unified Payments Interface (UPI) and RuPay debit card payments are offered with zero merchant discount rate, or transaction fee, under government orders.
Industry insiders said the aggregators, who provide payment solutions for retail and online merchants, did not charge GST to abide by a December 8, 2016 government notification.
“Services by an acquiring bank, to any person in relation to settlement of an amount up to two thousand rupees in a single transaction transacted through credit card, debit card, charge card or other payment card service (would not attract taxes),” read the notification issued during demonetisation.
An “acquiring bank”, according to the notification, could be a bank, a non-banking finance company or any other financial institution which enables digital payments at merchant outlets.
“Since all financial institutions were mentioned, (it was interpreted that) payments companies were also exempt from collecting this tax from merchants,” said one of the executives.
While this relief was offered during the pre-GST service-tax era, and no explicit relief was provided after the imposition of GST on July 1, 2017, the industry continued with the practice.
“We abided by government norms of that time and did not charge GST on small merchants. Now if the tax authorities want us to charge the GST, we will have to go back to those merchants and charge them for all these years, which is a humongous task,” said a person cited earlier, who is the founder of one of the major merchant payments firms. This development could derail the financial stability of small merchants and impact their confidence in digital payments, he said.
“We have got our audits done, our filings have been cleared for all these years,” said another top executive at a payments firm. “Even in many cases the government checked with the industry if any charges were being imposed on the small merchants, but to retrospectively charge now will be a big challenge for this industry.”
Seeking clarification
Vishwas Patel of CCAvenue, who is also the chairman of the Payments Council of India, said the industry body has reached out to the finance ministry and other concerned authorities regarding the matter.
Patel said he is hopeful that the finance minister and the GST Council would help resolve this problem since the payments industry has helped drive the government's mission to promote Digital India, enabling millions of Indian MSMEs to accept digital payments. He added that the payments industry pushed for the adoption of UPI payments at zero cost to help the government's digitisation agenda.
If the September 9 GST Council meeting clarifies that this exemption is not available to payment aggregators (PAs) and merchants going forward, then it will be a step backwards, he said. “But if the GST Council decides that GST be charged retrospectively from 2017 for all transactions below Rs 2,000, then it will definitely spook the entire ecosystem of merchants and PAs.”
[The Economic Times]
