Cabinet gives boost to cashless payments

Cabinet approves measures to promote payments through cards and other electronic means to check tax evasion and transition towards a cashless economy


The charges are being rationalized at a time when more than 800 million card transactions are recorded each month. Photo: iStockphoto
The charges are being rationalized at a time when more than 800 million card transactions are recorded each month. Photo: iStockphoto

New Delhi: The Union cabinet on Wednesday approved measures to promote payments through cards and other electronic means to check tax evasion and transition towards a cashless economy.

“Several short-term (to be implemented within a year) and medium-term measures (to be implemented within two years) have been approved for implementation by the government ministries/departments/organizations,” the government said in a statement without specifying the details of measures that are short-term and medium-term.

The statement said the essential steps for promotion of electronic payments include withdrawal of surcharge, service charge, convenience fee on cards and digital payments currently imposed by various departments. This means soon booking tickets on the Indian Railway Catering and Tourism Corp. website or paying water, telephone and electricity bills will not attract extra charge if paid by card. The steps also include rationalization of merchant discount rate (MDR) on card transactions and a differentiated framework for some key transaction segments.

The government, however, did not specify the reduction in MDR. At present, MDR levied on debit card transactions is 0.75% and 1% on credit card transactions. The charges are being rationalized at a time when more than 800 million card transactions are recorded each month.

Other measures include mandating payments beyond a prescribed threshold only in card/digital mode, the statement said, without specifying the threshold. A draft floated by the finance ministry in June 2015 on payment through cashless mode had proposed making it mandatory for all transactions above a limit of Rs.1 lakh to be done electronically.

The cabinet note, was, however, silent on a proposal to provide tax breaks to individuals and merchants, as suggested by the initial draft.

The specifics about some of these proposals may be announced in the Union budget to be presented on 29 February, Mint reported on 4 December.

Over the past few years, successive governments and the Reserve Bank of India have taken a number of steps to move towards a digital payment ecosystem. Beginning from direct transfer of subsidies to bank accounts of beneficiaries, to providing RuPay debit cards, to allowing entities to set up payment banks, the whole payment ecosystem has made substantial progress.

However, the use of electronic payments still remains very low in rural areas.

Another plans that received the cabinet’s nod is rationalization of telecom service charges for digital financial transactions and steps to promote mobile banking. The finance ministry is in talks with the Telecom Regulatory Authority of India (Trai) to reduce the unstructured supplementary service data (USSD) charge of Rs.1.50 per transaction to encourage mobile banking.

The cabinet also decided to create the necessary assurance mechanisms for quick resolution of fraudulent transactions.

In another key decision, the cabinet chaired by Prime Minister Narendra Modi moved a step forward on the Indo-Iranian Chabahar port deal, with India approving a plan to provide credit of $150 million from the EXIM Bank for development of the port. With the approval, ministers of finance, external affairs and shipping have also been given the green signal to approve the final contract with Iran and resolve issues arising in its implementation.

Located in Sistan-Balochistan province on Iran’s south-eastern coast, Chabahar is of great strategic utility for India as it gets sea-land access route to Afghanistan, bypassing Pakistan. The port is to be used to ship crude and urea, saving India transportation costs.

According to the MoU, India is going to equip and operate two berths in Chabahar Port Phase-I with capital investment of $85.21 million and an annual revenue expenditure of $22.95 million on a 10-year lease, a government statement said.

Ownership of equipment will be transferred to the Iranian side on completion of the 10-year period or for an extended period, based on mutual agreement. On the other hand, the Iranian side had requested for credit of $150 million in accordance with the MoU.

The cabinet cleared the setting up of two missions within the NITI Aayog, with supporting manpower to promote innovation and entrepreneurship in the country. The Atal Innovation Mission will get a corpus of Rs.500 crore, while Self Employment and Talent Utilization mission will get Rs.1,000 crore funding, the statement said.

NITI Aayog will hire a mission director who will be based in the capital. The decision to set up the missions was announced by finance minister Arun Jaitley in his 2015-16 budget.

The cabinet also approved a pact between India and the Maldives for the avoidance of double taxation of income from global air transport. Under the pact, profits from the operation of aircraft on international routes will be taxed in one country alone—to which the enterprise belongs. The pact will provide tax certainty for airline enterprises of India and the Maldives.