Budget 2019: Why Reviving Banking Cash Transaction Tax May Be A ‘Smart Idea’

Nirmala Sitharaman presented her vision for tax collection by citing the Purananooru, a 2,000-year-old Tamil poem, to drive home the point that if the government becomes too aggressive in collecting taxes, it will inflict higher damage compared with what it can do with a judicious approach.

Among the many schemes introduced was 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 use of tax deducted at source to discourage use of cash and track cash-flow is a “smart idea”, said Sudhir Kapadia, partner and national tax leader at EY India, told BloombergQuint in an interaction. “If there’s a TDS, you have to reclaim it as a withdrawer of cash and that is a different way of tracking cash.”

He said the government in 2005 had introduced the banking cash withdrawal tax to track the source of money and check the trail of cash. However, that was quickly given a “quiet burial” due to issues of reporting which the banks had to do, he said. “They have brought it back through a TDS mechanism and if it gives a trail, and if the compliance requirement isn’t too onerous, it seems to be a smart idea.”

Does the fineprint of the Finance Bill live up to its fabled wisdom? Watch the full interaction here: