Government proposes income tax benefits for debit/credit card payments

Tax benefits, lower transaction fees for electronic payments and a nominal charge on high-value cash transactions are among likely steps that India plans to implement to become a cashless economy.

The government on Monday released draft proposals to encourage electronic transactions, which are expected to curb generation and circulation of black money.

The draft proposes a mix of steps to increase debit and credit card usage, mobile payments and other forms of electronic transactions.

It recommends tax breaks for consumers and merchants for higher usage of electronic transactions and waiver of service charges or convenience fees on card payments at utility providers, petrol pumps and railway ticket bookings to encourage more electronic transactions. It has also suggested mandatory electronic payments for high-value transactions above a certain threshold (an indicative amount of Rs.1 lakh) and a small cash-handling fee above a certain limit. It has also recommended that utility providers give small discounts to consumers in case the bills are being paid electronically.

The draft also suggests asking banks that issue credit and debit cards to deploy point-of-sale terminals in the proportion of the card issuances. It also proposes rationalization of charges levied by telecom companies on mobile payments. At present, telecom companies charge Rs.1.50 per transaction for mobile banking and payments. It also proposes a time-bound grievance redressal mechanism in case of fraudulent transactions.

Currently, banks have to report the aggregate amount of all credit card payments made in a year to the income tax department as one transaction, if the amount is more than Rs.2 lakh. To facilitate high-value transactions, the ceiling could be increased to Rs.5 lakh or more, the draft said.

Finance minister Arun Jaitley announced in the 2015-16 budget that the government will look at ways to incentivize electronic transactions. The ministry subsequently set up a committee of officials from government, banks, Reserve Bank of India, service providers and payment gateways to look into this. 

By encouraging electronic transactions, the government hopes to reduce tax avoidance and counterfeit money in the economy as all electronic transactions will be well-documented.

The draft, put up on www.mygov.nic.in, is open for public feedback till 29 June.