Finance Minister Nirmala Sitharaman, in her maiden budget speech, proposed to levy tax deduction at source (TDS) of 2% on cash withdrawal of more than Rs 1 crore from a bank account in a single financial year. The move is aimed to encourage digital payments and discourage business payments in cash.
For low cost transactions on platforms like the Unified Payments Interface, BHIM QR, NEFT, RTGS, among others, the merchant discount rate (MDR) will be eliminated. As per the Sitharaman's Budget speech, the RBI and banks will absorb these costs. Meanwhile, business establishments with an annual turnover of Rs 50 crore will have to provide digital payment modes to customers at no extra charges or merchant discounts, on either customers or merchants.
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"No charges or MDR shall be imposed on customers as well as on the merchants. The 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 the digital modes of payments," Nirmala Sitharaman said.
Digital payments firms had long been demanding the tax benefits from the government. "The government has clearly laid its intention of taking further steps towards eliminating the use of cash in the economy. A 2% TDS on large cash withdrawals (more than Rs.2cr per year from a bank account) makes the intentions of the government clear. Besides, there are some steps towards providing relief to NBFCs, as PSU banks will get a one-time 6-month credit guarantee of Rs1 lakh crore to buy high-rated pooled assets of "sound" NBFCs", said Amit Gupta, CEO and Co-founder TradingBells.
Government will bring about all the necessary amendments in the Income-Tax Act 1961 and in the Payment and Settlement Systems Act 2007, to implement the changes and eliminate cash from the system.
Edited By: Udit Verma