Government on Monday proposed income tax benefits for people making payments through credit or debit cards and doing away with transaction charges on purchase of petrol, gas and rail tickets with plastic money.
In a draft paper for moving towards cashless economy and reduce tax avoidance, the government also proposed to make it mandatory to settle high value transactions of more than Rs 1 lakh through electronic mode.
In order to incentivise shopkeepers, it has proposed tax rebate to them provided they accept a significant value of sales through debit or credit cards.
The proposals are aimed at building a transactions history of an individual to enable improved credit access and financial inclusion, reduce tax avoidance and check counterfeiting of currency.
“Tax benefits in terms of income tax rebates to be considered to consumers for paying a certain proportion of their expenditure through electronic means,” said that draft proposals for facilitating electronic transactions on which the government has invited comments till June 29.
It further said that all “high value transactions of, say, more than Rs 1 lakh, (be settled) only by electronic means”.
The paper said the tax benefits could be provided to merchants for accepting electronic payments.
“An appropriate tax rebate can be extended to a merchant if at least say 50 per cent value of the transactions is through electronic means. Alternatively, 1-2 per cent reduction in value added tax could be considered on all electronic transactions by the merchants,” it added.
Finance Minister Arun Jaitley in his budget speech had said that the government would “introduce soon several measure that will incentivise credit or debit card transactions and disincentivise cash transaction”.
The draft made a case for removing different types of fees and charges on e-transactions by various entities and providing incentives for such payments.
Observing that PSUs and other organisations levy a convenience fee and other charges for making e-transactions to utility service providers, petrol pumps, gas agencies and railway tickets, it said, “the feasibility of removing the charges will be examined”.
On the other hand, the paper said, “utility service providers could be advised to give a discount to users for small ticket payments through e-payments, on the lines of BSNL, which provides an incentive of 1 per cent of the billed amount if the payment is done through electronic mode”.
In order to promote wider adoption of e-transactions, it suggested rationalisation of the Merchant Discount Rate (MDR), which at present is 0.75 per cent on Debit Card transactions of up to Rs 2,000 and 1 per cent on all transactions above it.
“The existing inter-change fee on Debit/Credit Card transactions are not uniform and need to be standardised/ rationalised to encourage both issuing and acquiring banks to establish and utilise acceptance infrastructure,” it said.
A nominal cash handling charge on transactions greater than a specified level may be levied, it added.
The draft also proposes to relax the norms for reporting credit card transactions of individuals by banks.
“At present, banks have to report the aggregate of all the payments made by a credit cardholder as one transaction, if such an amount is Rs 2 lakhs in a year. To facilitate high value transactions, the ceiling of Rs 2 lakhs could be increased to say Rs 5 lakhs or more.”
Government departments, it said, should also consider introduction of appropriate acceptance infrastructure or adopt national E-payment gateway ‘PayGov India’ for collection of revenue, fee and penalties etc.
At present there are about 56.4 crore debit cards and 11.25 point of sale (PoS) terminals in the country.
Seeking to promote mobile banking, the draft suggested that the charges levied by telecom companies need to be rationalised.
“Currently, the telecom companies are levying an Unstructured Supplementary Service Data (USSD) charge of Rs 1.50 per transaction for mobile banking/payments. To enhance adoption of mobile banking/payment, the USSD charges could be examined and rationalised.
“Appropriate changes in the regulatory structure, if required, to promote mobile based payment systems.”
The proposals seek to improve ease of transactions for individuals, reduce the risks and costs of carrying cash and curtail cost of managing cash in the economy.
Besides, it will also encourage encourage government, corporates, institutions and merchant establishments to facilitate non-cash payments.
The e-transactions, according to the draft, will include transactions made through debit/credit cards, mobile wallets, mobile apps, net banking, Electronic Clearing Service (ECS), National Electronic Fund Transfer(NEFT), Immediate Payment Service (IMPS), or other similar means.
The draft proposals were prepared by the government after consultations with various stakeholders which includes RBI, NPCI, NIBM, public and private sector banks, card service providers, mobile service providers, research institutions and government departments.
The paper highlights that acceptance infrastructure, particularly Point of Sale (PoS)/Mobile PoS terminals as a percentage of the total number of Debit/Credit Cards is very low.
“Therefore, mandating banks issuing cards to deploy POS terminals in a prescribed ratio could be considered. Like in ATMs, non-banks could be authorised to install white label POS terminals,” it said, while stressing on improving broad band connectivity to enable mobile based payments on a wider scale.
On awareness and grievance redressal, it said in case of a fraudulent transaction, the money will be credited back to customer’s account and blocked and subsequently released after the investigation is complete/limited to say a maximum of 3 months.
It further said changes in the regulatory mechanisms could be examined to ensure that innovations in the payments ecosystem continue to happen.
The linkages with Aadhaar based identification for authentication could also be strengthened, it added.