The decision comes after the centre banned cash dealings above the limit of Rs two lakh from April 1.
Finance Minister Arun Jaitley, in his Budget for 2016-17, had proposed the collection of one per cent tax by the seller from the purchaser on sale in cash of any goods or offering any services exceeding Rs two lakh.
Reportedly, tax collection at source (TCS) limit for cash purchase of bullion was kept at Rs two lakh, but for jewellery, it was fixed at Rs five lakh.
However, in the Budget 2017-18, presented last month, finance minister brought in a new provision of banning cash transaction above Rs three lakh. This cap was lowered to Rs two lakh through an amendment recently.
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 two lakh.
In the latest Budget, Jaitley made cash transactions above Rs two 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 one per cent TCS on cash purchase of bullion in excess of Rs two lakh and jewellery upwards of Rs five lakh since July 1, 2012.
However, the Budget for 2016-17 had imposed TCS of one per cent on goods and services purchased in cash over Rs two lakh.