The federal government has increased the advance tax rate for non-filers on cash withdrawals. Previously, a 0.6% tax was applied under Section 231AB for withdrawals exceeding Rs. 50,000 daily. The new budget proposal raises this rate to 1%, significantly impacting non-filers. This move aims to encourage tax compliance while increasing revenue collection from undocumented transactions.
Impact on Cash Withdrawals
For example, a non-filer withdrawing Rs. 50,000 will now pay Rs. 500 instead of Rs. 300. This tax is separate from ATM fees, increasing the cost of cash access for non-filers. The policy targets individuals avoiding tax documentation, pushing them to file returns. Higher deductions may discourage large cash transactions, promoting digital payments and financial transparency.
Scope of the New Tax Rule
The tax applies to all cash withdrawals, including those via credit cards and ATMs. Non-filers must now bear additional costs when accessing cash, making tax evasion more expensive. The government hopes this measure will expand the tax net and reduce undocumented income. Businesses and individuals relying on cash transactions will face higher operational expenses unless they comply with tax regulations.
Also Read: Banks Warn of Major Issues in New E-Commerce Tax in Budget
Objective Behind the Tax Hike
The increased tax rate aims to pressure non-filers into joining the tax system. By making cash withdrawals costlier, authorities discourage tax evasion and promote documentation. This aligns with broader efforts to formalize the economy and enhance revenue collection. The policy may also reduce cash dependency, supporting digital payment initiatives and improving financial accountability.
Potential Challenges and Reactions
While the policy encourages tax compliance, it may burden low-income non-filers who rely on cash transactions. Critics argue that higher taxes could discourage economic activity rather than improve compliance. Businesses operating informally may face liquidity issues. However, supporters believe the long-term benefits of a documented economy outweigh short-term inconveniences.
Conclusion
The increased tax on non-filers’ cash withdrawals reflects the government’s push for greater tax compliance. By raising costs for undocumented transactions, authorities aim to expand the tax base and reduce cash reliance. While the move may face resistance, its success depends on effective implementation and public awareness. Ultimately, the policy seeks to foster a more transparent and accountable financial system.
