The GST Fitment Committee has recently clarified the scope of tax exemptions for fintech service providers, specifically focusing on payment aggregators (PAs) and payment gateways (PGs). This clarification, driven by inputs from the Reserve Bank of India (RBI), aims to address ambiguities surrounding the tax treatment of these entities.
- PAs Exempted: The committee recommended GST exemptions for settlement services provided by PAs, aligning with the RBI’s recognition of PAs as “acquiring banks” for these functions. This exemption applies to transactions up to ₹2,000 conducted via credit, debit, or other payment cards.
- PGs Not Exempted: In contrast, PGs, which primarily provide the technological infrastructure for payment processing, will not be eligible for GST exemptions. This distinction is crucial as PGs do not directly handle customer funds.
Impact on the Fintech Ecosystem:
- Merchants: This clarification will likely reduce operational costs for merchants who utilize PA services for their transactions.
- Fintech Operators: PGs may need to adjust their pricing strategies to account for the absence of GST exemptions.
An official circular from the GST Council, incorporating the RBI‘s guidance, is anticipated soon. This will provide definitive guidelines for the fintech industry and ensure consistent tax compliance.
Also Read: Impact of the Goods and Services Tax (GST) Act on India’s Gross Domestic Product (GDP)
