On Tuesday: The Union Budget, a high-powered panel headed by Andhra Pradesh Chief Minister N Chandrababu Naidu recommended imposing a tax on cash transactions of at least Rs. 50,000 through banks to discourage the excessive use of cash and promote digital payments.
"To curb use of cash for large transactions, the ministry of finance should consider levy of banking cash transaction tax (BCTT) on transactions of ~50,000 and above," the panel, constituted by Prime Minister Narendra Modi in November after demonetisation, said in report.
“We have submitted the recommendations to the Prime Minister today (Tuesday) and are fairly confident that some of these might be incorporated in the 2017-18 Union Budget,” Naidu .
The panel wants RBI and the finance ministry to not allow cash transactions above a threshold.
“It won't be a good move as the existing measures like mandatory quoting of permanent account number (PAN) and tax collected at source (TCS) for sale and purchase of goods and services for over Rs two lakh in cash are enough,” Amit Maheshwari, partner of tax firm Ashok Maheshwary & Associate.
The Naidu panel recommended providing a subsidy of ~1,000 to all non-income tax assesses or small merchants for purchasing smart-phones.
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The committee favoured waiving the merchant discount rates (MDRs) on all Aadhaar-enabled payments and low or zero rates for all digital payments made to government entities such as buying railway tickets and paying state-run insurance companies.
The panel also favoured tax refund for consumers using digital payment up to a certain proportion of their annual income and a 50 per cent subsidy on all Aadhaar- based payment devices, bio-metric sensors to merchants to promote the usage of such devices.
The panel said, among other things, attitudinal factors, infrastructure, data connectivity, cyber security and the higher cost of digital transactions as compared to cash transactions were some major constraints in promoting a digital economy in the country.
It also advised the government to create a fund from the savings through cashless transactions for incentivising bank acceptance infrastructure in semi-urban and rural areas and all government services such as insurance, educational institutes, PDS and petroleum should mandatorily switch to digital modes of payment.
If accepted, the measures will be another series of steps to promote digital payments after the finance ministry had announced last month a number of incentives and discounts on fuel, highway tolls, railway tickets and insurance cover.
Naidu also suggested there should be legislation to accommodate digital transactions and ensure their security.