Wednesday, 24 June 2015

Paper v Electronic Money

Why in news?

  • In a draft proposal now open for public comments, the government suggests income tax benefits for individuals who incur a certain proportion of their expenditure through electronic means, while proposing a nominal handling charge on cash transactions above a specified level. 
  • The removal of the additional charge often levied on electronic transactions should come with this. 
  • As for merchants, the government proposes a tax rebate to those among them who handle, say, 50 % of their transactions electronically, and a small reduction in value added tax on the items involved. 
  • Even the Pradhan Mantri Jan-Dhan Yojana is aimed at providing direct, cashless subsidies to those who need them. 
  • Current position: system discriminates against electronic transactions. 
    • Banks and service providers levy extra charges on them, while cash transactions are implicitly subsidised by banks, which do not factor in the cost of teller services. 
What are the advantages of electronic money over cash? Why the govt wants us to move to electronic transactions over cash?
  • To curb black money and illegal transactions - as electronic transfers easier to monitor
  •  Paper money comes with hidden overheads: 
    • the cost of printing and providing additional security features, and 
    • the price of counterfeit money.
[Sources: The Hindu]

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