Get ready for ‘cash tax’. Here’s what it is

In a bid to promote cashless economy, the Indian government is now considering a 'cash tax'. If the proposal is cleared, it may figure in the February 1 Budget.

Currently, the government is looking at the pros and cons of the proposal, which could be a tweaked form of the earlier banking cash transaction tax under the United Progressive Alliance government, under which tax will be levied on cash withdrawals above a certain ceiling from bank accounts.

"A number of steps are under discussion," a government official familiar with deliberations on this matter told ET.

The new tax is being looked after so as to to shrink the scope of cash economy and encourage digital transactions. The government has taken a series of measures since demonetisation in November last year to incentivise digital transactions.

The final call will be taken "at the highest political level", one official told ET.

"The idea is under consideration and there is good chance it could be announced in the budget," another official told ET.

Digital payments transactions in December last year were 43% higher than in November last year and totaled 958 million, according to central bank data.

Government strategists on post demonetisation policies have been emphasising that saving on costs of currency operations is an economic plus, apart from the transparency benefits of digital transactions.