New Delhi: Cash withdrawal of Rs 1 crore or more from bank accounts over a year is set to attract tax as the government moves to take the economy towards use of lesser amounts of cash.
The Union Budget has proposed tax deduction at source at the rate of 2 per cent on cash withdrawals in excess of Rs 1 crore per year from an individual bank account.
"Some business models, where large cash withdrawal is a necessity, are proposed to be exempted," Finance Minister Nirmala Sitharaman said while presenting her maiden Budget.
The government may notify the accounts to which these provisions shall not be applicable in consultation with the Reserve Bank of India (RBI).
Further, merchant discount rate (MDR) charges have been waived on cashless payments.
"In order to discourage the cash transactions and for less cash economy, the government has proposed to insert a new section 194N which provides for levy of TDS at the rate of two per cent on cash payments in excess of Rs 1 crore in total made during the year by a banking company or cooperative Bank or post office, to any person from an account maintained by the receipt," said Tarun Garg, Manager-Tax, Deloitte India.
The move to incentivise digital payment and discourage cash transaction is set to help fintech companies like PayTm and PhonePe.
"Digital India being a flagship programme of the government, in its second term the government has taken a step further in promoting digital payments," said Rakesh Nangia, Managing Partner, Nangia Advisors (Andersen Global).
For ensuring that businesses provide facility for making payment through the low-cost electronic mode, the Budget has proposed to insert a new section allowing firms with annual turnover of Rs 50 crore or more to do so.
"For ensuring compliance, a suitable penalty provision is also proposed to be inserted in the Act," said Finance Minister Nirmala Sitharaman.