The government has done away with the 1 % tax on cash payments of over Rs 2 lakh for purchase of any goods or service after it banned cash dealings above that limit from April 1.

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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 Rs 2 lakh.

Tax collection at source (TCS) limit for cash purchase of bullion was kept at Rs 2 lakh, but for jewellery, it was fixed at Rs 5 lakh.

However, in the Budget 2017-18, presented last month, he brought in a new provision banning cash transaction above Rs 3 lakh. This cap was lowered to Rs 2 lakh through an amendment.

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 yesterday.

The amendment scrapped sub-sections (1D) and (1E) from Section 206C with respect to TCS.

Official sources 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 Rs 2 lakh.

In the latest Budget, Jaitley made cash transactions above Rs 2 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 Rs 2 lakh and jewellery upwards of Rs 5 lakh since July 1, 2012.

However, the Budget for 2016-17 had imposed TCS of 1 % on goods and services purchased in cash over Rs 2 lakh.