Budget 2019: Government Introduces Tax On Cash Withdrawals Above Rs 1 Crore In A Year
The government will now levy a 2 percent tax-deducted-at-source for cash withdrawals above Rs 1 crore to discourage businesses from paying in cash and to encourage cashless transactions.
The 2 percent TDS will apply to withdrawals of more than Rs 1 crore from a bank account within a financial year, Finance Minister Nirmala Sitharaman said during her maiden budget speech. The levy, according to the Finance Bill, will be effective from Sept. 1, 2019.
“The objective is clear that they want to discourage cash payments above Rs 1 crore,” former Reserve Bank of India Governor C Rangarajan told BloombergQuint. “It will hurt people who withdraw substantial amounts of cash.” Rangarajan said the move wasn’t a bad idea although he wasn’t sure about its efficacy. “People who really want to use cash will find other ways of doing so,” he said.
Besides, the account holder may transact with multiple banks for such cash withdrawal, pointed out tax expert Suresh Surana in an emailed comment.
Sitharaman also said the companies with an annual turnover of more than Rs 50 crore shall offer digital payment options to their customers.
“Business establishments with annual turnover more than Rs 50 crore shall offer such low cost digital modes of payment to their customers and no charges or Merchant Discount Rate shall be imposed on customers as well as merchants,” she said.
Necessary amendments are being made in the Income-Tax Act 1961 and in the Payment and Settlement Systems Act 2007, to implement these changes, she said.
The proposal to levy a TDS of 2 percent will encourage MSMEs to conduct business through digital route, said Ramaswamy Venkatachalam, managing director (banking and payments) at FIS. “BHIM, UPI, Aadhaar Pay, NEFT, RTGS will be more used by the businesses making India a less cash economy.”
Dewang Neralla, chief executive officer at Atom Technologies Pvt. Ltd., said the adoption and implementation of low-cost payment options like QR-based payments will pickup across organised retail and larger enterprises. “But clarity is required on the announcement of no MDR for customers and merchants.”
FIS’ Venkatachalam, too, said improvement in telecom infrastructure and access to mobile and internet banking will be crucial for such expansion.