In order to move the country towards digital transactions, the Modi government is considering taxing large cash withdrawals, The Economic Times reported today. If cleared, this "cash tax" could be included in the 2017-2018 budget to be presented on 1 February.
Digital payments transactions in December, 2016 were 43 percent higher than in November, according to central bank data. Officials claim that the costs of digital transactions are still lower than the costs of producing notes. However, currently, it's mostly merchants and consumers that bear the cost of digital transactions.
An official told ET that the aim of the potential new tax would be to shrink the footprint of cash in the economy and encourage digital transactions. "A number of steps are under discussion," the official said. Another official told the newspaper that the final call would be taken "at the highest political level."
Citing officials speaking on the condition of anonymity, ET reported that the government is taking forward the banking cash transaction tax (BCTT) from the time of Congress Party-led United Progressive Alliance government. The BCCT tax would allow the government to tax cash withdrawals above a certain ceiling from bank accounts.
The Tax Administration Reform Commission (TARC) has also recommended the reintroduction of BCCT, Livemint has previously reported. Last year, the Special Investigation Team on black money recommended banning cash transactions above ₹3 lakh.
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