Draft Proposals:
Income Tax Benefit
On Payments Made
By Debit and Credit
Cards..!
The Finance Minister in his
budget speech for the Union Budget 2015-16 made the following announcement:
“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, proposes to introduce
soon several measure that will incentivize credit or debit card transactions
and disincentivize cash transaction”.
Accordingly, draft
proposals for facilitating electronic transactions (E-transactions) have been
prepared. Comments and views are invited on the Draft Proposals.
Draft Proposals For
Facilitating Electronic Transactions (The Proposals placed below are only at
the draft stage and are being placed here to obtain public opinion. The
proposals as they stand at this stage, do not imply any commitment from the
government)
The last date to share your
views is 29 June, 2015 by 5:00 p.m.
Ministry proposed Income
Tax benefit on payment of certain % of
Expenses through Debit / or credit card or / other electronic means.
No details has been given
how this proposal will be implemented.
Further, in these draft
proposals, Incentive of Value Added Tax (VAT) may also be allowed if vendor
encourage customers to pay through electronic means.
Govt also intended to allow
rebates where payment are being made through electronic means for payments to
Govt. departments Like railway ticket booking, phone bill etc.
All other draft proposals
are listed below.
Draft Proposals For
Facilitating Electronic Transactions
I. Objectives..!
1. Improve the ease of
conducting transactions for an individual
2. Build a transactions
history to enable improved credit access and financial inclusion.
3. Reduce the risks &
costs of carrying cash at the individual level.
4. Reduce costs of managing
cash in the economy.
5. Reduce tax avoidance
6. Reduce the impact of
counterfeit money.
II. Scope ..!
Provide access to financial
services to every citizen along with ability to conduct non cash transactions
Electronification of
Government Collections by equipping each collection desk with a method to
accept non cash receipts
Migrate payment
transactions from cash dominated to non-cash through incentivization of
electronic and disincentivization of cash based transactions
Enhance acceptance
infrastructure in the country to promote electronification of transactions
Encourage Government,
Corporates, Institutions and merchant establishments to facilitate non cash
payments
III. Definition..
E-transactions are defined
as transactions in which the customer authorizes the transfer of money through
electronic means, and the funds flow directly from one account to another.
These accounts could be
held in banks, or / with prepaid instrument providers. These transfers could be
done through means of cards (debit / credit), mobile wallets, mobile apps, net
banking, Electronic Clearing Service (ECS), National Electronic Fund
Transfer(NEFT), Immediate Payment Service (IMPS), or other similar means.
4. Goal..!
The goal of the proposed policy is to provide
the necessary incentives to use Etransactions to replace the use of cash -
either in government transactions, or in regular commerce over a period of time
through policy intervention.
5. Way Forward..
The draft proposals
detailed in this section, have been prepared after due deliberations and
consultations with various stakeholders which includes RBI, NPCI, NIBM, public
and private sector banks, card service providers, mobile service providers,
research institutions, organizations working in this area and various
government departments.
5.1 Enabling policy for
E-transactions in Government Collections ..
Now, Government Departments
/ Central Public Sector Undertakings / Organizations levy a convenience fee /
service charge / surcharge for making E-transactions (card payments) to
essential commodities, utility service providers, petrol pumps, gas agencies,
railway ticket counter / IRCTC etc.
The feasibility of removing
the charges will be examined.
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% of the
billed amount if the payment is done through electronic mode.
Government Departments to
introduce appropriate acceptance infrastructure or adopt national E-payment
gateway ‘PayGov India’ for collection of revenue, fee, penalties etc.
5.2 Measures to promote
wider adoption of E-transactions..!
Now, there is a Merchant
Discount Rate (MDR) of 0.75% on Debit Card transactions upto Rs.2,000 and 1% on
all transactions above Rs.2,000. The possibility of reduction in the MDR and
the rationalization 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 & need to be standardized /
rationalized to encourage both issuing and acquiring banks to establish and
utilize acceptance infrastructure.
Tax benefits could be
provided to merchants for accepting electronic payments, example an appropriate
tax rebate can be extended to a merchant if at least say 50% value of the
transactions is through electronic means. Alternatively, 1% to 2% reduction in
VAT 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 & safety requirements.
Consider a levy of a
nominal cash handling charge on transactions greater than a specified level.
Mandating settling of high
value transactions of, say, more than Rs. 1 lac, only by electronic means.
Now, 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 lacs in a year. To facilitate high
value transactions, the ceiling of Rs. 2 lacs could be increased to say Rs. 5
lacs or / more.
5.3 Creating enabling
environment / acceptance infrastructure ..!
It has been observed that
acceptance infrastructure, particularly Point of Sale (PoS) / Mobile PoS
terminals as a percentage of the total number of Debit / or 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 authorized to install white label POS terminals.
Improve broad band
connectivity to enable mobile based payments on a wider scale.
5.4 Encouraging mobile
banking / payments channels..!
Now, 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 &
rationalized.
Appropriate changes in the
regulatory structure, if required, to promote mobile based payment systems.
5.5 Awareness & grievance
redressal..!
Assurance mechanisms for
fraudulent transactions to be created wherein, 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.
6. Other Issues..!
While the Payments and Settlement Systems
(PSS) Act, 2007 governs this area, 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.
Comments and views are
invited on the Draft Proposals.
Draft Proposals For
Facilitating Electronic Transactions (The Proposals placed below are only at
the draft stage and are being placed here to obtain public opinion.
The proposals as they stand
at this stage, do not imply any commitment from the government)
Comments/suggestions are
invited on the draft text which can be accessed through My Govt Portal. The
last date to share your views is 29 June, 2015 by 5 PM.
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