Govt mulls 3-5% tax on Rs 10 l-a-year cash withdrawal

New Delhi: Withdrawing a cumulative Rs 10 lakh a year can attract 3-5 per cent tax if a proposal going around in the Finance Ministry takes shape in the Budget to track high value cash deals and make digital payments mandatory. In its push towards a digital economy, the central government is thinking of introducing a tax of 3-5 per cent on cash withdrawal of Rs 10 lakh in a year, a move to discourage cash usage in the economy and resultant black money.

Paying Rs 30,000-50,000 for Rs 10 lakh annual withdrawal will be seen as a loss, the government thinks and feels this will discourage large cash transactions.

Official sources said discussions have been held internally on the fallout of such a move and the tax figure is still being discussed though it won't be less than 5 per cent, said sources adding 3-5 per cent is an appropriate figure.

As a step towards this, earlier this week, the Reserve Bank of India waived the fee currently imposed on banks for using its NEFT/RTGS payment servers. The central government also said it was setting up a panel to review charges imposed by banks on ATM withdrawals. RBI said it was doing so to boost digital transactions.

Another source was quoted as saying, "Why should someone withdraw over Rs 10 lakh for cash transactions when digital payments are being encouraged?". It may be noted that just last week, RBI scrapped NEFT and RTGS transfer charges and the central bank is also reviewing the charges on cards as well.

The proposal is at a discussion level but has found favour for being a step towards a digital economy and tracking transactions. Sources said this is a global practice. Even in Pakistan a withdrawal of more than Rs 50,000 attracts such a tax.

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.

During 2015, when the Greek economy was on the verge of bankruptcy, millions of panicked citizens completely cleared their accounts by pulling more than 28 billion euros out of banks and pushing the total cash revenue held in the country's financial institutions to a 10-year low.