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BW Businessworld

Time For The Plastic Smile, Finally!

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The proposal to give tax benefits for transactions on plastic – credit and debit cards – as also on e-transactions will not only help curb the black-
money component in the economy, but also give a fillip to growth.
It basically follows in the footsteps of what South Korea did; it allowed 20 per cent of credit card expenditure to be deducted from a person’s 
taxable income. This, in turn, gave a boost to usage of plastic at outlets as the scheme also had tax benefits for sellers. This all-round cheer helped add a good one-and-half-per cent to South Korea’s GDP.
The latest Mint Road Monthly Bulletin shows we have 575 million pieces of plastic (553 million debit- and 21 million credit-cards), but just over a million PoS terminals. We have one of the lowest set-up of PoS terminals (per million) in the world at 693. Brazil has 32,995; both China and Russia have around 4,000. Only about three per cent of transactions are non-cash. Now while banks’ can do little about the fact that many want it that way,  it’s got larger implications.
“Ninety six per cent of consumer payments is in cash with millions of retailers across the country preferring cash payments to avoid traceability and paying taxes, which is not surprising given only 35 million of the over 1 billion Indians pay taxes,” says T.R. Ramachandran, group country manager (India and south-Asia) for Visa.  It adds to cash-handling charges: Mint Road’s Annual Report (2013-14; it’s the latest) puts it at Rs 3,200 crore (Rs 2,800 crore).
The Centre’s proposal comes at a time when the payment architecture of the country is set for a change – the emergence of payment banks (yet to be licensed), new-age payment players like a Paypal with telcos too waiting in the wings, and the fact that some among the last mentioned lot are keen to get into the card acceptance infrastructure space (read Reliance Jio).
Of course, the tax break on credit card purchases in South Korea also led to an increase in indebtedness. And that’s why in 2014, the tax law was revised to increase the tax benefit of debit card transactions. Be as it may, the point is that the idea to incentivise you and I on plastic spends is 
a reason to smile.

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credit cards personal finance tax benefits raghu mohan