Is the govt preparing ground for introducing cash withdrawal tax in this budget?

Post the demonetisation exercise in early November last year, the Modi government has been pushing hard with its objective to boost digital-based transactions in the country and curb lesser usage of cash in the system.

To give a leg up to its cashless economy agenda, the government also introduced several incentive measures of late. Taking it further, the government is also mulling bringing in 'cash tax', which will be levied on withdrawal of cash from the bank beyond a threshold limit.

The proposal could be made in the forthcoming Union Budget for fiscal year 2017-18, which is mainly aimed at getting hold of black money holders and lower cash transactions in the economy.

 Is the govt preparing ground for introducing cash withdrawal tax in this budget?

Representational image. AFP

Previously, between 1 June, 2005 and 1 April, 2009, the UPA government under finance minister P Chidamabaram had introduced the banking cash transaction tax (BCTT) to curb black money transactions in the country. The rate of 0.1 percent of cash withdrawal was levied under BCTT, other than from savings accounts. This tax was levied on any individual or Hindu undivided family towards withdrawal of Rs 50,000. For entities, the tax was imposed on withdrawal of Rs 1 lakh in cash.

However, the government then withdrew the BCTT rule in the budget of 2008-09, suggesting that the tax department had enough sophisticated information collecting mechanism to curb black money, the Business Standard report said.

The current Modi government now wants to tweak the previous cash transaction rule and get more people to embrace digital technology and reduce cash transactions.

The aim of the new tax is to shrink the scope of cash economy and encourage digital transactions, The Economic Times report said.

As a part of the proposed move, the Special Investigation Team (SIT) on black money has recommended to the government asking it for a ban on cash transactions above Rs 3 lakh and a Rs 15 lakh limit on individual cash holding, the ET report said.

At a time when tax department is working on projects to mine data on earnings and spending tax assessees, besides the proposed GST also to provide greater information on various transactions, then why does the government want to re-introduce the cash withdrawal tax?

The government seems to be going by Parthasarathi Shome-headed Tax Administrative Reform Commission (TARC), which has asked for restoration of BCTT.

“BCTT should be reinstated as an effective administrative measure,” the Parthasarathi Shome-headed Tax Administrative Reform Commission had said in its third report in November 2014, the Moneycontrol report said.

Apart from keeping a trail on people’s attempt to hoard cash through repeated high-value cash withdrawals, a BCTT-type of a levy will also make it less rewarding for people to transact in cash, the Moneycontrol report added.

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Updated Date: Jan 14, 2017 18:56:57 IST