It was supposed to be America’s election night for news all over the world. However, India’s prime minister Narendra Modi had other ideas.
12 Points Know About Modi’s Announcement on Rs 500 and 1000 Notes:
1) What Exactly Changes?
Currency notes are given validity by governments. If banks and the government stop accepting certain bank notes, they lose their value. That’s exactly what has happened to the Rs.500 and Rs.1,000 notes. Starting 9th November, they will be mere paper. The Reserve Bank of India (RBI) will soon circulate a new set of Rs.500 notes. Along with that, it will also circulate a set of Rs.2,000 notes.
2) Is There a Transition Period?
Not really. The notes will be invalid immediately from 9th November. However, some organisations will be allowed to accept the notes for four days (72 hours). These include:
– Government hospitals
– Railway ticket booking counters
– Government bus booking counters
– Airline ticket counters
– Petrol, diesel and gas stations by government-owned oil companies
– Consumer co-operative stores authorized by State or Central government
– Milk booths authorize by State governments
– Crematoria and burial grounds
3) What Should You Do with Bank Notes?
If you have any Rs.500 or Rs.1,000 notes in your wallet or locker, then head to the bank or a post office and deposit these notes. You will get up to Rs.4000 per person in cash, anything over and above that will be credited to your bank account. However, it’s better if you do this between 10th November and 30th December, 2016. If you deposit the notes after this period, you will have to furnish an ID proof. Banks will refuse these notes after 31st March, 2017.
4) Can I Visit Any Bank?
You can visit any bank branch with a valid identity proof to exchange bank notes of denominations of Rs.500 and Rs.1,000. You will get up to Rs.4000 per person in cash.
For exchange of denominations over Rs 4000, the amount will be transferred to your bank account. You can visit the branch where you have an account or any other branch of the same bank.
You can also visit a branch of any other bank branch to exchange denominations of Rs 500 and Rs 1000 but you will have to furnish an identity proof and your bank account details for electronic fund transfer to your account.
5) When will the new notes be available?
The new high-security currency notes will be available in ATMs on Friday(11th Nov 2016), said Finance Secretary Ashok Lavasa.
6) Will There be Problems Withdrawing Money?
Yes. First of all, banks are shut on 9th November. Even the cash dispensing ATMs will be unavailable on the 9th of November. Some may even be unavailable the next day on the 10th. If you head to an ATM after they open, you will be able to withdraw a maximum of Rs.2,000 in a day. If you are withdrawing money from a bank branch, then you can take out as much as Rs.10,000 per day. However, it you cannot withdraw more than Rs.20,000 in a week’s time.
7) Why are There Limits on Withdrawals?
Bank notes worth Rs.17.54 lakh crore are in circulation, as per RBI data. Nearly half the notes in circulation have a denomination of Rs.500 or Rs.1,000. Now everyone is going to withdraw Rs.100 notes from banks to replace their Rs.500 and Rs.1,000 notes. This means there will be a temporary shortage of currency notes, until the RBI starts circulating the new Rs.500 notes. So, to ensure everybody manages to withdraw Rs.100 notes, the government and the RBI have set limitations.
This, though, is a temporary measure. The limits will be increased and then removed over time.
8) Is the Buzz Around a New Rs.2,000 Note Real?
Yes. The Economic Affairs secretary Shaktikanta Das, in a separate press conference, unveiled the designs of the new Rs.500 and Rs.2,000 bank note. These notes will be issued from 10th November. The government did not announce when the new Rs 1,000 will be issued.
9) What’s The Reason Behind The Demonetization?
There are two key reasons: Corruption and counterfeit currency.
Black money—the direct outcome of corruption and bribes–is often in the form of currency notes of high value, like Rs.500 and Rs.1,000, lying idle in private lockers. By making these notes invalid, the government forces citizens to deposit cash in their bank accounts. This converts the black money into white. Thus, the economy will see an inflow of unaccounted wealth worth crores of rupees.
Secondly, militants entering the country often get fake currency worth Rs.500 or Rs.1,000. This is one of the cheapest sources of money for antisocial elements like terrorists, drug cartels, etc. By taking the high-value notes out of circulation, the counterfeit currency too gets filtered out from the system. This is a big deal as 6.5 lakh counterfeit notes were found in the system in 2015-16, as per RBI data. Around 4 lakh of these notes had a denomination of Rs.500 or Rs.1,000.
10) Will There be Other Effects of this Move?
Yes. For starters, the Income Tax department could use the cash deposits to identify tax evaders. These people will have to pay up to 60% tax—30% income tax and the rest as penalty. This is much higher than the 45% they would have had to pay as per the Income Declaration Scheme earlier this year.
Plus, people are likely to move to plastic money and gold as alternatives. Plastic money like credit and debit cards, EMI cards, travel cards, etc, could help avoid carrying excessive bank notes in the wallet—after cash would now occupy 5-10 times the space as earlier. Gold, meanwhile, could become favourable again because it can be used to park large amounts of money.
11) What If I Get An Income Tax Notice?
Don’t panic. If you can explain the source of cash, then there is no need to worry. RBI deputy governor R Gandhi tweeted that the public would have to make deposits on the basis of the PAN card. He also said that cash deposit over certain limit would be reported to the IT Department.
12) Wouldn’t the Government Lose Money on All The Printed Money?
Yes, it costs around Rs.3 to produce a Rs.1,000 note. The cost of production increases as the value of the note or coin reduces. This means, all the money spent on printing the notes would be wasted. However, this is likely to pale in comparison to the amount of black money the government will likely uncover through this exercise.