The government could also make it mandatory to settle high-value transactions of more than Rs 1 lakh electronically.
Finance minister Arun Jaitley is expected to announce several incentives today which will make fuel, rail tickets, telephone bills and other things cheaper when bought using plastic or credit and debit cards.
As part of its effort to plug the flow of black or untaxed money, the government plans to announce income tax benefits for those who make payments using credit or debit cards and is also expected to do away with transaction charges on purchases.
The government could also make it mandatory to settle high-value transactions of more than Rs 1 lakh electronically.
"PAN card will be needed for transactions of more than Rs 2 lakh," Mr Jaitley said today.
The announcement is likely to be made by Mr Jaitley during his reply to the debate on the Appropriation Bill now on in the Lok Sabha.
The Finance Minister had suggested the idea in his budget speech this year, hinting at moving towards a cashless economy to reduce non-payment of taxes.
The government plan includes incentives for shopkeepers in the form of tax rebates to encourage them to accept a significant portion of their transactions through debit or credit cards.
"An appropriate tax rebate may be extended to a merchant if at least say 50 percent value of the transactions is through electronic means. Alternatively, 1 or 2 per cent reduction in value added tax could be considered on all electronic transactions by merchants," said a finance ministry source.
The new measures, said sources, are expected to help the government build a history of transactions made by individuals, help the latter have improved credit access and financial inclusion, reduce tax avoidance and check counterfeiting of currency.
They would improve ease of transactions for individuals, reduce the risks and costs of carrying cash and curtail cost of managing cash in the economy, the source said. They would also encourage government, corporates, institutions and merchant establishments to facilitate non-cash payments.