Indian Ministers Suggest Tax on Cash Withdrawals Above Rs 50,000; Digital Payments the Future?

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To discourage the Indian nation of cash transactions and push the country toward digital payments, high level ministers has suggested a ban on cash transactions and a tax on cash withdrawals above Rs 50,000 (approx $735).

On February 1, India’s Union Budget will be heard and it is hoped that the recommendations suggested by the committee led by N Chandrababu Naidu, Chief Minister of Andhra Pradesh, to the Indian Prime Minister Narendra Modi, will be incorporated into the budget.

In a report from The Times of India, it states that these suggestions include a subsidy of up to Rs 1,000 for smartphones bought by those who don’t pay income tax and small merchants. It wants to remove the merchant discount rate (MDR), which is the charge levied on transactions. It has also suggested a cap on large cash transactions, but has not stated at what threshold while proposing a transaction tax on transactions of Rs 50,000 and above. The committee is also seeking the creation of an authority of a formulated policy that will regulate any changes that promote the implementation of digital payments.

After submitting the interim report to Modi on Tuesday, Naidu said:

We are confident that our recommendations will be incorporated in the Budget.

Ban on Cash Transaction Tax Removed

In 2009, the United Progressive Alliance (UPA) government had imposed a cash transaction tax on cash withdrawals; however, it was forced to withdraw the implementation after it faced criticism.

It is thought, though, that this has nothing to be with digital payments, but was a way of generating revenue.

Rise of Digital Payments in India

Since November’s demonetization in India, which saw Modi banning two of its largest denomination notes, the Rs 500 and Rs 1,000, there has been a steady rise in digital payments particularly with the digital currency bitcoin.

Over the last few months the country has witnessed a greater push toward digital payments as the way forward as it attempts to reduce the use of physical currency. It is hoped by doing so that this will reduce terrorist financing, corruption, and illegally held cash.

In a bid to boost digital payments, various campaigns have been put into place to demonstrate its benefits. Arun Jaitley, the Finance Minister of Corporate Affairs in the Cabinet of India, has also been reported stating that banks should promote digital banking too.

With February 1 just around the corner it remains to be seen whether the prime minister will implement these committee suggestions, which could further push the digital agenda in the country.

Featured image from Shutterstock.

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