Tax to stay on withdrawals from current accounts

NEW DELHI/MUMBAI: One of the most unpopular measures proposed by finance minister P Chidambaram in the 2005 Budget — the tax on cash withdrawal — is set to be knocked off on savings bank accounts. Given the all round flak the proposal attracted, even from parliamentarians, the government is set to go a step further by proposing to exempt tax on transactions like purchase of bank drafts, cheques or any other financial instrument. The changes are likely to be reflected in the amendments to the Finance Bill to be tabled in Parliament on Monday. The original proposal of the finance minister envisaged a tax of 0.1% tax on cash withdrawals on a single day of Rs 10,000 or more. In other words, each time a cash withdrawal of Rs 10,000 was made, a tax of Rs 10 would have to be paid. The government justified the proposal saying that such a tax will leave a trail for the taxmen and help unearth black money. But there's a catch. There hasn't been a complete rollback of the proposed tax. The levy will be applicable on withdrawals from current accounts. Individuals and Hindu Undivided Families (HUFs) will have to pay a 0.1% tax if cash withdrawals on a single day from a current account exceed Rs 25,000. Companies, firms and trusts — i.e.- persons other than individuals — will have to reconcile to paying tax if cash withdrawals exceed Rs 1 lakh on a single day. The tax is also proposed to be levied on encashment of one or more term deposits on a single day. Here again, the threshold limits are Rs 25,000 for individuals and HUFs and Rs 1 lakh for businesses. The new levy will be in force from June 1 if Parliament approves the Finance Bill. According to the original proposal, the tax was to be paid on cash withdrawals 'by whatever mode' exceeding Rs 10,000 on a single day by a person from any scheduled bank. It also covered withdrawals by bearer cheques. Those purchasing a bank draft or a cheque or any other financial instrument by paying cash of over Rs 10,000 on a single day would also have had to fork out the levy. However, resistance from political parties to the new levy appears to have forced the government to spare savings account holders and also raise the threshold exemption. Chidambaram had given an indication of exempting savings account holders during his reply to the general discussion on the Budget last month.

Tax to stay on withdrawals from current accounts

One of the most unpopular measures proposed by finance minister P Chidambaram in the 2005 Budget - the tax on cash withdrawal - is set to be knocked off on savings bank accounts.

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