It has been one week since the demonetisation drive by the Government. 500 and 1000 rupee notes ceased to become legal tender since 9th Nov 2016 00:00 hrs. ATMs country-wide closed on 9th and 10th Nov - to facilitate banks and agencies to replace the 1000 and 500 rupee notes with 100 rupee notes. A new 2000 rupee note got introduced which are now available only in a few ATMs, as the ATMs are not designed to handle the new 2000 rupee notes. 9th Nov was declared as a non-working day for banks for them to prepare for the situation.
The objective behind the ban on 500 and 100 rupee notes as stated by our Prime Minister in his 8th Nov 8 pm speech is to tackle counterfeit notes likely to be let into the Indian economic system from Pakistan, to tackle the terrorism financing especially by the counterfeit notes and to put a check on the black money.
There have been several measures taken by the Government to help ease people's need for cash, and for exchanging the old notes. The 500 and 1000 rupee notes continued to get exchanged at Airports, Railway stations, hospitals, petrol stations and utility payments till 14th Nov, which later extended to 24th Nov. Tolls were queued up on 9th and 10th which were then asked not to collect tolls till 14th Nov, which now got extended to 18th Nov.
To limit people converting black to white, some restrictions are enforced.
1. A limit of Rs 4000 for exchange of old notes to new notes
2. A daily withdrawal limit of Rs 10000 and weekly withdrawal limit of Rs 20000 from banks.
3. A daily withdrawal limit of Rs 2000 from ATMs.
4. No limit on cash deposits (of course, people would need to answer if they deposited huge amount at one go)
From Monday 15th Nov, these limits are increased to 4500, no daily limit, 24000, 2500 respectively.
Government has not thought of all possible tricks that people may play to convert black to white but is very quick in plugging the holes. For example, since the trains can be reserved in advance of 4 months, expensive tickets in high end trains like Rajdhani and Shatabdi started getting booked, with the objective that people can later cancel it and make it white. GoI issued a notice saying that cancellation of tickets will be processed with cheque or online transfer only - and after scrutiny. The amount will be credited only after a minimum of 30 days from the date of cancellation. Advance payments has increased in utility payments like Bescom, BBMP and similar city corporations. GoI has issued notice to stop accepting all advance payments.
The ban on 500 and 1000 notes comes after the VDIS program where there is a no question asked 45% tax and you keep rest 55%. Now, there is no such impunity from the Income Tax department. For all unaccounted cash deposits, there is an income tax and a penalty of 200% followed by further investigation. By some calculation (not verified), one can retain only around 10% of unaccounted cash after all tax and penalties. All cash deposits and credit card advance payments will get reported. In practice, there has been a system of AIR (Annual Information Reporting) on some key areas like credit card payments, cash deposits, MF or Stocks purchase. More details here: https://www.tin-nsdl.com/air/anninforeturn.php
Because of this, a few people resort to burning the currency notes. The people who burn cash may think: "Hello Government of India, you have created a situation where you will not allow me to keep my money. Now, why should I come and give it to you. I will burn it away, so you will not benefit from my cash!" May be the people have not read what is written on the currency note. "I promise to pay the bearer the sum of one thousand rupees", signed RBI Governor.
Let us try to understand it with a different story. Anand, Bala and Chitra are vendors in a shopping mall. Anand sells flowers, Bala sells sweets and Chitra sells beverages. Generally they have a few transactions among themselves which they promptly pay at regular intervals. One day, Anand buys some sweets from Bala and he does not have ready cash to pay. So he gives a handwritten note to Bala "To whomsoever, I will pay you 100 Rupees - signed, Anand" and tells him to bring it back next day and get Rs 100. Bala agrees. Later Bala purchases some beverages for Rs 100 from Chitra and gives the note signed by Anand. Chitra accepts that because she knows Anand has been giving such chits on his special paper and honours them the next day. Towards evening, somehow Chitra accidently burnt the note given by Anand. She cannot ask Bala, because the transaction with him is already over. She cannot ask Anand, because he will honour only if he gets his note.
Similarly, the currency note is a promissory note. RBI will treat them as a liability. The 500 and 1000 notes are worthless after March2017. RBI knows how many of 500 and 1000 notes it has issued and by March 2017 how many it has got back. The remaining notes which are burnt, burried or washed away will cease to become its liability and RBI for sure can write back that amount.
