UPI should not be a tax trap

The former has allowed 300 mn Indians to enjoy the convenience and speed of digital payments, the transaction value of which topped Rs 260 tn in FY2025 while the latter has allowed indirect tax payments to exponentially increase, achieving a record Rs 22 tn in the same period.

Thanks to the efforts of private operators, UPI user adoption and merchant acceptance grew exponentially.

But while consumers enjoyed the ability to make payments via mobile phones, many small and medium physical merchants (SMPMs) accepted UPI because it cost nothing.

So, now when the state governments, began to use UPI transaction data to present small merchants with a consolidated GST bill, merchants outrage was a result of being asked to pay a levy they had never been expected to suffer before, and a lingering suspicion that they had been won over with honest freebies only to be betrayed in taxing consequence.

Current SMPM misgivings are not without merit. Those that were forced to register for GST find that the simplified, but higher, tax rates eat into profits. Moreover, other complexities like technological integration, compliance requirements and working capital challenges liked to paying a one-time monthly bill have made many qualifying merchants- even those with a sense of probity-shy away from exploring the advantages of this simplified tax scheme.

Furthermore, many SMPMs, originally exempted because their annual turnover did not exceed the minimum threshold of Rs 40 lakh (Rs 20 lakh in the northeastern states), are being coerced by officials into paying a tax they cannot comprehend, and whose basis they vociferously deny.

Much better that GoI rationalises GST rates for SMPMs, to make the levy both near-universal and palatable.