Government Mulls A Tax Discount For Online Payments

The proposed concession on digital payments could be taken up at the next meeting of the GST Council.

A worker demonstrates a mobile payment system at the Visa Inc. stand at the Mobile World Congress in Barcelona. (Photographer: Pau Barrena/Bloomberg)
A worker demonstrates a mobile payment system at the Visa Inc. stand at the Mobile World Congress in Barcelona. (Photographer: Pau Barrena/Bloomberg)

The government is considering a proposal to offer consumers a 2 percent tax discount for paying online in an yet another effort to wean Indians away from cash.

This will include a 1 percent concession on the Central Goods and Services Tax and another 1 percent on the state GST, a government official told BloombergQuint. For instance, 18 percent tax payable on a particular good or service will be reduced to 16 percent if the consumer chooses to pay online. The incentive will be available on items taxed at 3 percent or more and is subject to a ceiling of Rs 100 per transaction, the official said.

The incentive for making electronic payments is minimal and those evading income tax can hardly be expected to use the route, Abhishek Jain, indirect tax partner at EY India, told BloombergQuint. “The intention of the government is to incentivise honest taxpayers by giving them a 2 percent benefit.”

The proposal was on the agenda of the last GST Council meeting in Guwahati on Nov. 10 and could be taken up in its next meeting. If approved, consumers will be offered two prices for products—one with the applicable tax rate for cash payments and another with a 2 percent discount for online payments.

The Economic Times had reported about the proposal in August.

The Costs

The average value of digital transactions in the year to March was Rs 1,800, according to a study by the Electronics and IT Ministry. Of this, about 14 percent were valued between Rs 1,000 and Rs 2,000.

Assuming that 20 percent payments get the proposed benefit and each transaction is about Rs 1,800, the government will lose a revenue of about Rs 13,000 crore, the study explains. If 40 percent transactions are digital, it will take a hit of Rs 26,000 crore.

The government expects to make up for the shortfall through better compliance, the official quoted above said.

The concessions will not be available on goods and services offered by businesses under the composition scheme, the official quoted above said. The scheme allows firm to pay tax at a flat rate without the input tax credit.

The government will also have to look at the implementation modalities. It can either offer the incentive as a cashback through the banking channel or ask suppliers to maintain two rates—one for those making payments digitally and another for cash payments, said Jain.

Watch this interview with MS Mani who heads indirect tax at Deloitte India.