The GST Council meeting on October 7 is likely to discuss ways to provide relief from GST on the merchant discount rate (MDR) charged on some high-value UPI transactions, particularly for small merchants not registered under GST, government sources told Moneycontrol.

Under GST rules, businesses with annual turnover less than Rs 40 lakh for goods or Rs 20 lakh for services generally do not have to register. As unregistered businesses, they cannot claim input tax credit (ITC). So when GST is charged on MDR on UPI transactions, small businesses cannot offset the additional tax cost.

Starting October 15, person-to-merchant (P2M) UPI transactions above Rs 2,000 will attract a 0.4 percent MDR, with 18 percent GST charged on the MDR rather than the transaction value. The MDR is borne entirely by the merchant and deducted by the bank when the transaction is settled.

Last week, a senior government official told Moneycontrol that companies can claim back the GST paid on MDR through the ITC route, provided they are registered with the tax authorities and supply goods and services that are not exempt from GST.

“Many small merchants are not registered with the authorities. They may be ineligible for the ITC benefit,” a government official said. The person added that the Council may discuss a mechanism through which such businesses are not “drastically affected”.

Source: Money Control