Govt proposes tax sops for use of credit/debit card

The government has 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 settling of high value transactions of more than Rs1 lakh by electronic means mandatory.

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 Rs2 lakh in a year. To facilitate high value transactions, the ceiling of Rs2 lakh could be increased to say Rs5 lakh or more.

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 money.

''Tax benefits in terms of income tax rebates to be considered to consumers for paying a certain proportion of their expenditure through electronic means,'' according to the draft.

The paper said tax benefits could be provided to merchants for accepting electronic payments.

At present, there is a merchant discount rate (MDR) of 0.75 per cent on debit card transactions up to Rs2,000 and 1 per cent on all transactions above Rs2,000.

The possibility of reduction in the MDR and the rationalisation of the distribution of the MDR across different stakeholders will be examined.  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.

Tax benefits could be provided to merchants for accepting electronic payments, eg, 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. Tax benefits in terms of income tax rebates to be considered to consumers for paying a certain proportion of their expenditure through electronic means.

The authentication requirements for different classes of transactions could be re-examined based on the risk profile and safety requirements. 

The government may consider a levy of a nominal cash handling charge on transactions greater than a specified level. 

The finance minister in his 2015-16 budget had said, "One way to curb the flow of black money is to discourage transactions in cash. Now that a majority of Indians has or can have, a RUPAY debit card. I therefore, propose to introduce soon several measure that will incentivize credit or debit card transactions and disincentivise cash transaction".

Accordingly, draft proposals for facilitating electronic transactions (E-transactions) have been prepared. The government has invited comments till 29 June on the draft proposals.