So, anyone who burns the 500 Rs or 1000 Rs currency note is effectively transferring it to the coffers of RBI.
Now the question is: What happens if I burn a Rs 100 note?
The objective behind the ban on 500 and 100 rupee notes as stated by our Prime Minister in his 8th Nov 8 pm speech is to tackle counterfeit notes likely to be let into the Indian economic system from Pakistan, to tackle the terrorism financing especially by the counterfeit notes and to put a check on the black money.
There have been several measures taken by the Government to help ease people's need for cash, and for exchanging the old notes. The 500 and 1000 rupee notes continued to get exchanged at Airports, Railway stations, hospitals, petrol stations and utility payments till 14th Nov, which later extended to 24th Nov. Tolls were queued up on 9th and 10th which were then asked not to collect tolls till 14th Nov, which now got extended to 18th Nov.
To limit people converting black to white, some restrictions are enforced.
1. A limit of Rs 4000 for exchange of old notes to new notes
2. A daily withdrawal limit of Rs 10000 and weekly withdrawal limit of Rs 20000 from banks.
3. A daily withdrawal limit of Rs 2000 from ATMs.
4. No limit on cash deposits (of course, people would need to answer if they deposited huge amount at one go)
From Monday 15th Nov, these limits are increased to 4500, no daily limit, 24000, 2500 respectively.
Government has not thought of all possible tricks that people may play to convert black to white but is very quick in plugging the holes. For example, since the trains can be reserved in advance of 4 months, expensive tickets in high end trains like Rajdhani and Shatabdi started getting booked, with the objective that people can later cancel it and make it white. GoI issued a notice saying that cancellation of tickets will be processed with cheque or online transfer only - and after scrutiny. The amount will be credited only after a minimum of 30 days from the date of cancellation. Advance payments has increased in utility payments like Bescom, BBMP and similar city corporations. GoI has issued notice to stop accepting all advance payments.
The ban on 500 and 1000 notes comes after the VDIS program where there is a no question asked 45% tax and you keep rest 55%. Now, there is no such impunity from the Income Tax department. For all unaccounted cash deposits, there is an income tax and a penalty of 200% followed by further investigation. By some calculation (not verified), one can retain only around 10% of unaccounted cash after all tax and penalties. All cash deposits and credit card advance payments will get reported. In practice, there has been a system of AIR (Annual Information Reporting) on some key areas like credit card payments, cash deposits, MF or Stocks purchase. More details here: https://www.tin-nsdl.com/air/anninforeturn.php
Because of this, a few people resort to burning the currency notes. The people who burn cash may think: "Hello Government of India, you have created a situation where you will not allow me to keep my money. Now, why should I come and give it to you. I will burn it away, so you will not benefit from my cash!" May be the people have not read what is written on the currency note. "I promise to pay the bearer the sum of one thousand rupees", signed RBI Governor.
Let us try to understand it with a different story. Anand, Bala and Chitra are vendors in a shopping mall. Anand sells flowers, Bala sells sweets and Chitra sells beverages. Generally they have a few transactions among themselves which they promptly pay at regular intervals. One day, Anand buys some sweets from Bala and he does not have ready cash to pay. So he gives a handwritten note to Bala "To whomsoever, I will pay you 100 Rupees - signed, Anand" and tells him to bring it back next day and get Rs 100. Bala agrees. Later Bala purchases some beverages for Rs 100 from Chitra and gives the note signed by Anand. Chitra accepts that because she knows Anand has been giving such chits on his special paper and honours them the next day. Towards evening, somehow Chitra accidently burnt the note given by Anand. She cannot ask Bala, because the transaction with him is already over. She cannot ask Anand, because he will honour only if he gets his note.
Similarly, the currency note is a promissory note. RBI will treat them as a liability. The 500 and 1000 notes are worthless after March2017. RBI knows how many of 500 and 1000 notes it has issued and by March 2017 how many it has got back. The remaining notes which are burnt, burried or washed away will cease to become its liability and RBI for sure can write back that amount.
So, anyone who burns the 500 Rs or 1000 Rs currency note is effectively transferring it to the coffers of RBI.
Now the question is: What happens if I burn a Rs 100 note?
Why would anyone burn their currency notes? either it is a counterfeit or it has come to the bearer in illegal (bribery) manner. So who is beneficial of this? the economy isn't it? Instead of burning 100s please give it for charity :P
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