Banking Cash Transaction Tax: How UPA used it to track black money
The banking cash transaction tax is not a new idea, Finance Minister P Chidambaram in 2005 had first brought 0.1 per cent levy on withdrawal of cash on a single day of over Rs 10,000 or more from banks.
The committee of chief ministers on digital payments recommended the on Tuesday government to levy banking cash transaction Tax (BCTT) on transactions of Rs 50,000 and above to curb use of cash for large transactions.
The banking cash transaction tax is not a new idea, Finance Minister P Chidambaram in 2005 had first brought 0.1 per cent levy on "withdrawal of cash on a single day of over Rs 10,000 or more from banks.
Giving the rationale behind BCTT, Chidambaram had said in his budget speech that to unearth black money and assets the government was required to introduce the 'special scheme'.
"I am concerned about large cash transactions, especially withdrawals of cash, when there is no ostensible purpose to withdraw such large amounts of cash. These cash withdrawals leave no trail, and presumably become part of the black economy, " the then finance minister had observed in his speech.
Along with introducing BCTT, Chidambaram had also asked the banks to report to the government all deposits which are exempt from TDS on interest.
However, after much uproar over the new levy, the government raised the minimum threshold limit for imposition of BCTT from Rs 10,000 to Rs. 25,000 for individuals and Hindu undivided families (HUF), and Rs 1 lakh for other accounts, including corporate accounts. In 2005-06, the BCTT collected Rs 350 crore.
In his 2006 Budget speech, Chidambaram had said that "the Banking Cash Transaction Tax (BCTT) has turned out to be a boon, not for the modest revenues it brought which was never its purpose, but for the remarkable trails that it has helped establish." He further said in his speech that the BCTT also helped the (tax) department in detecting bogus bills, accommodation entries, artificial loss claims and dummy firms, and therefore, he proposed to continue the BCTT for some more time. In 2006-07, collection from BCTT was Rs 550 crore. In his 2007 speech, the exemption limit (for 2007-08) was increased from Rs 25,000 to Rs 50,000 for individuals and HUFs. The government also excluded cash withdrawals by the Central and State Governments from the scope of BCTT.
Calling the levy an extremely useful tool to track unaccounted money and trace their source and destination, he extended the scheme for another year. In 2007-08, collection from the levy was again Rs 550 crore. Collection from BCTT in 2008-09 was Rs 600 crore. The scheme was withdrawn from 1 April 2009.