Boost to cashless transactions – Tax on cash withdrawals?

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You could soon see yourself paying a tax on cash transactions exceeding Rs.50,000, if the government accepts the proposals made by a panel headed by Andhra Pradesh Chief Minister Mr. Chandrababu Naidu. The panel has recommended a host of measures to promote digital transactions, hoping that the Finance Minister will incorporate them in his budget. The panel, comprising of Shivraj Singh Chouhan, the CM of Madhya Pradesh, Naveen Patnaik, the CM of Odisha, Chandrababu Naidu, and Devendra Fadnavis, the CM of Maharashtra also suggested the waiver of Merchant Discount Rates on cashless transactions.

The panel headed by Chandrababu Naidu has suggested a number of points to push India towards a digital economy.
The panel headed by Chandrababu Naidu has suggested a number of points to push India towards a digital economy.

These suggestions were made as part of their interim report, with it up to the government to implement them. Other suggestions include:

  • 1,000 subsidy to buy mobile phones. This subsidy will be limited to those individuals who pay no income tax.
  • Tax incentives for local manufacture of biometric sensors and micro ATMs.
  • Aadhar enabled micro ATMs to be set up at post-offices.
  • Tax to be imposed on cash transactions exceeding Rs.50,000.
  • To make Aadhar mandatory for KYC documents.

With Mr. Arun Jaitley presenting the annual budget on February 1, it remains to be seen whether the government will take these recommendations seriously.

Tax on cash transactions – Old wine in new bottle?

The panel’s recommendation to impose a tax on cash transactions exceeding Rs.50,000 is not new, for the same was implemented by the UPA government in 2005. Titled Banking Cash Transaction Tax, it was withdrawn in 2009. Under the old regime, a tax equivalent to 0.1% of the amount withdrawn was levied, unless the amount was withdrawn from a savings account. Any transaction exceeding Rs.1 lakh (in case of an individual) or Rs.50,000 in case of a Hindu Undivided Family was subject to this tax.

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