Cash transaction tax withdrawn
Finance Minister P Chidambaram has proposed to withdraw the controversial banking cash transaction tax (BCTT) from April 1, 2009. The move comes three years after it was introduced with the specific purpose of keeping an audit trail of large cash-based transactions.
Under the BCTT introduced in 2005, a tax of 0.1 per cent is levied on cash withdrawals above Rs 50,000 per day for an individual and Hindu undivided families, and Rs 1 lakh per day for other entities.
Chidambaram said BCTT has served a very useful purpose in enlarging the income tax department’s information system.
“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,” he said.
The BCTT trail has thrown up interesting ways and means through which persons evade taxes. These range between rather sophisticated discounting of outstation bank drafts, 'kaccha bills', inflated labour and medical expenses to 'bogus bills'.
Sources said that investigations carried out by the income tax department has led to detection of large amounts of unrecorded transactions and unaccounted income.
BCTT is estimated to yield over Rs 500 crore in 2007-08.
Analysts said that new systems have already been put in place to keep a trail of unaccounted transactions.
“Banks, in any case, are required to report last cash transactions to authorities. There is also the system of
Annual Information Return (AIR) where high-value transactions such as cash deposits aggregating over Rs 10 lakh in a year in any savings account is to be reported to income tax authorities,” said S Harishanker of global financial advisory firm KPMG.