IBA seeks hike in cash withdrawal tax limit

The proposed tax on cash withdrawals from banks is taking a new turn with the Indian Banks Association (IBA) and the Reserve Bank of India (RBI) moving the finance ministry in his regard. IBA is a premier bankers' body in the country.

The IBA, in its presentation to the ministry, has asked for raising the limit to Rs 50,000 as against the proposed Rs 10,000 and remove demand draft and inter-bank transactions from the purview of the cash withdrawal tax.

According to banking sources, the RBI had suggested that savings bank accounts should be kept out of the purview of the cash withdrawal tax but fixed deposits and current accounts should be subjected to this.

Sources close to the finance ministry said only current account transactions above certain limit are likely to invite the tax.

Banking sources pointed out that the IBA felt that transactions of Rs 10,000 will only increase the transaction cost for the banks without actually contributing to the government's coffer in terms of revenue.

It said that commercial banks on an average spend around Rs 40-60 per transaction per customer. If the limit of Rs 10,000 is maintained, this will result in an increase in transaction cost, and finally impact the corporate tax collection by the government from the banks.

The ministry officials are learnt to have told bankers that the tax on the bearer cheques will be borne by the issuer of the cheque (who holds the account) and not one who is encashing it.

An IBA survey has found that 80 per cent of transactions are in the range of Rs 10,000-30,000 and they account for only 10 per cent of the total volume of banking business. On the other hand, transactions of around Rs 50,000 and above form 10 per cent of the total but account for almost 60 per cent of withdrawals.

On the finance minister's concern on tracking black money, IBA said savings account holders' permanent account numbers (PAN) are with the banks.

Besides, cash transactions through demand drafts have already been curtailed. Banks are prohibited from making cash payouts beyond Rs 20,000 and the RBI has already restricted banks from issuing demand draft against cash for amount beyond Rs 50,000.