India’s financial regulators and banks are calling for a change in GST rules that could shake up merchant registration and digital payment norms. The move? Raising the annual turnover threshold for GST registration from the current ₹40 lakh to ₹1 crore. The goal is to simplify compliance and encourage more merchants to embrace digital payments without the burden of smaller filings.
Current GST Thresholds and Why Banks Want a Change
Right now, businesses selling goods need to register for GST if their annual turnover exceeds ₹40 lakh, while service providers must register above ₹20 lakh. But many merchants shy away from digital payments or formal registration because it often means dealing with complex paperwork and tax filings.
A senior official from the finance ministry told Moneycontrol, “This is primarily about registration. Merchants won’t necessarily have to pay taxes if below certain limits, so they shouldn’t be worried. The idea is to lower compliance burdens.”
Banks and regulators like the Reserve Bank of India (RBI) and National Payments Corporation of India (NPCI) have been weighing in for months on the issue. They argue the current slabs encourage many merchants to stay off the formal GST radar and avoid digital payments to skip tax filings altogether.
MDR and Its Role in Digital Payment Adoption
One big piece in this puzzle is the Merchant Discount Rate (MDR). That’s the fee payment companies charge merchants when customers pay digitally, often seen as a cost hurdle by smaller businesses.
Sources familiar with ongoing talks say financial institutions are pushing to apply MDR only to merchants with turnover above ₹1 crore. The idea is to ease the cost pressure on smaller merchants, nudging them toward digital payments without feeling squeezed.
The hope is that this adjustment will strike a balance — increasing GST registration numbers while not overburdening small merchants with fees or filings.
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A ₹1 crore threshold aligns better with many merchant realities, reflecting business growth and digital payment capability.
This approach could be a game-changer for digital payment adoption, especially for micro and small businesses.
Diverse Reactions from the Merchant Ecosystem
The debate isn’t without its critics. Some small business owners worry even a ₹1 crore slab might still feel restrictive. Others feel any GST registration — even if just for records — adds unnecessary red tape.
Still, there’s growing recognition that digitization and formal registration go hand in hand. The government’s broader agenda includes bringing more economic activity into the formal system to boost tax revenue and transparency.
Some industry insiders believe:
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Raising the GST slab will reduce the number of small businesses avoiding formal registration.
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It could improve credit access for merchants by linking their turnover data with financial institutions.
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There’s potential for better financial planning and compliance as merchants adapt.
It’s a delicate balancing act. Too low a threshold, and you scare off small players. Too high, and the government loses visibility into business activity.
What This Means for India’s Digital Economy
The numbers say it all. India’s digital payments continue to grow rapidly, but a large chunk still comes from bigger merchants. Smaller players often prefer cash or informal digital modes that evade tax.
Increasing the GST threshold could unlock new segments:
| Metric | Current Threshold | Proposed Threshold |
|---|---|---|
| Goods Annual Turnover Limit | ₹40 lakh | ₹1 crore |
| Services Annual Turnover Limit | ₹20 lakh | ₹1 crore (likely) |
| MDR Applicability | All merchants | Only above ₹1 crore |
By focusing MDR charges on bigger merchants, the digital payments ecosystem may become more inclusive, helping micro-entrepreneurs take part without being bogged down.
The finance ministry’s push also signals readiness to refine GST rules to suit India’s evolving business landscape — one where digital payments and formal economy go hand in hand.
While implementation details are still pending, the chatter within banks, regulators, and businesses points to a gradual but important shift.
Will this push be the nudge small merchants need to fully embrace digital payments? Only time will tell, but the stage is set for change.
