To boost usage of debit and credit cards for small value transactions, the government waived off service tax for transactions up to Rs 2,000. Note that this exemption applies only to the Merchant Discount Rate (MDR) which banks levy on merchants and not on the whole Rs 2,000. An MDR is an inter-bank exchange fee. Typically, merchants are charged around 2% per transaction through cards. There is an issuing bank which gives a debit card or credit card to customers and an acquiring bank which accepts the payment from the card. It is important to also understand that the service tax exemption will only apply to the acquiring bank, as indicated by this Central Board of Excise and Customs notification. This might mean that banks will pass on the benefit of the service tax exemption to merchants and lower the MDR. The government is now rapidly scaling its efforts to build a card acceptance infrastructure following the demonetization of Rs 500 and Rs 1000 notes. It has ordered banks to install 10 lakh POS terminals in the country by March 2017 to ease the woes of a cash crunch. Accordingly, to facilitate this, the government has also removed excise duty on the import of goods for the manufacturing of POS machines. According to latest figures from the Reserve Bank of India, the total number of POS terminals in India stands at over 14 lakh. The government added that nearly 6.5 lakh machines have been issued by public sector banks to merchants.…
