Multinational electronic payments companies like Visa and Mastercard are likely to face losses after the recent Budget announcement regarding low-cost electronic payments.
Finance Minister Nirmala Sitharaman in her Budget speech had proposed that a new section will be inserted into the Income Tax Act, under which business enterprise with annual turnover of over Rs 50 crore will be required to provide a facility for “prescribed low-cost electronic modes of payment”.
Retail credit card companies, which make decent profit on business from retailers, will now be affected as these large retailers will be inclined to provide other e-payment options — including United Payments Interface (UPI), Aadhaar Pay, certain debit cards, UPI-QR Code, and NEFT and RTGS — to customers. These retailers pay around 2 per cent merchant discount rate (MDR) on transaction through cards, but now they can save money by paying via e-payment modes.
Sitharaman, in her Budget speech, said that for ensuring compliance, the government has introduced a “suitable penalty provision” in the Income Tax Act, 1961.
The new section, 269SU, will come into effect from November, following which businesses with over Rs 50-crore annual turnover will have to provide digital payment modes to customers at no extra charges or merchant discounts.
“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. Experts believe the move could affect credit card companies in the long run as more people will be influenced to make payment through cheap UPI platforms.
The Finance Minister also proposed to levy tax deduction at source (TDS) of 2 per cent on cash withdrawal of more than Rs 1 crore from a bank account in a single financial year. Both these measures are aimed at encouraging digital payments and discourage business payments in cash.
Digital payments firms had long been demanding the tax benefits from the government.