India may propose tax on cash withdrawals above ₹1 million in a year to promote digital transactions in the upcoming budget: Report
- The government is considering a tax on cash withdrawals above ₹1 million, according to a report.
- The proposal also considers to make Aadhaar identification mandatory for high-value transactions.
- The move is aimed at discouraging cash transactions and curbing the accumulation of black money (unaccounted wealth).
The tax could be anywhere between 3% to 5%, which would mean a tax of ₹30,000 to ₹50,000 if you withdraw ₹1 million from the bank in any given year, according to another report citing Finance Ministry sources from another news agency IANS.
The proposal has emerged ahead of the first budget to be presented by the new government that has been voted in to power for the next five years. This is in sync with the policies of the Modi administration in the first term from 2014 to 2019 when it announced the demonetisation of 86% of the country's currency in circulation in a bid to reduce cash usage and to corner the unaccounted income, popularly known as black money in India.
The government is also reportedly considering a proposal Aadhaar identification mandatory for high-value transactions. In India, cash is ubiquitous and many small businesses especially in remote areas rely solely on cash.
A similar tax on cash transactions was brought in a few years ago but it had to be withdrawn after public uproar. During 2005-2008, the UPA government imposed tax on withdrawals of more than Rs 50,000 from current accounts for detection of unaccounted money in the absence of alternative methods. This tax was applicable only on cash and not on payment by cheques.
The current cash threshold for the proposed tax is much higher than the previous one. Currently, companies have to pay wages of over ₹10,000 either through cheques or online bank transfer.
The Finance Act 2017 prescribed imposing a penalty equal to the transacted amount on those who violated the rule restricting cash transactions. It provides that no one can deal in cash in excess of Rs 2 lakh in a single day, in respect of a single transaction or transactions relating to one event or occasion barring a banking company, post office savings bank and cooperative bank.
Demonetisation did bring down cash usage in the economy and boost digital transactions temporarily. However, the cash in circulation in India has steadily surged back to the old levels. "At 11.59% of Gross Domestic Product (GDP) India had a high cash in circulation in 2012," said a recent RBI report adding that "Although cash is deeply embedded in the payment systems in India, planned efforts post-demonetisation have shown that a shift from cash to digital can be achieved."
What is a high-value transaction?
1. Purchase & sale of all immovable property exceeding ₹3o lakh must be reported to the income tax authorities.
2. Cash paid and received in excess of ₹2 lakh for sale of any goods or services.
3. Cash deposits in banks adding up to ₹10 lakh or more in a financial year in one or more accounts that belong to the same person.
4. Term deposits in banks or at the Post Office adding up to ₹10 lakh or more in a financial year in one or more accounts that belong to the same person.
5. Cash deposits in Current Accounts adding up to ₹50 lakh or more in a financial year in one or more accounts that belong to the same entity.
6. Any cash payment of ₹10 lakh or more in a financial year for purchase of bank drafts or pre-paid instrument.
7. Credit card bill payments of more than ₹1 Lakh per annum paid in cash; the same limit is ₹10 lakh through cheques or bank transfers.
8. Investment of ₹10 lakh or more in bonds, debentures, shares of a company or mutual funds received from an investor in a financial year.
With inputs from IANS
One and a half years after demonetisation, Indians are hoarding cash again