Introduction
Payment gateway settlements rarely match gross transaction values. The gateway deducts the Merchant Discount Rate (MDR), GST on MDR, refund adjustments, and other fees before the net payout reaches the merchant's bank account. The question arises: How should merchants account for GST on these settlement differences?
This guide explains the GST treatment of MDR and other gateway fees, and the ITC claim process.
Legal Framework: GST on Payment Gateway Services
MDR and Gateway Fees
Payment gateway charges, including MDR, attract 18% GST under SAC 998433.
Place of Supply
For payment gateway services, the place of supply is the location of the recipient (the merchant).
GST Treatment of Settlement Differences
MDR Deduction
The gateway deducts MDR from the transaction value. GST at 18% is charged on the MDR.
Example
A ₹1,000 transaction with a 2% MDR results in a ₹20 fee. GST at 18% on the fee is ₹3.60, so the net settlement is ₹976.40 before other adjustments.
Merchant's ITC
The merchant can claim ITC on the GST charged on MDR and other gateway fees, subject to the conditions under Section 16.
Documentation Requirements
- Tax Invoice: From the payment gateway with GSTIN.
- Settlement Report: Documentation of the MDR and fees.
- GSTR-2B: Reconciliation of the invoice with GSTR-2B.
Best Practices
- Claim ITC: Claim ITC on MDR and gateway fees.
- Reconcile GSTR-2B: Reconcile gateway invoices with GSTR-2B.
- Maintain Records: Maintain all settlement reports and invoices.
- Seek Professional Assistance: For complex reconciliation.
Conclusion
Payment gateway settlement differences — MDR, GST on MDR, and other fees — are subject to GST at 18%. Merchants can claim ITC on these charges. Proper documentation and reconciliation are essential.
Reconciling payment gateway settlements? Anuj Desai & Associates provides expert guidance on GST compliance. Contact us today.
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- Email: office@anujdesaiassociates.com
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