The proposals are aimed at enabling improved credit access and financial inclusion, reduce tax avoidance and check counterfeiting of currency
The government proposed to do away with transaction charges on card payments at petrol pumps, gas agencies and for railway tickets.
In a circulated draft paper, the finance ministry proposed income tax benefits for people making payments through credit or debit cards and removing transaction charges on purchase of petrol, gas and rail tickets with such cards.
"Tax benefits in terms of income tax rebates to be considered to consumers for paying a certain proportion of their expenditure through electronic means," said the draft proposals on which comments have been invited till June 29.
"An appropriate tax rebate can be extended to a merchant if at least say 50% value of the transactions is through electronic means. Alternatively, 1%-2% reduction in value added tax could be considered on all electronic transactions by the merchants," it added.
The government also proposed to make it mandatory to settle high-value transactions of over Rs.1 lakh through the electronic mode.
"High value transactions of, say, more than Rs1 lakh only by electronic means," the draft paper proposed.
The proposals are aimed at enabling improved credit access and financial inclusion, reduce tax avoidance and check counterfeiting of currency.
The proposals are also aimed at building a transactions history of an individual to enable improved credit access and financial inclusion, reduce tax avoidance and check counterfeiting of currency.
In order to incentivise shopkeepers, the draft proposes a tax rebate to them provided they accept a significant value of sales through debit or credit cards. "An appropriate tax rebate can be extended to a merchant if at least say 50% value of the transactions is through electronic means. Alternatively, 1%-2% reduction in value added tax could be considered on all electronic transactions by the merchants."
Government departments, it said, should also consider introduction of appropriate acceptance infrastructure or adopt national E-payment gateway 'PayGov India' for collection of revenue, fee and penalties etc.
Earlier this month, Finance Minister Arun Jaitley pushed for greater use of plastic money.
"The developed world has moved substantially to plastic currency and payment gateways. I think, there is a need on this for India. Our determination is also there to gradually take steps and move in that direction," the minister said at a conference on Indigenisation of Currency here.
Finance Minister Arun Jaitley in his budget speech had said that the government would "introduce soon several measures that will incentivise credit or debit card transactions and disincentivise cash transaction". The draft makes a case for removing different types of fees and charges on e-transactions by various entities and providing incentives for such payments.
In order to promote wider adoption of e-transactions, the proposal suggests rationalisation of the Merchant Discount Rate (MDR), which at present is 0.75% on Debit Card transactions of up to Rs2,000 and 1% on all transactions above it.
The e-transactions, according to the draft, will include transactions made through debit/credit cards, mobile wallets, mobile apps, net banking, Electronic Clearing Service (ECS), National Electronic Fund Transfer (NEFT), Immediate Payment Service (IMPS), or other similar means.
To popularise the use of plastic money, the government launched the RuPay debit card in 2012 through the National Payments Corp of India (NPCI). The card enables electronic payments at all banks and financial institutions, competing with MasterCard, Visa and American Express.
On awareness and grievance redressal, it said in case of a fraudulent transaction, the money will be credited back to customer's account and blocked and subsequently released after the investigation is complete/limited to say a maximum of 3 months.
It further said changes in the regulatory mechanisms could be examined to ensure that innovations in the payments ecosystem continue to happen.
The linkages with Aadhaar based identification for authentication could also be strengthened, it added.