Budget 2019: Slew of measures to give push to digital payments adoption

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The Union Budget presented on Friday carried a slew of measures to further boost the adoption of digital payments in the country. The government batted for use digital payments means like BHIM, UPI, NEFT, RTGS and plastic cards versus cash for both enterprises and individuals.

In a bid to make digital payments more attractive for the corporate sector, the government has proposed no charge or merchant discount rate (MDR) for companies with more than Rs 50 crore turnover accepting payments through digital means. The MDR will instead be borne by supporting banks and the Reserve Bank of India.

"There are low-cost digital modes of payment such as BHIM UPI, UPI-QR Code, Aadhaar Pay, certain Debit cards, NEFT, RTGS etc. which can be used to promote less cash economy.  I, therefore,propose that the business establishments with annual turnover more than Rs 50 crore shall offer such low cost digital modes of payment to their customers and no charges or Merchant Discount Rate shall be imposed on customers as well as merchants. RBI and Banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to these digital modes of payment,” finance minister Nirmala Sitharaman announced in her budget address.

Necessary amendments to the Income Tax Act and the Payments and Settlement Systems Act, 2007 will be brought about to give effect to these provisions, the minister added.

For any digital transection, a small fee, known as MDR, is levied to support the back-end technology infrastructure powering digital payments between two banks (bank of the sender and bank of the receiver). In the current scenario, this fee is typically borne by the merchant who receives payments. While merchants using Point of Sale (PoS) terminal have long paid about 1-2 per cent of transection fee on debit or credit cards, mobile payments firms have so far borne the expense themselves to promote adoption of mobile payments. On UPI transections, MDR is around Rs12-15 per transection.

It is not currently clearly how MDR paid by mobile wallet companies Paytm, Google Pay and PhonePe will be impacted by this move. In 2017, the government had waived off MDR on transactions up to Rs 2,000 made through debit cards, BHIM and other UPI-enabled payments apps for a period of two years starting 1 January 2018.

Further, for individuals to use digital modes of payments, the government has proposed to levy 2 per cent tax on cash withdrawals in excess of Rs 1 crore in one financial year.

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