Edits & Columns

Welcome rethink The cash withdrawals tax should be scrapped   The finance minister’s statement in Parliament suggesting a re-think on the proposal to impose a 0.1% tax on cash withdrawals greater than Rs 10,000 a day is very welcome. If, as seems likely, withdrawals from savings accounts in scheduled banks are exempted from this levy, the middle and salaried classes would benefit greatly. Ideally, the tax should be scrapped altogether. It makes no sense and imposes a huge cost on banks. But if not, at the very least, individuals should be left out of its ambit. On the same grounds, purchase of bank drafts and bankers’ cheques by individuals must also be exempted, especially if made by debit to a savings bank account. As far as cash withdrawals by businesses are concerned, practical considerations suggest that the limit for imposing the tax be raised. Though the Finance Bill has proposed allowing such assessees to claim a deduction on the amount paid as banking transaction tax from their business profits, the costs of administering this would be substantive. As ‘the creases are being ironed out,’ it is pertinent to remind the FM that in the case of individuals, the logic should be extended to the “receipt of cash on encashment of term deposit, whether on maturity or otherwise.” Imposing the tax on encashment of term deposits would hit the same constituency the FM is now trying to address. The proposal affects routine middle class spending on education, emergencies and socio-cultural needs. Term deposits are, more often than not, the most convenient avenue available to an average household to save for a ‘rainy’ day. If there has to be a tax on term deposits, then the limit must be raised to a level that can be reasonably construed as ‘black money.’ The FM says he has told the Prime Minister he was applying their austere standards while making the proposal, and he now understands that times have changed. How very true! In real terms, Rs 10,000 in today’s world is not such as astronomical sum. Besides, there is increasing emphasis on banks knowing their customers and insisting on PAN details for cash deposits/remittances beyond Rs 50,000. Black money would, in any case, be tough to circulate through the banking system, assuming, of course, the collected data is used appropriately. The FM’s statement “No tax has been imposed. It has only been proposed,” spells hope that all anomalies will be corrected. And soon.

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