Govt proposes tax benefits on payment via credit or debit cards

The finance ministry on Monday proposed income tax (I-T) benefits for persons paying 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 aimed at moving towards a cashless economy and reducing tax avoidance, the ministry has also proposed to make it mandatory to settle high- value transactions of more than Rs 1 lakh through electronic mode.

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"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 proposals.

The government has invited comments till June 29 on mygov.in. 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.

In order to incentivise shopkeepers, the draft proposes a tax rebate to them provided they accept a significant value of sales through debit or credit cards.

"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, one-to-two-per cent reduction in value added tax could be considered on all electronic transactions by the merchants", the proposal said.

Union finance minister Arun Jaitley in his Budget speech had said that the government would "introduce soon several measures that will incentivise credit or debit card transactions and disincentivise cash transaction".

The draft makes a case for removing different types of fees and charges on e-transactions by various entities and providing incentives for such payments.

In order to promote wider adoption of e-transactions, the proposals suggests rationalisation of the merchant discount rate, which is 0.75 per cent on debit card transactions of up to Rs 2,000 and one 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," the draft says.

"A nominal cash handling charge on transactions greater than a specified level may be levied", it adds.

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 lakh in a year. To facilitate high-value transactions, the ceiling of Rs 2 lakh could be increased to say Rs 5 lakh or more."