Tax Reforms to Increase the Viability of Business Correspondents

In low- and middle-income countries, business correspondents (BCs) play a key role in bringing essential financial services to unbanked and underserved populations. In India, the Reserve Bank of India clearly recognizes and supports their role, as stated in its financial inclusion strategy for 2020-2024, and through policies that aim to strengthen, expand and support the BC model.

However, viability issues persist and hamper the scalability of the model. This policy note argues that two key taxation issues are hindering the sustainability and attractiveness of the BC model in India – the application of Tax Deducted at Source (TDS) on cash withdrawals and the Goods and Services Tax (GST) on financial transactions conducted by BCs.

Addressing these ambiguities in TDS and GST applications can pave the way for improving the viability and sustainability of the BC model in India, as well as advancing the government’s financial inclusion agenda.

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By Fabrizio Valenti