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What’s the future of digital payments?

The Hindu Business Line |
Pranay Bhatia, International Liaison Partner |

23 January 2018

Budget may focus on GST discounts, and direct benefit transfer scheme

More than 15 months after the demonetisation of high-value currency in November 2016, digital payments continue to be a focus area of the Narendra Modi government, with the incentivising of small businesses likely to figure in the Budget.

The Goods and Services Tax Council is also looking at a proposal to encourage digital payments. Though it was on the agenda at the 25th meeting of the council that took place on January 18, it is yet to be approved.

However, expectations are that Finance Minister Arun Jaitley could make a reference to it in his Budget speech on February 1.


According to the broad contours of the proposal, a 2 per cent concession on the GST rate may be given on payments made by end consumers who choose to pay using credit and debit cards or e-wallets. The concession would have a maximum limit of ₹100 per transaction.

“The consumer will get a benefit of a 2 per cent discount on purchases if they use digital payment, but will have to pay the normal GST rate for cash purchases,” explained an official.

The 2 per cent discount would be borne equally by the Centre and State. It is expected that digital payments would also help improve compliance by businesses and help make up for revenue losses.

“More small businesses, especially payments to Mom and Pop stores, should ideally be made through digital payment methods,” explained the official, adding that the objective is to popularise it in smaller towns and villages.

In 2016-17, the average value of digital transactions was estimated at ₹1,833, with nearly 16 per cent of all transactions made for purchases up to ₹1,000.

A majority of digital payments, pegged at 70 per cent, were for transactions valued above ₹2,000.

The government expects about 1,800 crore of digital transactions in 2017-18, a 67 per cent jump from the 1,076 payments made last fiscal.

Till October, 1,000 digital transactions are estimated to have been already taken place.

According to data from the Reserve Bank of India, the total number of retail digital transaction between April and October 2017 amounted to 799 crore, and were valued at ₹7.48 lakh crore.

Special fund

Many proposals of the expert committee on digital transactions, led by Principal Advisor, NITI Aayog, and former Finance Secretary, Ratan Watal, are also still pending, the key being the setting up of a special fund called DIPAYAN toexpand digital payments.

Tax experts also expect more to take place in the financial technology space in the Budget.

“Technology has played a vital role in creating a positive framework, and the disruption from the new bank regulations have paved the way for inclusive banking, but the framework needs to be strengthened towards better infrastructure to deepen rural spirit and boost the new-age demand for Fintech,” said Kalpesh Mehta, Partner, Deloitte, India.

Agreed Pranay Bhatia, Partner - Tax & Regulatory Services, BDO, who said: “It is expected that the focus in the Budget will be on how to bring small businesses to the digital platform.”

Another key boost to the digital payments platform is expected from the Jan Dhan and direct benefit transfer (DBT) scheme. With DBT now covering nearly all Central sector schemes, including payment to workers in schemes such as ASHA and mid-day meal scheme, digital payments are set to get a further boost.

The Pradhan Mantri Jan Dhan Yojana has nearly 31 crore beneficiaries who have opened bank accounts. Of these, over 23 crore have also received Rupay debit cards.

In December last year, the government also announced that it would bear the merchant discount rate (MDR), the charges merchants pay to banks on payments of up to ₹2,000 made with debit cards, BHIM App or Aadhaar pay. The facility, which is available for two years, started on January 1.

Source: The Hindu Business Line