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Going digital: Cap on cash may take the sheen off gold

It will however bring in transparency, more revenue & curb black money

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Cap on cash transaction limit may affect consumers who still believe in hard notes
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The Budget proposal to clamp down on black money and move towards digital economy by capping cash transactions at Rs 3 lakh level is set to make a lot of people and businesses feel uncomfortable. This is particularly true for those dealing in luxury, premium and high-end products that attract significant payment in cash. The sectors that are likely to feel the heat include gold and jewellery, high-end lifestyle products including durables and auto, to name a few.

While calling the initiative a shift in focus on increasing transaction on digital platforms, Nitin Khandelwal, chairman, All India Gems and Jewellery Trade Federation (GJF), said the cash transaction limit may affect consumers who still believe in cash. 

“Gold jewellery purchases, mainly in rural areas, may come down. The government should increase the PAN card limit (currently for transaction over Rs 2 lakh) and also slash import duty of gold,” he said.

The decision for this proposed ban is based on the recommendation of the Special Investigation Team (SIT) on black money, set up by the Supreme Court, and will be in effect from April 1. The proposal also involves a levy of penalty on violators. The penalty is proposed to be a sum equal to the amount of such receipt, which means that if the accused is unable to provide the proof, then the money received will be confiscated.

Industry experts said that limiting cash transactions is likely to impact high-value purchases both in the cities as well as tier II and III cities. 

“The practice (of high cash component) is more prominent in non-metros though and the approach is primarily for buying jewellery, high-value durables and auto. 

While cash component percentage for making purchases in cities is in the 15-25% range, it can go up to 50% and beyond in the tier II and III markets,” said a top executive associated with durables industry.

Players in the automobile industry see the move as a let down. “It’s disappointing for car buyers and car makers alike. In the larger interest, we welcome and support the announcements on linking car purchase to tax compliance, and also on restrictions on cash dealings above Rs 3 lakh,” said Dhruv Chopra, Chief Marketing Officer, CarWale.

However, the government’s move to enhance transparency in transactions is seen as a welcome step to curb circulation of black money in the economy. Dinesh Agarwal, founder and CEO, IndiaMART.com, said imposing a cash limit of upto Rs 3 lakh for individual or personal consumption will help bring in transparency. “This will lead to more revenue in times to come. I would call this move to be even better than demonetization,” he said.

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