Budget 2017: Arun Jaitley pushes for a cashless economy

Finance minister Arun Jaitley proposed a slew of measures to hasten India’s movement to a cashless economy. Among them are a ban on cash transactions more than Rs3 lakh, tax breaks for the creation of a cashless infrastructure, greater usage of non-cash modes of payments and making Aadhaar-based payments more widespread.

The government has been pushing for a shift to a less-cash economy, especially after the cancellation of legal tender of high-value notes on 9 November. These measures will create a paper trail for all transactions, thus providing an effective check against tax evasion.

The budget proposed to ban all cash transactions above Rs3 lakh, in line with the recommendations of the special investigative team (SIT) on black money.

The government will make the necessary amendments to the Income Tax Act to facilitate this, the finance minister said. The Supreme Court-constituted SIT, in its report last year, had proposed banning cash transactions above Rs3 lakh and capping cash holdings of individuals and companies at Rs15 lakh.

High-value cash transactions are a common feature in the real estate sector where buyers try to get away with paying lower stamp duty.

Curbing black money is one of the electoral promises of the National Democratic Alliance and the government has announced a number of steps over the last couple of years to check black money, including the recent move to demonetize high-value banknotes.

In the Union budget, the government has sought to incentivize greater use of non-cash transactions for small businesses by lowering the tax rate on presumptive income to 6% from 8% for all non-cash transactions.

Jaitley also announced tax exemptions for manufacturers of point-of-sale (PoS) card readers, mobile PoS (mPOS), fingerprint readers and iris scanners.

The budget also announced the setting up of a separate payments regulator within the Reserve Bank of India (RBI) to regulate the payments space. A review of the Payments and Settlements Act will also be undertaken, aimed at its overhaul.

To give a major push to Aadhaar-based transactions, the government announced that one million biometric PoS machines will be installed by March and subsequently scaled to two million by September.

Aadhaar Pay, a merchant version of Aadhaar-Enabled Payment System (AEPS), will be launched soon to enable those who do not have debit cards, mobile wallets and mobile phones to make digital payments.

The government will also take steps to encourage and possibly mandate digital payments at petrol pumps, fertilizer depots, road transport offices, universities, colleges, hospitals and other institutions.

It plans to strengthen the digital payment infrastructure, especially in rural and semi-urban areas.

It also announced two new schemes—Referral Bonus Scheme for individuals and a Cashback Scheme for merchants—to promote the usage of the Bharat Interface for Money (BHIM) app aimed at encouraging merchants and individuals to use the app and make more digital payments.

The government estimates that around 25 billion digital transactions will take place in 2017-18 via different modes of payments such as the Unified Payments Interface (UPI), immediate payment service, AEPS and debit cards used on PoS terminals.

Since the 8 November announcement of the demonetization of high-value currency notes, several incentives to promote cashless payments have been announced, including waiver of service charges on card payments and reducing the merchant discount rate. The government hinted that it will consider and work with the various stakeholders for the early implementation of the interim recommendations submitted to Prime Minister Narendra Modi by the chief ministers’ panel, headed by Andhra Pradesh chief minister N. Chandrababu Naidu, on digital transactions.

“The problem with digital payments has been with the merchants and not the consumers while accepting the payments. Therefore, the incentives and tax exemptions are a part of the budget. The merchant discount rate (MDR) is too expensive and there is a need to look at ways to bring it down,” said Rahul Matthan, partner at law firm Trilegal.

“There is a benefit in having a separate body for digital payments. Though RBI should still be on top of it, there must be freedom to think flexibly on this issue,” Matthan added.

Jaitley also announced that railways will no longer levy service charge on train tickets booked online through the IRCTC website. Earlier, a service tax of Rs20 had to be paid while booking sleeper class tickets and Rs40 for AC class tickets.

The budget suggested additional cashless initiatives such as Aadhaar-based smart cards for senior citizens.

It also announced a computer emergency response team for the financial sector (CERT-Fin) to increase security of digital transactions.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.