The government  proposed to do away with transaction charges on card payments at petrol pumps, gas agencies and for railway tickets.

In a circulated draft paper, the finance ministry proposed income tax benefits for people making payments through credit or debit cards and removing transaction charges on purchase of petrol, gas and rail tickets with such cards.

"Tax benefits in terms of income tax rebates to be considered to consumers for paying a certain proportion of their expenditure through electronic means," said the draft proposals on which comments have been invited till June 29.

"An appropriate tax rebate can be extended to a merchant if at least say 50 percent value of the transactions is through electronic means. Alternatively, 1-2 percent reduction in value added tax could be considered on all electronic transactions by the merchants"

The government also proposed to make it mandatory to settle high-value transactions of over Rs.1 lakh through the electronic mode.

"High value transactions of, say, more than Rs.1 lakh only by electronic means," the draft paper proposed.

The proposals are aimed at enabling improved credit access and financial inclusion, reduce tax avoidance and check counterfeiting of currency.

Earlier this month, Finance Minister Arun Jaitley pushed for greater use of plastic money.The developed world has moved substantially to plastic currency and payment gateways and there is a need on this for India. 

To popularise the use of plastic money, the government launched the RuPay debit card in 2012 through the National Payments Corp of India (NPCI). The card enables electronic payments at all banks and financial institutions, competing with MasterCard, Visa and American Express.