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Panel moots ‘handling’ levy on cash payments

It suggested a cut in the threshold for quoting PAN numbers for cash transactions from ₹50,000 and ₹2,00,000

December 27, 2016 10:44 pm | Updated January 20, 2017 03:38 pm IST - NEW DELHI:

Union Budget 2017-18 should allow merchants as well as government departments to levy a handling charge for cash payments above a certain limit, the Committee on Digital Payments has advised the finance ministry.

It also recommended a reduction in the mandatory threshold for quoting PAN card numbers for cash transactions from Rs. 50,000 and Rs. 2,00,000, applicable in different cases currently.

The committee, headed by former Finance Secretary Ratan P Watal, proposed that Aadhaar be used as an alternate for KYC for people who don’t have a PAN. “Permit merchants, including government agencies to levy a cash handling charge for payments in cash above a certain threshold. The cash handling charge so collected should be exclusively used to fund new infrastructure for acceptance of digital payments (like PoS devices).”

PAN threshold

Gradually, the Centre should reduce the threshold for quoting of PAN, which is currently mandated for banking transactions above Rs. 50,000 and merchant transactions of more than RS. 2 lakh, the panel suggested.

To create parity between cash and digital payments, the panel proposed that eKYC requirements in digital payments should be in consonance with KYC norms for transacting in cash. “Transactions which are permitted in cash without KYC should also be permitted on prepaid wallets without KYC,” it said.

The committee’s report, on which public comments and suggestions have been invited over the next fortnight, has also pitched for allowing tax payments by debit cards and e-wallets, against the current option of net banking only. “CBDT and CBEC should develop an e-commerce based model where their web portals generate the tax challans and accept payments from all electronic modes.”

A recommendation has also been made to make Aadhaar numbers compulsory in Income Tax returns, although the committee has stressed such an amendment must only be made after seeking the Attorney General’s opinion. Income tax payers already have PAN cards.

It further said that CBEC should issue necessary instructions to facilitate Service Tax input credit on price of digital transactions. Amendments have also been mooted to the General Financial Rules, 2005 and Central Government Account (Receipt and Payment) Rules, 1983, to include digital modes of payment.

The panel also recommended that when government acts as a merchant, it should bear the cost of electronic payments and not pass them on to consumers.

Digital payments for low value transactions, such as parking charges, toll charges or health services at government hospitals and health centres, also need to be promoted. “The low value routine transactions need special attention. These are payments that touch the lives of people every day.”

Pushing for adoption of digital payments for all government transactions, it has also proposed that utility bills and payments to government above a certain threshold be made only in digital mode. Also, convenience or service charge levied by utility service providers, petrol pumps, railways, airlines on electronic payments should be withdrawn.

Customs and excise duties on import of equipment which form a part of retail payment system infrastructure must be cut in the Budget, it recommended. The list includes micro ATMs used by business correspondents; fingerprint readers and biometric readers either as spare parts or as integrated electronic data capture machines and point- of-sale (PoS) terminals.

Cash heavy economy

India is a cash heavy economy, with almost 78 per cent of all consumer payments being effected in cash. This imposes an estimated cost of Rs. 21,000 crore, without factoring in other effects of cash reliance, such as counterfeit currency and black money.

Transitioning to digital payments was estimated to bring about a significant reduction in costs incurred on account of inefficiencies associated with cash and other paper based payments.

“For instance, by certain estimates, transitioning to an electronic platform for government payments itself could save approximately Rs. 100,000 crore annually, with the cost of the transition being estimated at Rs. 60,000 to Rs. 70,000 crore.”

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