With the Finance Act, 2008 having provisions for withdrawing the tax, the Central Board of Direct Taxes now does not have to issue a fresh circular or notification to this end, a finance ministry official said.
The objective behind introducing the tax was to keep track of large cash withdrawals, which leave no trail, and presumably become part of the black economy. The BCTT is a 0.1% levy on taxable banking transaction.
These transactions include cash withdrawals of over Rs 50,000 for individuals and HUFs and Rs 1 lakh for others in a single day from non-savings bank account maintained with any scheduled bank. The tax is also applicable on single-day cash receipt exceeding Rs 50,000 for individuals and HUFs and Rs 1 lakh for others on encashment of one or more term deposits, whether on maturity or otherwise.
As the BCTT was envisaged as an anti tax evasion measure, in terms of revenue, its contribution to the direct tax kitty has not been too significant. As per the revised estimate in 2008-09, the BCTT is expected to bring in Rs 600 crore, 9% more than the revised estimate of Rs 550 crore for 2007-08. In 2006-07 also, the tax brought in the same amount of Rs 550 crore. For 2009-10, the finance ministry has made a provision of Rs 50 crore from the tax.
Now with the Financial Intelligence Unit in place, along with the mandatory use of the Permanent Account Number for high value cash transactions as well as strict norms from the Reserve Bank of India, the utility of the BCTT has gone down substantially.
The BCTT has served a very useful purpose in enlarging the information system of the Income Tax Department. Since the information is also being gathered through other instruments introduced in the last few years, I propose to withdraw this tax with effect from April 1, 2009, Chidambaram had said while presenting Budget 2008-09.
The UPAs decision to withdraw the tax was also seen by some as a poll gimmick, to elicit goodwill. Budget 2008-09 was the last full fledged Budget by the p, where it announced a slew of populist measures including the Rs 60,000 crore farm loan waiver and a re-jig of the income tax slabs.