Government Set to reward the use of Credit/Debit cards

Indian Government is all set to incentivize the use of debit/credit cards by offering income tax benefits to those who make payments through Debit/credit card.


Govt has proposed tax rebates to merchants and customers paying through electronic means which will make using plastic money more lucrative. Govt. also intends to make transactions above Rs 1 Lac mandatory through online mode or to impose an additional charge on cash payments above this level in order to curb black money.


Govt. is also doing away with transaction charges on purchase of petrol, gas and rail tickets through card-based online transactions. At presents merchants charge about 1%-2% extra as transaction charge. This if approved will mean “no extra charges on online bookings and fuel payments.”


Tax benefits as proposed by Govt. on use of plastic money include:


  1. a) 1-2% reduction in value added tax for establishments that accept electronic payments
  2. b) Income tax rebates for citizens paying a certain proportion of their expenses through Credit/Debit card.


These proposals were given in a draft paper on moving towards a cashless economy and reducing tax avoidance. This paper has also suggested that a tax benefit should be extended to shopkeepers if they accept a certain proportion of sales through credit cards i.e. shopkeepers who accept 50% of their sales through credit cards are eligible for a significant tax rebate.


These proposals are aimed at strengthening Govt’s objectives of Credit access, financial Inclusion, Reduce tax avoidance and curb the menace of black money. Earlier this year, In the Union Budget 2015/16, Finance minister Arun Jaitley had identified reducing cash transactions as one way to reduce black money. So, these proposals come as a progression of that plan.


These steps taken by Indian Govt can really change consumer attitude towards using plastic money. With additional charges on using credit cards being lifted and tax benefits being provided, use of Credit/debit cards can generate some real rewards instead of paper rewards offered by the merchants.