The central government is very serious about bringing back black money and digitizing all transactions. In order to curb all cash transactions, Narendra Modi led BJP Government is planning to tax all cash withdrawals from a bank. This is similar to a banking cash transaction tax (BCTT) that was tried out on a small scale basis during 2005 – 2009.
Senior government officials tell us that this proposal is not yet final, but could be implemented in the coming year. This was a suggestion given to the government by the Tax Administrative Reform Commission (TARC) in November 2014. The TARC is headed by Parthasarthi Shome headed.
The BCTT is useful for a variety of reasons. One is that it will give the government a lot of revenue, but the major motivation for the Narendra Modi led government is to move towards a digital economy. This will also help the Government track the orign and final destination of a variety of monies being circulated in the economy.
When the BCTT was levied back in 2005, a minimum tax of 0.1% was levied on cash withdrawals of more than Rs 50,000 for individuals and Hindu Undivided Families (HUFs). For everybody else, the tax was applied at 0.1% for every Rs1,00,000 withdrawn. The BCTT will make it quite expensive for people to transact in cash and high value transactions will attract the attention of the Income Tax department.
One advantage of this scheme could be tax breaks and incentives for bank transfer and card transactions. The IT department would have to be expanded for the BCTT as it is currently not equipped with the IT infrastructure to track and handle transactions of this nature.
Banks had to previously file monthly reports with the IT department who carried out investigations on that basis. However, the plan for implementing this scheme is not very clear, but it surely seems like the next logical step towards a cashless India.