Credit or debit card users may get to claim 1% of their annual transactions as deduction from income, if a proposal made by a section of the finance ministry is implemented, reports Prasanta Sahu in New Delhi. The move could marginally reduce the income tax liability of credit and debit card users. For example, if a person pays bills worth Rs 5 lakh electronically in a year, her annual income would be reduced by Rs 5,000 for calculating the tax liability.

Similarly, merchants could also get a rebate on their income tax and service tax liability for promoting electronic transactions if the department of revenue (DoR) agrees with views expressed by the department of economic affairs (DEA), sources said. Following a Budget announcement to incentivise electronic transactions and disincentivise cash transactions, the DEA unveiled a draft scheme on June 18 listing out the proposals to achieve this objective.

It suggested giving an income tax “rebate” to end consumers for paying a certain proportion of their expenditure through electronic means.

The amount of rebate was not specified. The DEA also suggested merchants could get a tax rebate if at least 50% of the value of their transactions is through electronic means or, alternatively, benefit from a 1-2% reduction in value-added tax (VAT) for all electronic transactions.

Sources said a meeting between the top officials of the DEA and DoR would be held in a few days to work out the exact nature of the tax incentives for e-transactions. While the DEA wants the tax relief proposals to take effect without delay, sources said that since Parliament’s approval is needed for changes in direct taxes, these might have wait for end-2015 or till the next Budget.

Besides tax sops, the incentives for electronic transactions also include a slew of non-tax incentives to reduce cost of services to citizens. Waiver of convenience fee/service charge/surcharge levied by government entities on card payments to utility service providers, petrol pumps, gas agencies and railway tickets was also mooted.(Financial Express)