Moneycontrol
Jan 20, 2017 01:08 PM IST | Source: Moneycontrol.com

Budget 2017: Online payments may get cheaper with tax rebates in offing

Payments through digital channels including internet banking, debit card and credit card are likely to become cheaper. The Union Budget, which will be presented on February 1, is likely to announce tax rebates on such transactions.

 
 
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M Saraswathy
Moneycontrol

Payments through digital channels including internet banking, debit card and credit card are likely to become cheaper. The Union Budget, which will be presented on February 1, is likely to announce tax rebates on such transactions.

Currently, payments ranging from restaurant bills to booking a airline ticket, carry a service tax of 14 percent. In addition, a total of 1 percent charge is levied by way of Swachh Bharat and Krishi Kalyan Cess.

A senior banker said that in the pre-Budget meeting with the Finance Ministry, incentives for cashless payments were one of the main areas of discussions.

“Until the Goods and Services Tax (GST) is implemented, existing rates will continue. The ministry officials have also given a positive response to incentivise customers,” the executive said.

During the demonetisation period, one of the primary objectives that the government highlighted was to create a cashless India where the money trail is visible and each rupee is accounted for. However, with the ATM transaction fee as well as e-payment charges still applicable, not enough incentives are being provided for customers to use the digital channel.

Banks, which had earlier waived off the Merchant Discount Rate (MDR) as well as ATM transaction fee, have now brought them back. Their reason being they are required to pay the card companies. “Even when we waived off charges in the interim period, we were required to still pay the charges from our own books. Because we have to give benefits to customers, we should be incentivised, too,” said the chief of a private sector bank.

There are, however, some exceptions. State Bank of India (SBI) said that it decided to waive completely the MDR charges on debit card transactions for all small merchants having an annual turnover of up to Rs 20 lakh, for a period of one year, up to December 31, 2017.

This, the bank said, is with a view to help small merchants overcome the apprehensions towards joining this journey by installation of Point of Sale (PoS) terminals in their shops.

Bankers also said that there is a reluctance among customers to use cards for payments, since there is an additional charge imposed. This is especially true for large-value transactions where convenience fees and service tax are much higher.

With the government banning old Rs 500 and Rs 1000 notes, all banks have seen a marked rise in digital transactions. With additional incentives on cards, bank officials expect the uptake to rise even further.
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