A committee on digitalisation headed by Andhra Pradesh Chief Minister Chandrababu Naidu had in an interim report recommended taxing cash transactions of at least Rs 50,000 to promote digital payments.
The finance ministry on Wednesday said it had not taken a decision on the banking cash transaction tax (BCTT) a day after speculation arose that it could be introduced in the Budget for 2017-18 because a panel on digitalisation had made a case for it.
A committee on digitalisation headed by Andhra Pradesh Chief Minister Chandrababu Naidu had in an interim report recommended taxing cash transactions of at least Rs 50,000 to promote digital payments. The committee also wanted the Reserve Bank of India (RBI) and the finance ministry not to permit cash transactions above a threshold.
“We have submitted the recommendations to Prime Minister Narendra Modi today and are fairly confident that some of these will be incorporated in the Union Budget,” Naidu had told the media on Tuesday.
"The media has reported various aspects of the recommendations made by the committee, including the recommendation relating to levy of the banking cash transaction tax on transactions of Rs50,000 and above. The government has not yet taken any final view on the recommendations of the committee," the finance ministry statement said.
The ministry added the recommendations would be carefully examined and appropriate decisions would be taken in due course.
The recommendations were made when the Budget documents had already been sent for printing. However, last-minute changes in the Budget could always be incorporated, sources said.
The BCTT, imposed by then Finance Minister P Chidambaram from June 1, 2005, was withdrawn on April 1, 2009, on the grounds that the tax department had other instruments to nab those with black money, making the tax redundant. The 0.1 per cent tax was imposed on individuals and Hindu undivided families withdrawing Rs 50,000 or entities withdrawing Rs 100,000 in cash.
Heading the Tax Administration Reform Commission, Parthasarathi Shome, the brain behind the BCTT, advocated it be restored because there was no other instrument present to capture the information provided by it.
The idea of the BCTT was opposed by tax consultants, but supported by those in the digital payment business. It found takers among traders as well.
"It is a welcome step towards faster adoption of digital transactions. Traders need not worry as ultimately it will be paid by consumers," said Praveen Khandelwal, national secretary general of the Confederation of All India Traders.
The goods and services tax will also discourage payments in cash and push digital payments. "It is better that merchants and consumers get used to digital payments," said a Bharatiya Janata Party leader.
Rahul Garg, leader, direct tax, PwC, however, did not support the idea. “BCTT will discourage big cash transactions and may dampen demand in the short run, particularly for small businesses. It should be considered only when the demand cycle has picked up,” he said.
Photograph: PTI Photo