Tax on cash withdrawal

Tax on cash withdrawal is a form of taxation known to exist in Pakistan.

This tax is levied on the withdrawal of cash from the bank accounts by the customer. The customer account will be debited to give effect of this tax. This tax helps in documentation of the economy. It helps reducing cash transactions.

Section 231A of the Income tax ordinance 2001 of Pakistan is reproduce here which imposes tax on cash withdrawal from the bank account.

231A. Cash withdrawal from a bank

:"(1) Every banking company shall deduct tax at the rate specified in Division VI of Part IV of the First Schedule, if the payment for cash withdrawal, or the sum total of the payments for cash withdrawal in a day, exceeds twenty-five thousand rupees.

:(2) Advance tax under this section shall not be collected in the case of withdrawals made by,-

:(a) the Federal Government or a Provincial Government;:(b) a foreign diplomat or a diplomatic mission in Pakistan; or:(c) a person who produces a certificate from the Commissioner that his income during the tax year is exempt."

The section is giving exemptions to certain person for this tax too. This tax can not be a major source of government earning but it will help in documentation of the economy. The current rate of the tax is 0.2% in Pakistan.

The Indian tax act also provide the same type of withholding tax.

The Finance Act 2008 in Pakistan has made certain changes increased the rate of withholding tax on cashwithdrawal from 0.2% to 0.3%