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Government mulling tax on cash withdrawal of Rs. 10 lakh a year
The Economics Times, June 10, 2019

The government is looking at the possibility of introducing a tax on those withdrawing Rs 10 lakh in cash a year as it seeks to discourage the use of paper currency, crack down on black money and promote use of digital payments for all manner of transactions.

Government sources told TOI that another proposal under consideration is mandating Aadhaar authentication for all high-value cash withdrawals, which it believes will make it easy to track individuals and tally tax returns. In doing this, the government will go beyond just seeking the unique identification number, as is the case with deposits of over Rs 50,000 where PAN is given.

Plan aimed to boost non-cash transactions

The UID authentication and OTP will ensure that Aadhaar numbers are not misused. “A MGNREGA beneficiary needs to authenticate receipts using Aadhaar but someone withdrawing Rs 5 lakh need not do so as things stand,” an official told TOI. The government is of the view that annual cash withdrawals of over Rs 10 lakh are not needed for most individuals and businesses. Above board transactions should not be hampered by authentication.

The discussions come ahead of the budget that is to be presented on July 5, though government sources said the move has not been finalised. The government is, however, clear that it does not want to do anything that will burden the middle class and the poor with excessive compliance.

“Why should someone withdraw over Rs 10 lakh for cash transactions when digital payments are being encouraged?” asked a source, requesting anonymity. Last week, the RBI announced that banks would do away with charges on NEFT and RTGS transfers and said the charges on card use were also being reviewed. This, sources in the finance ministry said, would go a long way in promoting non-cash transactions and check the use of cash in the economy.

Separately, a few years ago, the government had made digital or cheque payments mandatory for businesses to claim the benefit of business expenses. As a result, large companies are making wage payments of over Rs 10,000 through cheque or via bank transfer.

The UPA government had introduced bank cash transaction tax a decade ago but was forced to withdraw it a few years later after an uproar. Over a period of time, the tax was also watered down. What is now being considered is a much higher threshold.

In late 2016, a high-level panel of chief ministers, headed by then Andhra Pradesh CM N Chandrababu Naidu, had recommended reintroduction of the levy for withdrawals of over Rs 50,000. It had also suggested other measures to reduce cash use post-demonetisation. The proposal for a cash withdrawal tax was, however not implemented. The SIT on black money, too, has recommended several steps on reducing cash holding in the economy, with several of them yet to be implemented.

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