Curbing black money: Now, get ready to pay tax on cash transactions at bank

The Narendra Modi government in its second term will put in place measures to further curb black money generation.

According to sources, policymakers have started talks on the possibility of re-introducing the much-flayed instrument of the banking cash transaction tax (BCTT) to discourage cash transactions.

Further, the tax authorities are considering levying the estate tax on inherited property in line with global practices.

“We have received suggestions on taxing cash transactions. The departments concerned are examining the feasibility and effectiveness of the tax. Such tools are not for revenue generation but to curb black money transactions in the form of cash,” said a senior government official in the know.

The matter is being discussed and it has been taken up in some of the pre-Budget consultation meetings. This could take shape only after the new government is formed and the finance minister is appointed, he added.

Sources said there was a possibility that the modalities of this tax would be different from what had been seen earlier.

P Chidambaram as finance minister imposed this tax effective from June 1, 2005, but was withdrawn on April 1, 2009, because the tax department had many other instruments to nab those having black money.

Back then, this was imposed at 0.1 per cent of cash withdrawal other than from savings accounts. It was imposed on any individual or Hindu Undivided Family withdrawing at least Rs 50,000 or an entity taking out at least Rs 1 lakh in cash.

In 2017, a committee of chief ministers is learnt to have suggested the restoration of the BCTT to encourage digital payments. The government has been nudging people to do digital payments. The idea behind this is not generating revenue but curbing black money transactions, said a tax expert.  

According to him, there are multiple rackets that run the business of purchasing demand drafts in discount from traders and businessmen to avoid income-tax (I-T) and other taxes.

Further, the tax authorities are weighing the potential and the implications of the estate tax on passed-on property.

“The proposal has been taken up with revenue authorities. If implemented, the tax would be on the market rate of the property to be inherited. However, if the value of the property/asset is less than Rs 5 crore, this tax would not be applicable. The range of property may differ and even some property valued at Rs 10 crore may be exempted. But, the said framework would require consultations within new government.”

Inheritance is not taxed in India. The tax was there three decades ago but was abolished in 1985 by then finance minister V P Singh. There are instances where ancestral property is a source of income. Through this, the tax authorities want the people to declare the income earned and pay taxes accordingly. Internationally, in the US and the UK, people pay estate taxes.

The BCTT, on the other hand, is expected to help the department to detect bogus bills, accommodation entries, artificial loss claims, and dummy firms. However, it could not be ascertained if the BCTT provision would be temporary till information systems become more comprehensive and strengthened or it would remain operational if implemented.

Besides, there are suggestions that have been discussed and taken up in pre-Budget consultations. These include changing the duration of the fiscal year from April-March to January-December. However, it may face operational challenges and may be given time. If it is introduced, this would end the 150-year-old British practice. Similarly, the tax department is pitching for making the fiscal and assessment year the same under the I-T Act.

The government had appointed a panel on changing the duration of the fiscal year. Under the I-T system, an assessment year is the year that comes immediately after a fiscal year.

Meanwhile, the long-pending report on the direct tax code will take two more months and will be submitted by July 31. The report will also incorporate new tax policies. In its first five years (2014-19), the government had come up with policies such as Operation Clean Money, the Income Disclosure Scheme, and the Black Money Act. 

Sources said the momentum would continue or might see more tools to eradicate illicit money generation.

Under the scanner

The cachet of cash

• Introduced in 2005, the banking cash transaction tax (BCTT) levied 0.1% on the value of cash transactions entered into on a single day 

• Was applicable on all cash withdrawals from a bank account maintained with any scheduled bank

• Threshold was Rs 25,000 per day for an account held by an Individual or HUF, and Rs 100,000 per day for other account holders 

• BCTT collected tax a little over Rs 1,000 crore between 2005 and 2009; the levy was scrapped in 2009

Homing in on estate tax 

• To impose tax on ancestral property 

• Valuation of property based on current market value 

• Contemplating exemption for property valued up to Rs 5 crore