THE tax on cash withdrawals from current accounts is up for review in the forthcoming Union budget. While no change in the tax rate is expected, the finance ministry is considering whether the tax can be extended to only those savings accounts which hide current account-type withdrawals.

To avoid political opposition, it is mulling ways to extend this tax to savings accounts in which relatively big withdrawals happen on a regular basis. By doing so, the savings accounts of the ordinary middle-class account holders can be spared the withdrawal tax. A final view is yet to be taken as it is a politically sensitive issue.

The budget team is understood to have given its assessment on whether the levy has been an effective anti-evasion measure. The levy was intended to discourage cash transactions — where the scope of laundering money is huge — and move to a cheque economy. Cash withdrawals generally become part of the black economy as the money leaves behind no trail.

“The levy has helped the tax department establish an audit trail based on the information furnished by banks. However, the government’s original objective of encouraging transactions where payments are made by cheques has, perhaps, not been achieved.

There are 45 crore savings accounts as against just over 2 crore current accounts. Widening the scope of the levy to cover savings accounts — in which huge withdrawals happen — could help in achieving the government’s original objective,” said a senior official. Finance ministry officials also reckon that banks need to lower transaction charges on cheques and drafts.

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