The government has done away with the 1% tax on cash payments of over Rs2 lakh for purchase of any goods or service after it banned cash dealings above that limit from 1 April.

Finance minister Arun Jaitley, in his Budget for 2016-17, had provided for the seller to collect tax at the rate of 1% from the purchaser on sale in cash of any goods or offering any services exceeding Rs2 lakh.

Tax collection at source (TCS) limit for cash purchase of bullion was kept at Rs2 lakh, but for jewellery, it was fixed at Rs5 lakh. However, in the Budget 2017-18, presented last month, he brought in a new provision banning cash transaction above Rs3 lakh. This cap was lowered to Rs2 lakh through an amendment.

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To reconcile the two provisions, the tax at source on goods and services, including jewellery, has now been removed through an amendment to the Finance Bill, 2017. The amendment, along with other changes, were approved by the Lok Sabha in Wednesday.

The amendment scrapped sub-sections (1D) and (1E) from Section 206C with respect to TCS. Officials said Section 206C(1D) was inserted through the Finance Act, 2016, expanding the scope of Section 206C to include in its ambit cash-sale of goods and services exceeding Rs2 lakh.

In the latest Budget, Jaitley made cash transactions above Rs2 lakh punishable by a fine of an equivalent amount. The fine is to be paid by receiver of cash. The income tax department has been levying 1% TCS on cash purchase of bullion in excess of Rs2 lakh and jewellery upwards of Rs5 lakh since 1 July, 2012.

However, the Budget for 2016-17 had imposed TCS of 1% on goods and services purchased in cash over Rs 2 lakh #casansaar (Source - PTI, LiveMint)