The Union Government will reimburse banks Merchant Discount Rate (MDR) charges on taxes and receipts paid through debit and credit cards, an official statement on Thursday.
"In a bid to encourage digital transactions, budgetary provision will be made to reimburse MDR charges to banks on taxes and other government receipts paid via debit and credit cards, " said a Finance Ministry circular.
The provision will be made under the account head in the Demand for Grants of the Department of Economic Affairs for payment of MDR charges on all receipts of the government.
"The banks receiving government dues like tax revenue and other receipts through debit/credit cards will submit the claims of MDR charges to the Reserve Bank of India (RBI) periodically, " the circular said.
The RBI will reimburse banks' claims of MDR charges on receipt transactions through credit to the bank and debit the government as per the budget provision.
The government recently waived service charges on card payments up to Rs 2, 000 after scrapping higher denomination notes on November 8.