Goods and services tax: government and banks kill rumors about GST card payments
MUMBAI: The government and banks have brushed aside rumors that payments by credit card or other electronic payment methods would result in double taxation under the new goods and services tax.
Revenue Secretary Hasmukh Adhia said in a tweet: “There’s a bad message going around on social media that if you pay utility bills with a credit card, you’ll pay twice the GST. This is completely wrong. Please do not circulate such a message without verifying it with authority, ”he said.
Contacted by ToI, AP Hota, managing director of the National Payments Corporation of India, confirmed that the double taxation rumors were totally untrue. “There are no charges other than the 15% service tax which becomes 18% GST,” Hota said. Even this tax is not based on the transaction, it is applied on the fees, called the merchant’s discount rate (MDR), charged to the merchant by the bank. Since stores are not allowed to pass the MDR to the customer, any credit card transaction is as good as it is free for the cardholder.
Bankers said that in the financial sector, the only impact of imposing the GST was a three percentage point increase in the tax. “All services for which fees are charged in the financial sector are already taxed. However, there is no transaction tax, ”said a senior banker.
This means that if a cardholder spends Rs 5,000 in a restaurant, the business owner pays Rs 100 as the merchant’s discount rate to the bank. Since the Rs 100 is a charge for a service, until now there was an applicable service tax which was Rs 15. Compared to the previously applicable Rs 15 tax, the merchant will now pay a tax on the products and services of 18 Rs.
For the customer, there is no change because the merchant’s discount rate is not allowed to be passed on. For banks, the difference is that they will now get an input tax credit for the GST. Bankers said it is not yet clear how much savings they will see on the input tax credit account.
The government said companies should pass on the benefits they get in the form of input tax credit through lower prices to customers. This was made mandatory under section 171 of the GST bill. This clause also provides for the establishment of an anti-profiteer authority to act against those who do not pass the savings on to customers.
Revenue Secretary Hasmukh Adhia said in a tweet: “There’s a bad message going around on social media that if you pay utility bills with a credit card, you’ll pay twice the GST. This is completely wrong. Please do not circulate such a message without verifying it with authority, ”he said.
Contacted by ToI, AP Hota, managing director of the National Payments Corporation of India, confirmed that the double taxation rumors were totally untrue. “There are no charges other than the 15% service tax which becomes 18% GST,” Hota said. Even this tax is not based on the transaction, it is applied on the fees, called the merchant’s discount rate (MDR), charged to the merchant by the bank. Since stores are not allowed to pass the MDR to the customer, any credit card transaction is as good as it is free for the cardholder.
Bankers said that in the financial sector, the only impact of imposing the GST was a three percentage point increase in the tax. “All services for which fees are charged in the financial sector are already taxed. However, there is no transaction tax, ”said a senior banker.
This means that if a cardholder spends Rs 5,000 in a restaurant, the business owner pays Rs 100 as the merchant’s discount rate to the bank. Since the Rs 100 is a charge for a service, until now there was an applicable service tax which was Rs 15. Compared to the previously applicable Rs 15 tax, the merchant will now pay a tax on the products and services of 18 Rs.
For the customer, there is no change because the merchant’s discount rate is not allowed to be passed on. For banks, the difference is that they will now get an input tax credit for the GST. Bankers said it is not yet clear how much savings they will see on the input tax credit account.
The government said companies should pass on the benefits they get in the form of input tax credit through lower prices to customers. This was made mandatory under section 171 of the GST bill. This clause also provides for the establishment of an anti-profiteer authority to act against those who do not pass the savings on to customers.