NEW DELHI: A year after demonetisation, India is getting ready to give digital payments yet another push. It could consider providing incentives in the goods and services tax (GST) regime for payments that are settled electronically.
The GST Council meeting on Friday is likely to consider a proposal in this regard, a senior government official told ET.
“There is a thinking that digital transactions need to be incentivised… The council will look at what could be done,” the person said.
The council could take up the proposal along with steps to cut GST on some items from the top 28% rate besides easing the compliance burden for businesses. As far as digital payments are concerned, the council has the option of incentivising merchants and customers.
Under the proposal, benefits in terms of credit or exemption could be provided within central and state GST to encourage such transactions. A merchant could, for instance, get credit for digital payments that can be adjusted against GST liabilities. Consumers, on the other hand, could be incentivised through lower tax when payments are made digitally.
The government feels built-in incentives in the tax structure could help in making digital transactions more acceptable to customers and merchants as the benefit is visible immediately.
Another possible change could be through the merchant discount rate (MDR), a transaction charge levied for facilitating digital transactions, which is seen as a hurdle in the way of digital payments. The MDR on credit cards runs from 0.25% to 1%. There’s no limit on MDR for credit cards.
The Narendra Modi government is keen on pushing digital transactions and had set up a committee under the chairmanship of Andhra Pradesh chief minister N Chandrababu Naidu to discuss strategies to achieve this. This panel had suggested abolishing MDR charges.
The usage of cards for purchases, mobile wallets and newer options such as the Unified Payments Interface (UPI) have been increasing after demonetisation in November last year sucked out 86% of cash in circulation.
Card transactions for purchases rose from 230 million in October 2016 to over 380 million in August this year. The rise in mobile wallet transactions has been steeper over the same period, from 100 million to over 225 million.
The government had announced incentives for digital payments to encourage adoption. Payment by digital means for fuel purchases is rewarded by a cashback incentive.