Prime Highlights

• The government is weighing a proposal to impose 18% GST on UPI transactions above ₹2,000.
• The move would dictate digital transaction patterns, particularly for consumers and small businesses.

Key Facts

• The 18% GST would be imposed on peer-to-peer as well as merchant UPI payments above ₹2,000.
• The move is under consideration; no launch date has been declared.

Key Background

The Indian government is considering levying an 18% Goods and Services Tax (GST) on payments made through Unified Payments Interface (UPI) above ₹2,000. The move is part of efforts to increase tax compliance and route high-value digital transactions into the formal system of tracking. While UPI has revolutionized India’s digital payments space by making it a hassle-free and free platform, the suggested intervention here could redefine how customers engage with the system.

Currently, transactions of UPI are exempted from service fees or tax, which has encouraged crores of people to go digital with their payments, especially in the aftermath of the demonetization move and subsequent digitization drive. Customers would pay additional money if the tax were charged on this sort of recurring high-value transaction like rent paid, grocery bought, or settled with service personnel. GST of supposedly 18% would apply on peer-to-peer transactions, too, along with merchant payment.

The effects of this action can ripple through the digital economy. Customers can begin splitting payments in order to fall under the ₹2,000 cap or migrate to alternative payment modes. Freelancers and small firms, who mostly utilize UPI for receiving funds, can be significantly impacted. If they constantly cross the limit, they can be forced to become registered for GST and follow norms, which will increase their compliance burden and administrative costs.

Accordingly, firms may begin shifting this added burden to customers, raising the entire cost of goods and services ever so slightly. With advancing digital payment ecosystems, such policy refinements express the desire of the government to induce more financial transactions into the tax fold with minimal difficulties of transaction and while keeping expenses austere. Business representatives argue these moves can inhibit the uptake of digitization and maybe also undermine prior policies on fostering a cashless economy.

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