Centre may grant IT rebate for cashless transactions

The idea is to curb black money flows and help the poor access loans

: Income tax rebate is one of the incentives being considered by the government to encourage people to move away from cash transactions and curb black money flows, a senior official said on condition of anonymity. The move may eventually use cashless transaction records to build a credit history for the poor and help them access loans.

Since the Budget had promised measures to promote cashless transactions, a few measures could be announced soon.

“The key consideration is that people pay nothing to use cash but it imposes a lot of hidden costs on the economy. While using cards or mobile wallets to make payments is convenient, they need to pay a fee and service tax. We want to do away with this disincentive,” the official said.

In this year’s Budget, Finance Minister Arun Jaitley said that discouraging cash transactions is one way to curb the flow of black money.

“Now that a majority of Indians has or can have, a RUPAY debit card, I therefore, propose to introduce soon several measures that will incentivise credit or debit card transactions, and disincentivise cash transactions,” Mr. Jaitley had said. The Finance Ministry has begun the process for making the Union Budget for 2016-17.

While the usage of cards and mobile payment solutions such as PayTM and Ezetap is expanding rapidly in urban India, the government is looking at ways to take this to the hinterland. Following the expansion of bank accounts coverage under Pradhan Mantri Jan Dhan Yojana, the government wants to scale up the infrastructure for making digital payments so that the same convenience and acceptability as cash can be attained. The National Payments Corporation of India is building a part of that infrastructure.

“Instead of just withdrawing them in cash at a high implicit cost, if they could make payments from the account digitally, it would help build a transaction history and help them get credit-related services from banks that they would otherwise be ineligible for, like a loan for micro and small business ideas,” the official said.

Another official familiar with the issue said that one of the ideas being examined is that if an income tax rebate could be offered to those who make a substantial part of their annual payments in the cashless mode. Since bank statements are already submitted at the time of filing tax returns, it would easy to gauge the quantum of cash withdrawals made from their accounts.

“This could be used as a behavioural economics tool to drive more people towards vendors offering digital payment modes and in turn, help expand the penetration of point-of-sale devices for cashless deals,” he said.

While small account holders wouldn’t directly benefit from incentives like income tax rebates, they would gain from a rise in outlets accepting cashless payments.

“There is a high cost of cash to the economy that is not explicitly stated, apart from the cost of printing notes and taking soiled notes out of the system: the transport of cash, crimes like the recent ATM van heists, the risk of counterfeiting and the avoidance of tax that the cash economy enables,” the official said.

Of the many solutions to tame black money, cashless transaction is one of the very important solutions, Prime Minister, Narendra Modi, had said in January, stressing that people should make cashless transactions a habit.. “This is a very big opportunity and we should promote this.”