The Hindu Business Line : Huge withdrawals made in May-end to avoid tax trail

Feedback from the bank branches to their regional offices show huge cash withdrawals by panicky current account holders who were unwilling to create a tax trail by paying the banking cash transaction tax (BCCT).

The new tax imposed on high-value cash withdrawals in all accounts other than SB accounts came into effect from June 1.

"We witnessed huge drain on the current account during the last few days of May. Some current account holders were making it sure that they do not have to pay the tax that could leave a trail for the tax authorities," a banker said. Regional heads of a number of public sector banks, all of whom spoke on conditions of anonymity, told Business Line that the drawdown of the current account balances were mainly witnessed in accounts held by traders and businesspersons in their individual capacities.

Another banker said that in some of the branches under his jurisdiction, current account deposits might have shrunk by 10-20 per cent due to the sudden withdrawals.

"These are early days, so I do not have the exact picture. But I am told that in some branches the current account deposits could have gone down by as much as 20 per cent."

Under the BCCT, account holders are required to pay a 0.1 per cent tax on the amount withdrawn.

While any withdrawal over Rs 25,000 in a single day would attract the tax for accounts held by individuals and Hindu Undivided Families (HUF), for all other accounts (such as corporate accounts) the tax would be imposed on daily withdrawals aggregating Rs 1 lakh and above from a single account.

A senior banker said that the Finance Ministry might have erred by over-playing the "creation of a tax trail" bit.

"We heard too many times that the tax was being imposed not a revenue-raising measure by mainly to create a tax trail for transaction with the aim of trapping those who use the banking channels to launder money."

"Many who transact large amounts of cash daily might find it wise to stay out of the formal banking channel instead of living under the constant fear of tax hounds," a bank officer said.

Bankers, however, said that there has been no change in the attitude of a number of customers, especially the corporate account holders.

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