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Economy

You Could Get a Tax Cut For Paying Electronically, Says a Government Proposal to Help E-Payments Trump Cash

The government has proposed a policy to make Electronic Transactions more attractive. In the proposal, they say a number of things that sound like music to my ears. It’s just a proposal, of course.

The Government Will Not Charge You Extra

You typically stand in line to buy a railway ticket, but pay a fee to buy the ticket online. You pay a fee to the bank to get petrol at a pump. This obviously is a pain, so many people choose to stand in line instead of paying that 1% extra.

Utility service providers too (BESCOM for example in Bangalore) charge an extra fee to pay online. Even through a debit card. I have no idea why.

This might just go away. The proposal says get it will “examine” the feasibility of removing the charges.

On another note: What is the point of saying you will examine the feasibility of removing charges? Huh? So examine it already and tell us you’re removing it, or you’re not. This is utter bullshit to tell us that you will examine something. Waste of time, patience and my blood pressure. Anyways.

Further there’s a PayGov India platform, an API based portal that all government departments can integrate with to receive payments. So no negotiating with banks etc.

VAT or Direct Tax Benefits to Merchants?

The proposal says merchants for whom 50% of transactions or more are electronic, a tax rebate or a reduction in VAT could be applicable. This is cool, though it’s not exactly something very interesting. Why? Because many establishments will simply not give  you a bill (or give you only a handwritten bill) for cash payments, and still take advantage of this system. More than 50% of their receipts will be electronic because they’re not declaring the cash receipts!

Tax Rebate to Consumers Too

In what must be fairly alarming to the finance ministry, even consumers could get a tax rebate if they pay a large portion of their expenditure electronically. I’m not sure how they figure out your total spend, though. Will you have to add up your ATM withdrawals and prove that X% of your spend was electronic? What if you used cheques?

Other

  • They might mandate that anything more than Rs. 1 lakh must be settled electronically only. (What about cheques? or Demand Drafts? What “instrument number” would you put in a sales agreement for a house if you can only do it electronically?)
  • Banks have to report transactions of Rs. 2 lakhs or more, as a credit card holder, to the Income Tax department. This could be hiked to Rs. 5 lakh. (Again, this is strange – it doesn’t cost any more money to report 5 lakh worth of transactions versus 2 lakh. What’s the point? To make you believe that the income tax department won’t know? )
  • Non-bank POS terminals (white labelled) could come. This is awesome for startups that are trying to replace the traditional POS terminals.
  • Reduce USSD charges, currently Rs. 1.5 per banking transaction, to lower. (Given the abuse of USSD by most mobile operators, they should be giving this free.)
  • Grievances: If you mark  a transaction as fraudulent, the money comes right back to your bank account and is locked in until investigation is done, for three months (max).

Our View

We need this kind of bill. The  I would encourage you to provide your feedback at: This page on mygov.in.

I’ll present a longer, more detailed response in a while. I like the concept and the goal, but I think a response belongs in its own post, so that I can point to it in my page response. (Needs charts etc.)

  • Hari says:

    Many developed countries are going towards cashless society to track transactions for tax purposes. This will also help to cut down illegal transactions for some crazy organizations.

  • Deepak Honnalli says:

    I have included my online transaction id as a part of my sales agreement which I did 2 years ago. It is possible to do so even today.

  • Deepak, you are 100% right when you say the cash transactions with handwritten bills will not be declared at all. What they should do is do away with cash completely and force the use of plastic. This would completely wipe out fake currency notes and black money in one stroke.

  • Anand says:

    Deepak, Thanks for this post , hoping you will have a detailed analysis soon. Some points…
    – Singapore has Cash Card for small payments. We must have such a card too. (Pay for parking, small purchases, etc). Large amounts by Debit or Credit card
    – Like Baba Ramdev said , Gov can withdraw denominations of 1000 & 500 notes (maybe even Rs 100), thereby forcing people to use other means of payments. We can still pay the vegetable vendor with 10s or 50s notes.
    – Banks (eg: SBM, Corporation, ICICI etc charge 5-15 Rs for NEFT transfers of any amount. NEFT/RTGS charges must be abolished for any amount Some banks don’t charge for NEFT xfers – IDBI, Bank Of India, IOB etc. (Upto 50k)
    – Credit card interest rate must be 12-15% for those who pay off all balance on time in full. 36-48% interest is pure loot.
    – IRCTC booking fee has risen from 20 to 45 per booking. This must go. We are saving Railways a chunk of money by using ebooking and they want to charge us!!
    – Convenience fee charged by LIC for online payments should be abolished.