Banks Suggest Increasing GST Slab to ₹1 Crore to Support Digital Payments

The Department of Financial Services (DFS) has been engaging with banks, the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI) on revising the Goods and Services Tax (GST) threshold. 

As per a Moneycontrol report, some banks have suggested increasing the annual turnover slab to ₹1 crore for GST filing and introducing a merchant discount rate (MDR) for UPI transactions to make compliance easier for merchants.

Background of the Proposal

According to the report, in recent months, DFS has sought feedback from banks, the RBI, and NPCI on the existing GST threshold for filing returns. The discussions have involved exploring the feasibility of raising the slab from the current ₹40 lakh for goods and ₹20 lakh for services to ₹1 crore annual turnover. 

This suggestion has come in the wake of Karnataka’s Commercial Tax department sending notices to merchants with an annual turnover above ₹40 lakh, calculated based on UPI transactions.

Impact on Digital Payments

The notices prompted many merchants to move away from digital payments towards cash transactions, a shift that banking circles view as counterproductive to the goal of formalising business transactions. Stakeholders have expressed concern that without adjustments, merchants might increasingly abandon UPI, undermining years of progress in promoting cashless payments.

Merchant Discount Rate Discussions

According to the Moneycontrol report, the proposal also includes implementing an MDR for merchant UPI transactions. MDR is a fee that payment companies charge merchants for facilitating digital transactions. Payment companies have been urging the finance ministry to introduce MDR since government subsidies for UPI transactions were reduced earlier this year. The recommended ₹1 crore slab would potentially protect smaller merchants from compliance burdens and encourage them to continue accepting UPI payments.

Current GST Requirements

Under current GST rules, merchants with an annual turnover exceeding ₹40 lakh for goods or ₹20 lakh for services must register and file GST returns. DFS has been collecting data on merchants’ turnover through banking information, including current account records, to evaluate whether the existing slabs should be revised.

Wider Context and Challenges

While GST matters fall under the GST Council and the Department of Revenue, DFS plays a key role in liaising with financial institutions. Sources indicate that DFS conducts such reviews regularly, though implementation depends on political considerations. The Reserve Bank of India has also been examining the cost structure of UPI operations.

Read More: IRCTC Defends UPI and Online Ticket Fees: Railway Minister Explains ₹10–₹20 Charge for Convenience! 

Conclusion

UPI has become the most widely used payment method for merchants and consumers, including in smaller towns and rural regions. There are around 35 crore merchant UPI QR codes in circulation, though not all are unique. Nearly 64% of the 20 billion UPI transactions occur at merchant establishments, making the system’s stability and merchant participation crucial for the digital payments ecosystem.

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