Mumbai: Cash withdrawals above Rs50,000 could be taxed and the maximum amount in cash that can be used in any large transaction could be limited as part of a series of steps the government could take to help India move to a less-cash economy, according to a report presented to Prime Minister Narendra Modi on Tuesday by a panel of state chief ministers.

Andhra Pradesh chief minister Chandrababu Naidu, who led the panel, told reporters after submitting the report that a banking cash transaction tax (BCTT) could be levied on cash withdrawals of Rs50,000 and above.

Also, there could be a cap on the use of cash in all types of large-ticket transactions.

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“I am confident that these recommendations will be taken into account in the upcoming union budget," to be announced on 1 February, Naidu said.

The panel, formed on 30 November after the government outlawed high-denomination currency notes earlier that month, also recommended that all government sections dealing with insurance, educational institutes, fertilizers, public distribution system and petroleum have to switch to digital payments.

“One thing I want to say is that unlike any other country in the world, India has a strong biometrics-based identification system," Naidu told reporters, adding that Aadhaar infrastructure offers fully secure identification of individuals.

If the recommendations are approved, small merchants who are not assessed for income tax, will get a subsidy of ₹ 1,000 for buying smartphones to facilitate digital transactions.

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Consumers who use digital payments could get tax refunds up to a certain proportion of annual income. The move to encourage digital transactions is also expected to boost the Make in India drive. The panel recommended tax incentives for micro cash dispensers and biometric sensors. These devices will also be made available to merchants at a 50% subsidised price.

The panel also disapproved of the merchant discount rate (MDR) that banks want to charge on usage of debit and credit cards. Naidu said the RBI will consider recommendations on MDR and take appropriate action.

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The other measures suggested include making Aadhaar the primary identification avenue for KYC (know your customer norms), lower or zero MDR for all digital payments to state entities, making all payment banks and banking correspondents inter-operable, encouraging contactless payments for travelling in buses and trains and roping in rural and urban co-operative banks in the pursuit of digital transactions.

“These recommendations strengthen our belief in government’s commitment to promote cashless transactions. Tax benefits will make digital payments accessible to the masses", said Bipin Singh, co-founder of mobile wallet Mobikwik.

Komal Gupta contributed to this story.

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