Tax benefits for digital pays likely in budget

MORE THAN 90% OF THE 700 MILLION DEBIT CARD HOLDERS IN THE COUNTRY USE THE CARDS ONLY TO WITHDRAW CASH FROM ATMS, SOURCES IN THE BANKING SECTOR SAID

To encourage the use of plastic money, the government is likely to announce in the budget a string of measures to steer India on path to a cashless economy, one of the aims of the demonetisation move. Following its surprise decision to scrap ₹500 and ₹1,000 banknotes that has triggered a cash crunch, the government is asking people to switch to plastic or digital money in a country where 68% of transactions by value are in cash.

Incentives are likely for merchants promoting use of plastic money and tax benefits could be offered to those making electronic payments, sources said.

“We will put in place several measures to push the use of debit and credit cards and also encourage digital payment…” a finance ministry official told HT on condition of anonymity, without elaborating on what the steps would be.

The ministry could also come out with a Pradhan Mantri Jan Dhan Yojana-like scheme to spread the use of debit cards, especially among the rural and semi-urban areas, sources said.

The Jan Dhan programme has enabled 260 million people, most of them from the lower-income strata, to get bank accounts.

The government was looking at a proposal to provide tax breaks to retailers carrying out at least half of their transactions, by value, electronically.

While banks agreed to waive off transaction charges temporarily as people struggle for cash after the November 8 demonetisation announcement, sources called for a “concrete policy”.

“Customers and retailers both need to be in a win-win situation for using the digital payment mode,” the ministry official said, adding merchants, especially those running small businesses, would be encouraged to acquire PoS (point of sale) machines to facilitate payments.

The move would be in sync with the government’s objective of curbing black money, which gets generated when transactions are made in cash and without any record.

Government employees were being encouraged to promote the use of plastic money, the finance ministry said on Monday.

The demonetisation exercise has led to a surge in first-time debit card users. Bankers say the use of plastic money has more than doubled since November 8.