India will offer tax incentives to small businesses engaged in cashless transactions, Finance Minister Arun Jaitley told reporters on Tuesday, as part of the government's fight against the cash economy.
Jaitley said the move would enable businesses with annual turnover of 20 million rupees ($294,000) to save up to 30 percent in tax payments.
"If you use digital modes of transactions for payment, then you have to pay lesser tax this year. It is a tax incentive to support the digitalization of the economy," said Jaitley.
Since Prime Minister Narendra Modi's shock move last month to scrap old 500 and 1,000 rupee notes, New Delhi has taken a raft of measures to encourage cashless transactions.
Earlier this month, it announced incentives including discounts of between 0.75 percent to 10 percent on digital payments for purchases of petrol, diesel and insurance products from state-run companies.
The government last week also unveiled two lucky draw schemes to reward poor and middle-class consumers and small businesses for conducting cashless transactions.
Modi's shock currency replacement program is aimed at flushing out cash earned through illegal activities, or earned legally but never disclosed.
However, the decision has sucked 86 percent of India's currency out of circulation, leaving companies, farmers and households all suffering. Nine in 10 Indians live in the cash economy and many lack the smartphones and bank accounts they need to go cashless.
"We were fully prepared. There was not a single day when the Reserve Bank of India (RBI) did not adequate cash through banking system. We were prepared from the beginning that a certain level of currency has to be released every day. So, the stock was maintained by joining advanced printing and current printing. Even today, RBI has more than adequate stock not only to last them for December 30 but to last them far beyond that," added Jaitley.
The move to demonetize the large bills is designed to bring billions of dollars' worth of cash in unaccounted wealth into the mainstream economy, as well as dent the finances of Islamist militants who target India and are suspected of using fake 500 rupee notes to fund operations.
India's "black economy," a term widely used to describe transactions that take place outside formal channels, amounted to around 20 per cent of gross domestic product, according to investment firm Ambit.