TDS on large cash withdrawals now but the government hopes that no one has to pay

Companies and individuals relying on cash to pay for their business expenses are in for some pain. The budget proposals laid out by Finance Minister Nirmala Sitharaman prescribe a 2% TDS on cash withdrawals of more than Rs 1 crore in a year. The reasoning behind this move is that the government wants the country to become a less-cash economy and using cash for high-value business payments defeats that purpose. 
 
However, the tax collection from large cash transactions isn’t likely to mop up a lot of revenue for the government. In 2017-18, over 1.75 lakh entities withdrew more than Rs 1 crore each from their bank accounts adding up to Rs 11 lakh crore, according to unnamed sources who spoke to the Economic Times. 
 
The problem is not just cash but the illegal nature of the transactions. While the government mandates use of PAN for any cash transaction beyond Rs 50,000, the tax department has found that many of the times, the PAN provided is either inactive or incorrect. This allows people participating in the transaction to escape the tax net and brings down the revenue collection efficiency. 
 
To this end, the government has introduced a tax, which is deductible at source. The idea is not to mop up more revenue but to discourage high-value cash transactions, said Revenue Secretary Ajay Bhushan Pandey in an interview with the Indian Express.
 
“ To address this issue and to push the less cash economy, this 2 per cent TDS on cash withdrawal of more than Rs 1 crore in a year has been done. So it is not a revenue mobilization method. We in the government would be, however, happy to see that no one withdraws more than Rs 1 crore and moves to the digital system and we don’t get any TDS. But by putting this TDS, if they are withdrawing cash and not coming into the taxation system, this will ensure that correct PAN number is recorded, and then they can file the return and take credit on the tax,” Mr. Pandey said.
 
Even as the government doesn’t hope to make much revenue through this tax, it will be looking to rein in more revenue through other sources such as the increased rates on the highest income earners category because of rising interest costs burden which led to multiple budgetary cuts to key departments and ministries this year. 

 


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