To encourage more people towards formal economy and to boost public revenue, Prime Minister Narendra Modi introduced a plan to cut transaction costs for electronic payments, to probe retailers and consumers towards cashless economy.
Finance Ministry proposed a draft which was posted on their website late on Monday, the government recommended tax concessions to reduce the cost of credit, debit and online payments. The following will be implemented gradually after June 29, 2015.
With a cash-to-GDP ratio of 12 %, almost four times that of markets such as Brazil, Mexico and South Africa, makes India one of the most cash- intensive economies in the world, estimated by MasterCard.
To avoid high transaction costs of up to 3 percent on electronic payments, as well as to escape sales tax, many small Indian businesses and consumers prefer cash.
If successful in increasing card payments, the new measures will be a boost for global and debit card companies MasterCard ) , Visa and American Express , as well as domestic rival RuPay and mobile payment banks.
“It is a big economic reform of the Modi government that will ease conducting business by consumers and merchants,” said A.P. Hota, chief executive of RuPay’s parent, the National Payment Corp of India (NPCIL).
NPCIL, with 165 million cards, expects a jump in business once transaction costs are lowered, including those on state-run Indian Railways and retail petrol pumps, he said.
Mr. Narendra Modi is also rolling out banking services for all households and shifting the payment of state subsidies into people’s bank accounts, moves intended to deepen the financial system and deter fraud.
According to Finance Ministry officials, the central bank and telecom operators had already been consulted on the new plan.
D.S. Malik finance ministry spokesman said, “The scheme aims to make the life of consumers easier.”
One proposal is to offer sales tax rebates of 1 to 2 percentage points to merchants who report at least half of their transactions through online payments.
Consumers could get an income tax rebate for electronic payment of a proportion of their expenses, the draft suggested.