Swiping cards and paying through digital wallets could become something more than a convenience and all about tax savings. The government may announce tax benefits for non-cash transactions in this year's Budget following recommendations made by the Payments Council of India (PCI).

"We are extremely confident that in this year's Budget, merchants and customers will get a major incentive from the government for digital transactions. This government is very serious about the Digital India push," said Paresh Rajde, managing director of Suvidhaa Infoserv and a member of the PCI committee that formulated the recommendations.

In the submission to the ministry in December, a copy of which is with ET, the umbrella body for all payments companies of the country said, "To incentivise players in the market to operate payment gateway systems and also to ensure capital for investment in further development of such solutions, we recommend offering tax incentives/tax holidays to such businesses."

The government said in one of its communications to the council that merchants with more than 50% of their transactions done digitally could get a tax rebate or a 1-2% reduction in value-added tax on all electronic transactions. Consumers could get some income tax rebates if they showed a certain portion of their net expenses was incurred digitally.

The government also plans to do away with the convenience fee charged for online utility bill payments. "Payments companies are helping in the process of financial inclusion, but our business works on thin margins and longer gestation periods, hence we should be treated at par with infrastructure companies and the government should look into the tax issues we are facing," said Naveen Surya, chairman of PCI.

The committee also recommended that the government look into the matter of tax deducted at source, which blocks working capital for payment aggregators. "We have to pay a hefty fee to the acquiring bank for every transaction and the margin for our trade is very thin. Often, because of TDS, we have to pay the government from our own pockets because we are not profitmaking and by the time the returns come, my business is already in the doldrums," said Ketan Doshi, managing director of PayPoint India.

Rajde said that for India to realise the dream of digitisation, doing electronic transactions is important. "We have seen the Korea model where they shifted from a cash-heavy society to digital. This was achieved through incentivisation," he said.