The Cabinet chaired by Prime Minister Narendra Modi also approved mandating payments beyond a prescribed threshold only through a card or digital mode.
"The essential features of the proposals for promotion of payments through cards and digital means include steps for withdrawal of surcharge, service charge and convenience fee on card and digital payments currently imposed by various government departments, organisations...," according to an official statement.
"The promotion of payments through cards and digital means will be instrumental in reducing tax avoidance, migration of government payments and collections to cashless mode," it added.
The move primarily discourages transactions in cash by providing access to financial payment services to citizens to pay through cards and digital means and shifting payment ecosystem from cash dominated to non-cash or less cash payments, the statement said.
Among other measures aimed at reducing cash transactions include rationalisation of Merchant Discount Rate (MDR) on card transactions and a differentiated MDR framework for some key segments.
Other features include introduction of formula-linked acceptance infrastructure by the stakeholders of certain card products, rationalisation of telecom service charges for digital financial transactions and promotion of mobile banking.
Creation of necessary assurance mechanisms for quick resolution of fraudulent transactions and reviewing the payments ecosystem in the country have also been approved.
Several short-term (to be implemented within one year) and medium-term measures (two years) for implementation by the government ministries, departments and organisations were approved, the statement added.