The Department of Financial Services (DFS) has been holding discussions 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 for merchants. According to a Moneycontrol report, some banks have proposed increasing the annual turnover threshold for GST registration and filing to ₹1 crore and introducing a merchant discount rate (MDR) for Unified Payments Interface (UPI) transactions to ease compliance and sustain digital payment adoption.
Proposed GST Threshold Hike and MDR Reintroduction to Boost UPI Adoption
Currently, GST rules mandate registration and filing for merchants with annual turnover exceeding ₹40 lakh for goods and ₹20 lakh for services. DFS is evaluating whether this slab should be raised, with data being collected from banking sources, including current account records. The proposal follows Karnataka’s Commercial Tax Department sending GST notices to merchants with turnover above ₹40 lakh, calculated based on UPI transactions. These notices led many merchants to reduce or abandon UPI payments in favour of cash, raising concerns about reversing progress in formalising the economy and promoting digital payments.
The MDR proposal is also under review. MDR is a fee charged by payment companies to merchants for processing digital transactions. Payment firms have been advocating for its reintroduction after government subsidies for UPI transactions were cut earlier this year. Supporters of the ₹1 crore threshold argue it would shield small merchants from the administrative burden of GST compliance while maintaining incentives for accepting UPI payments.
DFS, RBI Reviews Aim to Balance GST Compliance and Digital Payment Growth
While the GST Council and the Department of Revenue oversee tax policy, DFS plays a critical role in coordinating with financial institutions and analysing the economic implications. Sources indicate that such reviews are part of DFS’s regular engagement with stakeholders, though any changes would depend on political considerations. The RBI is also studying UPI’s operational costs, which could influence future policy on transaction charges and merchant adoption strategies. The combined proposals aim to balance tax compliance, ease of doing business, and continued momentum for India’s digital payments ecosystem.
Summary:
The Department of Financial Services, in consultation with RBI and NPCI, is considering raising the GST registration threshold to ₹1 crore and reintroducing MDR for UPI transactions. The move aims to reduce compliance burdens, encourage digital payments, and sustain growth, while balancing tax policy, merchant adoption, and operational cost concerns.
