Big brother to watch large cash withdrawals

The government plans to track cash transactions in 1,000 "high velocity" bank accounts across the country. At a meeting with a few top-notch bankers last week, finance ministry officials said the purpose was to study the need for high cash withdrawals on a regular basis and not to harass these current account holders.

Finance ministry sources told Business Standard that it would select these 1,000 accounts on the basis of the amount of cash withdrawals.

The Budget for 2005-06 had imposed a 0.1 per cent tax (that is Rs 10 per Rs 1,000) on all current account withdrawals of Rs 25,000 by individuals and over Rs 100,000 by companies from June 1.

"Since banks will have to collect the 0.1 per cent tax on cash withdrawals and will now keep a regular tab on these transactions, it will be easier for the ministry to get the required data," the sources said.

All scheduled commercial banks will be required to file an annual statement to the government on the collection of withdrawal tax.

Besides, they are required to file a quarterly statement on all high-value cash transactions to the finance ministry. The central office of banks will pull in data from all branches and a soft copy will be sent to the government.

Customers of non-scheduled banks will not be required to pay the cash withdrawal tax. Sources said if customers shifted from scheduled banks to non-scheduled ones to avoid paying the tax, the government might bring non-scheduled banks, too, under the tax ambit in future.

Under Section 2 of the RBI Act, scheduled banks -- which need to have at least Rs 50 crore (Rs 500 million) net worth -- get refinance facility from the RBI. Non-scheduled banks do not enjoy this facility.