Tuesday, March 01, 2005

Indian Budget

Indian budget for 2005-06 was presented y'day. The budget basically focuses on two things. Tax reforms and more central funded schemes for poverty alleviation (Bharat Nirman as they call it). Tax reforms are all very welcome! Standard deduction is gone. We can have consolidated deduction of upto Rs 1,00,000 on savings apart from already existing deductions on Insurance and Housing loan spending etc. It means more people including me will pay less tax and I can't be complaining about that. Women and Senior citizens will pay even less. Expanding the IT net is the way forward and I hope all these concessions to individuals and Corporates will encourage more people to pay tax. Excise and Customs duties have been slashed to bring it more closer to world standards. However more should have done to increase the service tax net. VAT is going to be in place on 1st April. Hope FM keeps his promise of doing away with Central Sales tax next year. On the second aspect of more central funded schemes, I am skeptical. I welcome any scheme for infrastructure development. But I doubt pumping money into social sector schemes like Sarva Shiksha Abhiyan, Mid day meal scheme, Antodhya Anna yojana or even the new Employment guarantee Scheme etc will have the desired effect however good their intentions may be. I think its only a case of more tax payers money going down the flush. I believe assault on Poverty can only be launched by good governance at the state level, but alas! we hardly have a handful of good state governments. And finally a tax of 0.1 % has been introduced for cash withdrawal of above Rs 10,000. Average Joe like me will naturally ask.. Who on hell are you to tax me for withdrawing my own money? Mr. PC responds by saying that its to curb Cash transactions which promote black economy and its just Rs 10 for Rs 10,000!! I can put this back to you Mr. PC, is this Rs 10 on Rs 10,000 going to prevent black money ? It can only take away my honestly earned money for absolutely no reason. One expects you to be more mature than this.


Bharadwaj said...


The taxes you already pay are your hard earned money. Are you going to protest those as well?

If you are still worried about paying Rs.10 for withdrawing Rs. 10,000, here's Mr. PC's view.

Question: Almost everyone expressed reservation over the proposal to levy 0.1 percent tax on withdrawal of cash more than ten thousand rupees. How do you say that it will contain black money?

FM: I am more amused than concerned. Who is everyone? 100 crore people in this country do not withdraw ten thousand rupees cash on a single day. Please don’t use the word everyone. Now what is the purpose of this tax. It is not to raise revenue. It is not intended to be a revenue raising measure. It is intended to discourage people from indulging in cash transactions. For domestic requirements, for your provisions, vegetables, fruit, milk, what would a normal household withdraw at any given time? Five or six thousand rupees? You don’t pay tax. Even if you withdraw ten thousand, you pay ten rupees. You send somebody to a bank in an auto to cash a cheque for ten thousand, the auto charge will be 20 rupees. If you go to an ATM and use your ATM card the ATM charges you thirty rupees. An outstation cheque a bank charges you thirty rupees. All I am saying is if you withdraw cash I want to know, who is withdrawing. I want a tax trail on you and therefore, I am asking you to pay ten rupees. But I can make it five rupees. That is not the point. The point is not that the money that is being collected. Nobody is opposed to the ten rupees. I think everybody is secretly opposed to coming in the tax trail. But I think in a matured economy like India’s, like any other economy in the world, you must encourage people to move to the cheque transactions. Payments must be by cheque. The whole idea is it is an anti-black money measure. The CMP wants me to take some steps to control black money. I have taken a very minor step, that is why I said I am more amused and concerned. Let parliament debate it.

I guess we can agree upon the fact that PC knows more than we do. And he knows what he's doing as well.

The entire text can be read at:


Balaji said...

In response to the above comment...

I am also amused at PC's response. If the point of levying this tax is only to keep a trail of cash transactions, why should it be in the from of Tax. Are the banks stupid enough that they can't even report such transactions to the government? Efforts to curb black economy and reducing cash transactions are very welcome. But my point is 0.1 % tax on such transactions is a very naive idea for doing it. Besides I am already a tax payer since its deducted at source. So why should I pay this 'Trail' tax. I admit Rs 10 doesn't matter much but this silly attitude bothers me nevertheless. Talking seriously again... If this kind of unnecessary intreventions by the government is going to make people to keep money at home than in a bank, the damage to the economy will be greater. This is possible.. say I get Rs 50,000 from a source and will not be using it for two weeks. Now will I put that into my Savings account and lose Rs 50 while withdrawing it or will I keep it home? Government should be interested in encouraging more people to save money (or simply use banks more)instead of implementing such funny ideas to keep Trail!!

Bharadwaj said...

There are 2 things to think about here:

1) Banks just cannot disclose the identity of the person withdrawing money because of privacy issues. It would be a gross violation of privacy. Any body can sue the bank for disclosing personal information.

2) The new tax for money withdrawal is a basis for people to use cheques as a way of money transfer. I understand this is not possible every time but in India the use of cheques is way less compared to other developing/developed countries. PC wants us to deal more with cheques. This way the banks/government can account for transactions easily. The main idea of PC here is to curb black money. His aim is not to tax people. He sais he was willing to reduce the tax to 0.05%. Either people will still withdraw money and get trailed (of course, the bad guys) or start using cheques. You'd still be able to deposit 50,000 in a bank, but won't you start using cheques to withdraw them or transfer money to someone else. I guess you would.

You may remember how in the early 90's, smuggling gold into India was at its peak. But a move by the then FM to allow people to bring in 5 kg's of gold reduced smuggling to a great extent. Hope this scheme encourages people to move towards cheques.

Bharadwaj said...

BTW, Are you gonna post your views about the TN budget? Looking forward to that.

Balaji said...

Interesting discussion....

1. Banks already take off Tax on the income earned through interest on bank deposits. When we invest money in Fixed deposits over a certain amount (I think above 2 Lakhs) we have to sign a form authorizing the banks to either Tax themselves or else we would do so in our annual return to the IT dept. What prevents the Govt from passing legislation authorizing the banks to report cash transactions above Rs 10,000.
2. As for as I know there is no law barring the Banks from disclosing such transactions to the Government. How do police trace transactions made by criminals. Banks aren't disclosing such info to the man on the street! If required legislation can be put in place to enable such disclosure to the Government.

3. 0.05 % or 0.1% is the not the issue. The question is whether the tax itself is justifiable.

4. Move towards Cheque transactions is very welcome. But do we have the infrastructure in place?
a) Do all businesses in India accept Cheques. I won't blame them. Cheque Bouncing in such a big Menace.
b) How many 24 Hr banks do we have in India so that I can go and cash my cheque whenever I want?
c) Remember you cant withdraw large sums from ATM's.

4. The justification by PC refering to Auto Rickshaw charges and ATM charges is sheer non-sense. Pity its coming from the FM of the country.

5. I am afraid I am not going to blog on Tamilnadu budget. Its made by politicians (of charge the liquor companies more vintage) and is not worth discussing. Anyway I understand there are no taxes, no schemes worth mentioning. So who cares ? Funny thing is they are talking about the central funded Nuclear Power projects worth some 5000 crores as if they are going to execute it!