The Department of Financial Services (DFS) is reviewing suggestions from leading banks, the Reserve Bank of India (RBI), and the National Payments Corporation of India (NPCI) to raise the Goods and Services Tax (GST) registration threshold for merchants to an annual turnover of ₹1 crore. The proposal aims to reduce compliance burden, maintain digital payment adoption, and align tax policies with business realities.
The Department of Financial Services (DFS), under the Ministry of Finance, Government of India, has initiated a review of the current Goods and Services Tax (GST) registration threshold, seeking inputs from major financial institutions, including Reserve Bank of India and National Payments Corporation of India. Several banks have recommended increasing the GST registration turnover limit for merchants to ₹1 crore annually.
At present, the GST framework mandates registration for businesses with an annual turnover exceeding ₹40 lakh for goods and ₹20 lakh for services. This registration is primarily for compliance purposes and does not necessarily translate into additional tax liabilities for all merchants. However, many small enterprises view the process as a regulatory burden, leading to resistance, especially among micro and small business owners.
The review also takes into account recent incidents where state tax authorities, such as the Karnataka Commercial Tax Department, issued notices to merchants crossing the ₹40 lakh threshold. In some cases, this triggered a shift from digital transactions to cash payments, undermining national efforts to formalise the economy and expand digital payment ecosystems.
Stakeholders have highlighted that applying the proposed higher GST threshold could encourage merchants to continue using digital payment modes like UPI without the fear of increased compliance obligations. DFS is also examining how such a revision could influence the potential introduction of a Merchant Discount Rate (MDR) on high-turnover merchant transactions. MDR refers to the fee charged by payment service providers to merchants for processing digital transactions.
Raising the GST limit could particularly benefit merchants in retail and service sectors operating with thin profit margins of 5–10%, where annual incomes often remain below taxable thresholds under current income tax laws. Industry data indicates that around 64% of the nearly 20 billion monthly UPI transactions occur at merchant points, with over 35 crore merchant QR codes in circulation nationwide.
DFS has sought consolidated merchant turnover data from banks, RBI, and NPCI based on transactional records, including current account operations. While GST policy decisions ultimately fall under the purview of the GST Council and the Department of Revenue, DFS plays a crucial role in facilitating financial sector input for regulatory considerations.
This move is seen as a significant step toward balancing compliance requirements with the government’s objective of sustaining and growing India’s digital payments infrastructure.
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