How GST will be charged on payment apps like PAYTM , GPAY

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Akarsh Garg (Querist)
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27 June 2022 Recently, one of my client has started business similar to paytm by developing his own app and wants to know how GST will be levied on him, whenever anyone recharges his phone through his app.
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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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09 July 2024 GST (Goods and Services Tax) implications for a business similar to Paytm, where users can recharge their phones through an app, involve understanding the nature of transactions and services provided. Here’s a detailed look at how GST will be levied in this scenario:

### 1. **GST on Service Charges/Commission:**

Your client’s app likely earns revenue through service charges or commissions for facilitating phone recharges. The key points to consider are:

- **Nature of Service**: The service provided by the app is that of an intermediary, facilitating the recharge between the customer and the telecom service provider.
- **GST Rate**: The service charges or commission earned by your client for facilitating the recharge will attract GST at 18% under the category of “Other professional, technical and business services” (SAC 9983).

### 2. **GST on Recharge Amount:**

The actual recharge amount paid by the customers is for telecom services provided by the telecom operators. Here’s how it’s typically managed:

- **Pass-Through Transactions**: The amount collected for the recharge is a pass-through transaction where your client acts as an agent. This amount does not constitute income for the app owner and hence, no GST is levied on it by the app owner.
- **GST by Telecom Operator**: The telecom operator, who provides the recharge service, will charge GST on the recharge amount at applicable rates (usually 18%).

### 3. **Input Tax Credit (ITC):**

Your client can claim ITC on GST paid on inputs, capital goods, and input services used in the course or furtherance of business. This could include:

- GST paid on software development costs.
- GST paid on operational expenses such as office rent, equipment, and services utilized in running the app.

### 4. **Compliance and Filing:**

- **GST Registration**: Ensure your client has GST registration.
- **Invoicing**: Your client should issue GST-compliant invoices for the service charges or commission earned.
- **Returns Filing**: Regular filing of GST returns (GSTR-1, GSTR-3B, and annual return GSTR-9) is mandatory.

### Steps for Compliance:

1. **GST Registration**: Ensure your client is registered under GST.
2. **Invoicing**: Generate GST-compliant invoices for service charges/commissions.
3. **Maintain Records**: Keep detailed records of all transactions, including recharges processed and commissions earned.
4. **File Returns**: Regularly file GST returns, ensuring all service charges/commissions are correctly reported.

### Example:

Assume a user recharges their phone with ₹100 through the app. Here’s how the GST would be handled:

- **Recharge Amount (₹100)**: This amount is passed on to the telecom operator. No GST is levied by the app on this amount.
- **Service Charge/Commission (Assume ₹2)**: If the app charges ₹2 as a service fee:
- GST on Commission: ₹2 * 18% = ₹0.36
- Total Commission including GST: ₹2 + ₹0.36 = ₹2.36

The app will charge the user ₹102.36, of which ₹100 goes to the telecom operator, and ₹2.36 (₹2 + ₹0.36 GST) is the app’s revenue.

By understanding these aspects, your client can ensure compliance with GST laws and correctly levy GST on their services. It’s advisable to consult with a GST professional or accountant to ensure all regulatory requirements are met and to assist with detailed tax planning and compliance.