Banking Cash Transaction Tax (BCTT)

What is Banking Cash Transaction Tax?

The BCTT (Banking Cash Transaction Tax) is a type of direct tax that is imposed on cash withdrawals up to a specific amount limit set by the government. In simple words, when someone withdrew a large amount of cash from the bank exceeding the amount limit in a single day, then he/she had to pay a small additional tax directly to the government.

This process was applicable to control the large amount of cash withdrawals from the banks and to promote the digital method of transactions. The BCTT was introduced by the United Progressive Alliance (UPA) government in 2005. The BCTT remained in operation for 4 years continuously, and then it was abolished by the government in 2009.

How did it work?

The BCTT functions with a tiered system, and here is the analysis of each element:

• Tax Rates: The BCTT imposed a tax rate of 0.1% on amounts exceeding the set limit on cash withdrawals in a single day. The tax is not imposed on the whole amount of the cash withdrawn.
• Withdrawal Limits: The withdrawal limits for individuals and business institutions are different. For individuals, it was around Rs 50,000, and for businesses or institutions, it was around Rs 1,00,000.
• Account Types: The BCTT was initially applied to the non-savings accounts. The reason behind it was that the savings account is used for the smaller or regular transactions, while the non-savings account is used for the larger cash withdrawals.

Reasons for Abolishment

The BCTT faced a lot of criticism from the people, so the government finally abolished it in 2009. Here are the potential reasons for that:

• Limited Revenue generated: The intention of BCTT was to decrease the circulation of black money. But instead, it generated relatively very little revenue for the government.
• Burden on Administration: There was an added layer of complexity for the account holders and banks because of the tax imposed. It required an extra tax collection and record-keeping process.
• Discouragement of digital payments: The BCTT wanted to promote the usage of digital transaction methods. It has discouraged it because of the tax burden on cash withdrawals, mainly for small transactions.