Govt plans GST sops for digital payments

Proposes two percentage point discount to boost cashless economy

The Centre has proposed a two percentage point discount in the goods and services tax (GST) for consumers who make digital payments. The proposal is  likely to be taken up in the next GST Council meeting in January. The move, if approved, will boost the government efforts to usher in a cashless economy.

The incentive will be available to business-to-consumer (B2C) transactions for goods and services that face a GST rate of 3 per cent or more. The incentive will include a 1 per cent concession on the Central GST and another 1 per cent on the state GST.

“The idea is to encourage digital transactions, and what better way than to incentivise them. The move will help increase the size of the formal economy as consumers will demand digital payment options from retailers,” an official said. It would reduce tax evasion as well, he added. The proposal was on the agenda of the previous GST Council meeting in Guwahati on November 10 but could not be taken up.

The move means that the effective GST rate for items under, say, the 18 per cent slab will come down to 16 per cent for those paying through digital mode. However, the concession will be limited to Rs 100 per transaction. This implies that goods and services bought up to Rs 5,000 per transaction will enjoy the full 2 percentage point concession of Rs 100. “Customers will seek digital transactions from merchants, thereby increasing the level of competition in the market,” said another official.

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The proposal will not apply to retailers registered in the composition scheme and enjoy a flat tax rate and easier compliance. Customers will be offered two prices, one with the normal GST and the other with two percentage points lower GST for digital payments. This would need some alteration in the tax computation process and the return filing templates, M S Mani of Deloitte said. 

"Sellers would need to segregate digital and cash transactions from the beginning. This will require changes in the accounting process as well. From a consumer perspective, this would reduce the effective tax rate," he said. 

The concession will make the government forgo some revenue, but improved compliance is expected to make up for it. “Consumers will see visible benefits of making digital payments in terms of reduction in payable tax,” said the official.

In 2016-17, the number of digital transactions was 10.76 billion, where the average value per transaction (debit and credit card transaction) was Rs 1,833. Transactions below Rs 1,000 accounted for 16 per cent of all digital transactions, those between Rs 1,000 and Rs 2,000 made up 14 per cent and those above Rs 2,000 constituted 70 per cent.

In 2017-18, the number of digital transactions is estimated at 18 billion. Till October, it was 10 billion.

The tax revenue loss could be Rs 25,000 crore if 40 per cent of digital transactions are used to avail of the benefit, Rs 20,000 crore if 30 per cent of transactions are used, and Rs 12,000 crore if 20 per cent of transactions are used.