As people continue to stand in long queues outside banks and ATMs to withdraw cash, the government is all set to put further pressure on consumers. In order to disincentivise cash transactions, the government is likely to impose a withdrawal tax in the range of 0.5 to 2 per cent from banks and ATMs for sums above Rs.50,000 per month.

The levy will be termed as "çash handling charges" and would also apply to any transactions of purchase or sale of goods and services over Rs.2 lakh and above. "We are in the discussion process to levy a withdrawal transaction. The finance ministry is yet to discuss it with the PMO before notifying it formally," a senior government official said. Asked why a person who pays income tax and also several indirect taxes for goods and services should pay more tax to take out his own money, the official said, "Transacting in cash has certain costs. This should be borne by the people or else they should adapt to digital payment mode. Those withdrawing Rs 2-3 lakh in cash are not poor people and can make payments digitally."

The official said this is an attempt to prevent people from hoarding money by making more withdrawals. "The government will be constantly introducing more rewards for transacting digitally," he said. A tax on bank cash withdrawals, if introduced, could come bundled with tax breaks and incentives for credit and debit card transactions, as part of the current government’s broader strategy to move India to a “less-cash” society.

But experts do not endorse the government’s move to tax cash withdrawal. "It is limiting people’s choices in a democratic country. How can cash and PayTm or some other digital payment gateway be treated at par," experts said. Moreover, the government has already been flooded with more than 2.5 lakh complaints from customers and merchants on making cashless transactions through e-payments.

People are already hit hard by the demonetisation move and are still struggling to get some cash from banks and ATMs, as 98 per cent of the transactions take place in cash in the country. P Rajeev Chandrasekhar, RS MP, also wrote to FM Jaitley and RBI Governor Urjit Patel apprising them of certain key issues that will arise as it moves to digitise the economy. He wrote, "There are serious gaps in the IT Act and dispute resolution institutions like Cyber Appellate Tribunal. The data security issue represents a serious challenge to our banking system.