No transaction fee on card payments for government services

New Delhi, Aug 16:

Convenience fees and service charges on card-based transactions for booking train tickets, settling bills of state-run utilities and paying various taxes will soon be a thing of the past — a move to plug tax avoidance and promote a less-cash society.

“The Task Force on Promotion of Payments Through Cards and Digital Means has flagged issues with respective government departments,” the Finance Ministry said in a statement, listing this as a major achievement.

The statement said instructions have been issued by the Controller General of Accounts clarifying that the Merchant Discount Rate (MDR) on digital payments pertaining to government transactions would henceforth be borne by respective government departments.

“Further, a separate expenditure head has been created for the said purpose.”

In a memorandum earlier this year, the finance ministry said the objective of less cash society is to make it easier for conducting transactions, reduce the risks of handling cash, reduce costs of managing cash, and reduce tax avoidance and use of counterfeit money.

“The goal of the proposed policy is to provide the necessary incentives to use digital financial transactions to replace the use of cash — either in the government transactions, or in regular commerce over a period of time through policy intervention,” it said.

Finance Minister Arun Jaitley first mentioned this in his budget speech in February.

“One way to curb the flow of black money is to discourage transactions in cash. Now that majority of Indians has or can have, a Rupay debit card, I propose to introduce soon several measures that will incentivise credit or debit card transactions, and disincentivise cash transactions,” he said.

Taking this further, the Finance Ministry said the proposal intended to cover all the government departments and state-run companies that shall withdraw convenience fee and service charges in digital payments for a host os services.

These, it said, will include, payments for essential commodities, utility services, petrol pumps, gas agencies, railway tickets, tax payment, museums, monuments. The move also intended that the government bears MDR costs like other merchants and build necessary infrastructure.

As per data with the Reserve Bank of India (RBI), there were 615.35 million debit card holders in October last year, against 374.18 million two years before that, and credit card holders were of the order of 22.88 million, against 18.57 million earlier.

While ATMs — which are crucial for debit cards — increased from 133,313 to 190,000 during the period, the swipe machines, or Point of Sales (POS) machines for credit and debit cards went up from 963,491 to 1,236,933, said the central bank in a report.

“The growth in acceptance infrastructure has not kept pace with the growth in cards. While debit cards registered a growth of 64 per cent between October 2013 and 2015, during the same period ATMs increased by 43 per cent while POS machines increased by 28 per cent, it said.

While the MDR for debit card transaction is capped at 0.75 per cent for transactions up to Rs 2,000 and at 1 per cent for above that. But, there is no such cap on credit card payments. (IANS)