No consensus among States on GST discount for digital payments

Shishir Sinha New Delhi | Updated on June 25, 2018 Published on June 25, 2018

A Group of States’ Finance Ministers will meet within a fortnight to take a final view on the proposal

Many feel the move discriminates against those not using the digital mode

The proposal to give discount on Goods and Services Tax (GST) for digital payments may not be implemented as there is no consensus among the States on the issue.

“There are divergent views. Many States feel that it is discrimination against those people who are not using digital means,” a person familiar with the issue told BusinessLine.

The proposal envisages providing “a concession of 2 per cent in GST rate on B2C (Business to Consumer) supplies, for which payment is made through digital mode (one per cent each from applicable CGST and SGST rates, if the applicable GST rate is 3 per cent or more) subject to a ceiling of ₹100 per transaction.” This scheme, however, will not be available to registered persons paying tax under the composition scheme.

The proposal is expected to benefit only those who are already doing digital transaction. Also, “incentive is not much to encourage people to use digital means,” the source said. Another problem is that with differential rates, there will be a need to redesign the system which is again a tedious job, he said adding “All these issues make the proposal difficult, which is why it makes sense to defer the proposal for now.”

A Group of States’ Finance Ministers will meet within a fortnight to take a final view on the proposal. Views of the group will be discussed in the next meeting of GST Council scheduled for July 19.

The proposal was discussed during the 27th GST Council Meeting held on May 4 in New Delhi. However, it could not take a decision and decided to refer the issue to the Group of States’ Finance Ministers under the Chairmanship of the Deputy Chief Minister and Finance Minister of Bihar, Sushil Kumar Modi. Initially, the group was asked to give its report within 15 days.

Under the proposal, a consumer will be offered two prices: one with normal GST rates for purchases made through cash payment and the other with 2 per cent lower GST rate for digital payments. As a result, the consumer will see visible benefits of making payments through digital mode, in terms of reduction in tax amount payable. For example, if the GST rate applicable to supply a particular goods/service is 18 percent, and if payment is made through digital means, then applicable GST will be at the rate of 16 percent.

Payment modes

Payment modes can be divided into two groups. The first group comprises RTGS, NEFT, IMPS (Immediate Payment Service), NACH (National Automated Clearing House), NETC (National Electronic Toll Collection) and Closed Loop. This group may not in general be used for procuring goods and services. The second group comprising UPI/BHIM/USSD, RuPay, AEPS, BBPS, Debit Card, Credit Card, m-wallet, PPC, Internet banking, mobile banking and other banking modes are generally used for procuring taxable goods and services.

Based on IT Ministry data for 2017-18, total number of transactions through digital means belonging to the second group would be 1,329 crore with total value of ₹135.4 lakh crore. If payment for 40 per cent of total purchase is made through digital means and average size of transaction on which concession is allowed is ₹1400, then total revenue implication for the government would be around ₹15,000 crore. The government feels that the loss in tax revenue may, however, be recovered to a certain extent through better compliance.

Published on June 25, 2018
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