Agurchand Manmull Jain College
(A Unit of Sri. S. S. Jain Educational Society)(Affiliated to the University of Madras)
Meenambakkam, Chennai – 600 061.
Agurchand Manmull Jain College
(A Unit of Sri. S. S. Jain Educational Society)
(Affiliated to the University of Madras)
Meenambakkam, Chennai – 600 061.
Impact of Government Announcement of GST on Transactions Below ₹2000 through UPI
A.VENKATESH – Assistant Professor, Department of B.Com – ISM & CA
The Indian government’s announcement to levy Goods and Services Tax (GST) on UPI transactions below ₹2000 has sparked considerable debate across various sectors of the economy. Unified Payments Interface (UPI) has been a revolutionary tool in promoting digital payments in India, enabling fast, secure, and cashless transactions. However, the decision to apply GST on small transactions conducted via UPI raises questions about its impact on consumers, businesses, and the broader digital payment ecosystem.
Impact on Consumers
For millions of Indians, UPI has become a convenient way to make payments, especially for small transactions like purchasing groceries, paying utility bills, or transferring money between friends. The imposition of GST on UPI transactions under ₹2000 could
lead to the following impacts:
Increase in Transaction Costs
One of the main concerns is that applying GST will raise the cost of making small payments. This may deter individuals from using UPI for such payments, particularly in rural areas or among low-income groups, where even small increments in cost can affect consumer behavior.
Reduction in UPI Adoption
UPI has gained significant traction due to its no-cost structure for small transactions. If additional charges in the form of GST are imposed, it could slow the growth of UPI adoption among new users. People may revert to using cash for small payments, which goes against the government’s long-term goal of a cashless economy
Impact on Businesses
Small businesses and retailers, especially those in the unorganized sector, have heavily relied on UPI payments for everyday transactions. The GST levy could affect businesses in several ways:
Increased Operating Costs
Small businesses, often running on thin profit margins, may be burdened by the additional costs of processing UPI payments with GST. This could either lead to price increases for consumers or a shift away from digital payment options to avoid paying extra taxes.
Disincentive for Digital Payments
One of the major benefits of UPI is its ability to handle low-value transactions without incurring processing fees. The application of GST could dissuade businesses from accepting UPI payments for small transactions, impacting their ability to seamlessly conduct cashless transactions.
Impact on the Digital Economy
The government’s push toward digital payments has been a cornerstone of India’s fintech revolution. The imposition of GST on UPI transactions below ₹2000 might have broader implications for the digital economy:
Potential Slowdown in Digital Financial Inclusion
UPI has played a vital role in promoting financial inclusion, particularly for underserved populations who might not have access to traditional banking services. By making small transactions more expensive, the GST levy could slow the financial inclusion efforts by discouraging the use of digital platforms among these groups.
Innovation in the Digital Payment Space
The fintech industry in India has seen a rapid expansion, with UPI being one of the primary contributors to this growth. However, increased costs could stifle innovation in this space as companies may face challenges in creating sustainable business models while accommodating the GST charge.
Government’s Perspective
From the government’s standpoint, the move to apply GST on UPI transactions is likely seen as a way to increase tax revenues. With the increasing volume of UPI transactions, the government might view it as an opportunity to tap into a new revenue stream.
Additionally, this measure could help create a level playing field by taxing all forms of transactions uniformly, whether digital or non-digital.
Public Reactions and Alternatives
The announcement has met with mixed reactions. While some experts argue that it is necessary to bring digital transactions under the tax fold, others suggest it could hinder the digital revolution. To mitigate the negative effects, some alternatives could be
explored:
Exemption for Certain Categories
One option could be to exempt essential goods and services from GST on small UPI transactions. This would ease the burden on low-income groups and small businesses that depend on UPI for day-to-day operations.
Government Subsidies or Incentives
To continue promoting digital payments, the government could provide subsidies or incentives for using UPI, especially for small
transactions. These incentives could help offset the impact of GST and keep the digital payment momentum going.
Conclusion
The imposition of GST on transactions below ₹2000 through UPI represents a significant policy shift that could impact consumers, businesses, and the digital economy in India. While the government aims to increase tax revenues, the move may slow down the
widespread adoption of UPI, particularly for small transactions. To balance the objectives of tax collection and digital payment promotion, policymakers may need to consider alternative measures or exemptions to ensure that India’s march toward a cashless economy remains uninterrupted.
