The Department of Financial Services (DFS) has initiated consultations with banks, the Reserve Bank of India (RBI), and the National Payments Corporation of India (NPCI) on whether GST slab for mandatory registration and return filing needs revision. According to banking sources, some lenders have proposed increasing the annual turnover threshold for merchants to Rs 1 crore in a bid to ease compliance burdens.
Under current GST provisions, merchants supplying goods with an annual turnover exceeding Rs 40 lakh and service providers crossing Rs 20 lakh must register on the GST portal and file annual returns. While GST registration does not necessarily mean tax liability for all, many small traders view the registration process itself as an administrative challenge.
A senior finance ministry official said that the registration requirement is "only for compliance purposes" and does not imply immediate tax payments. The official emphasised that merchants should not hesitate to register, as the move could support the formalisation of the economy while potentially simplifying reporting obligations.
Link to Merchant UPI Transactions and MDR
The consultations are also linked to a broader policy discussion on introducing a merchant discount rate (MDR) for UPI transactions. MDR is the commission payment companies charge merchants to cover digital payment facilitation costs. Sources indicated that banks have suggested applying MDR only to merchants with turnover above Rs 1 crore.
Over recent months, DFS has sought extensive feedback from financial institutions, requesting data on the number of merchants exceeding Rs 20 lakh annual turnover based on banking records, such as current account transactions. RBI, in parallel, has sought details from banks on the cost of running UPI infrastructure.
Triggered by Karnataka Tax Notices
The review comes in the wake of the Karnataka Commercial Tax Department issuing notices to merchants with a turnover above Rs 40 lakh, prompting some traders to abandon digital payments in favour of cash transactions. Banking experts have warned that such a trend could undermine India's push towards formalising business payments and expanding the digital economy.
Stakeholders expect the DFS to complete its review in the coming months, potentially paving the way for revised GST slabs that balance compliance requirements with the government's aim to boost digital payment adoption.
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