Technology firms welcomed the move to levy two percent tax deduction at source (TDS) on cash withdrawal exceeding Rs 1 crore in a year from a bank account. Small businesses, on the other hand, asserted that it would have an adverse impact on the economy. Furthermore, Finance Minister Nirmala Sitharaman said the proposal to levy two percent TDS is to discourage the practice of making business payments in cash. This will further help boost digital payments in India. Also Read - Paytm registered over 70 crore transactions in June, more than UPI-based appsAlso Read - Google Pay Tez Shots: Earn up to Rs 2,000 by playing cricket; here’s how
“This move will discourage spending which will be a big blow to the economy. There are both pros and cons of a digital payments ecosystem. India is not fully equipped to leverage this system,” said New Delhi-based businessman Ajit Khosla who deals in money transfer, traveling and remittance business. Also Read - Paytm Mall phone sale: Heavy discounts on Redmi Note 7, iPhone XR, Galaxy A30 and more
“For example, while customer liability is limited in case of fraudulent electronic transactions, we do not immediately get the refund. This could be a huge problem for those with limited capital, especially when one is forced to do business only through digital payments,” he said. Khosla said that he is currently required to withdraw about Rs 2 crore a year. He further said that he leverages financial services like Western Union and MoneyGram.
“We get a 0.4 percent commission from Western Union. But with this new tax we will incur a huge loss as customers often demand money in cash,” Khosla said. Naresh Kumar, owner of Falcon Cargo Movers in Paharganj, New Delhi agreed with what Khosla highlighted. “We send around 500 packets every day and in doing so we need to incur a lot of cost in cash,” Kumar said. This includes transportation, labor charge and everyday expenses. He further mentioned that “as we cannot avoid cash payments, the new tax will hit us hard.”
Tech firms, on the other hand, feels that the decision will help boost digital payments in the whole supply chain. “It is encouraging that the government is continuing with its policy to promote digital payments in India. The two percent TDS on cash withdrawal of more than Rs 1 crore a year will encourage the widespread adoption of digital payments,” a Paytm spokesperson said.
Notably, India has witnessed a huge in digital payments ever since Prime Minister Narendra Modi introduced the Digital India mission. This initiative was officially launched on July 1, 2015. If you look at the records, you will get to know that the total number of digital payment transactions done in March 2019 was 332.34 crore. Comparatively, only 79.67 crore transactions were done in 2016.
“Under the Pradhan Mantri Gramin Digital Saksharta Abhiyan, over two crore rural Indians have so far been made digitally literate. To bridge rural-urban digital divide, Bharat-Net is targeting Internet connectivity in local bodies in every Panchayat in the country. This will be speeded up with assistance from Universal Service Obligation Fund and under a Public Private Partnership arrangement,” Sitharaman said during her budget 2019 speech.
The Finance Minister also proposed that business establishments with an annual turnover of more than Rs 50 crore shall offer low-cost digital modes of payment to their customers. She also asserted that no charges or Merchant Discount Rate (MDR) shall be imposed on customers and merchants.
Separately, just yesterday, it was reported that Paytm registered over 70 crore transactions in June 2019. Notably, this number is more than the total transactions done by all the other UPI-based payment apps. In case you are not aware, Amazon Pay, Google Pay, Whatsapp Pay and Phonepe are all UPI-based payment applications. In April this year, PhonePe said it crossed 2 billion transaction mark. This digital payments firm has achieved annual run-rate of USD 70 billion on transactions.
– With inputs from IANS