On Friday, July 5, 2019, Indian Finance Minister Nirmala announced a proposal to levy a two percent tax deduction at source (TDS) on every withdrawal of cash exceeding Rs. 1 crore within a year from a bank account. This is aimed at discouraging the practice of making business payments in cash.
It was also proposed that businesses having an annual turnover of over Rs. 50 crores shall offer their customers and merchants low-cost digital payment modes with no extra charges. Banks and RBI would absorb those costs out of the savings that would accrue to them because of handling less cash as people would have to move to digital payment modes. Sitharaman added that necessary amendments are being made to the Payments and Settlement Systems Act, 2007, and the Income Tax Act that will allow these provisions to take effect.
This was a welcome move to technology firms that believe it will boost digital payments in the supply chain. On July 1, 2015, Prime Minister Narendra Modi had launched the Digital India mission, and the country has seen a huge growth. The total digital payment transactions were a high 332.34 crores in March of 2019, compared to 79.67 crores in October of 2016.
However, small businesses and New Delhi-based businessman Ajit Khosla gave a warning that it would have an adverse economical impact and discourage spending, which would be a big blow to the economy. Khosla also feels that India is not fully equipped to leverage such a system.
Although customer liability is limited if there are fraudulent electronic transactions, businesses do not get the refund immediately That would create a huge problem for those companies that have limited capital and are forced to do business through digital payments. Many also incur many costs that require cash such as labor, transportation, and other everyday expenses.