Budget 2019 proposes to levy 2% TDS on cash withdrawal of over Rs 1 crore

Budget 2019 has proposed to levy tax deduction at source (TDS) of 2 per cent on the cash withdrawal of more than Rs 1 crore from a bank account in one financial year to discourage business payments in cash.

Rumours were already doing the rounds that the government will introduce such a tax.

In June of this year, The Times of India had reported that the government was mulling the possibility of introducing a tax on cash withdrawals of more than Rs 10 lakh a move that could discourage the use of paper currency and promote the use of digital payments for financial transactions.

In fact, after demonetisation in November 2016, there was speculation that Union Budget 2017 might reintroduce the tax again. But what then finance minister Arun Jaitley announced that year was a ban on cash transactions above Rs 2 lakh by inserting a new section, 269ST, in the Income Tax Act. According to this section, no person can receive an amount of Rs 2 lakh or more in cash
a) in aggregate from a person in a day; or
b) in respect of a single transaction; or
c) in respect of transactions relating to one event or occasion from a person.

If an individual receives more than Rs 2 lakh in cash, then he will have to pay a penalty as mentioned under section 271DA of the Income Tax Act. The amount of penalty he would have to pay would be equal to the amount he has received, i.e., 100 per cent.

Banking cash transaction tax
Former finance minister, P. Chidambaram, had introduced a banking cash transaction tax in the 2005 budget. This was done with the objective of checking the source of money trail and to stop the growth of black money.

The tax was payable by individuals and Hindu Undivided Family (HUF) if they withdrew cash over Rs 50,000 on a single day from a bank account other than savings bank account. It was fixed at 0.1 per cent on cash withdrawals from bank. For entities other than individuals and HUF, tax was levied on withdrawal of Rs 1 lakh and above on a single day.

The tax was applicable even in case of money withdrawn from fixed deposits at the time of maturity, if the amount exceeded Rs 50,000 for individuals and HUFs and Rs 1 lakh for any other entity except for individuals and HUF. No tax was payable in case term deposit, on maturity, was credited into any bank account.

However this banking cash transaction tax was withdrawan with effect from April 1, 2009.