PM Modi has made a sweeping change to the Indian economy with the announcement that Rs. 500 and Rs. 1000 notes will not be valid after November 9, 2016. Banks and ATMs are both closed on this day, to prepare for the huge crowds over the next weeks, with ATMs to remain shut tomorrow as well. After all, there are said to be 2300 crore notes in these denominations and just 50 days for the whole country to return them.
Much of how this will work is clear, and the PM has already apologised for the hardship it will cause common citizens (you can read the important points below).
What is less clear, though, is this: what if you have a large amount of cash in these denominations? How does the government treat this money? Will it be the same as declaring black money under the recent Income Declaration Scheme?
Here’s what we know:
ID Card & Limit: All deposits will need to be made while presenting an ID card. Of the amount deposited, only Rs. 4000 can be given to you in legal tender (i.e. Rs. 100, Rs. 50, Rs. 20 or Rs. 10) notes, while the remainder must be deposited in your account.
KYC-compliance: If your account is KYC-compliant, you can deposit any amount of money. If, however, it isn’t, this amount is capped at Rs. 50,000. You cannot deposit any larger amount in Rs. 500 and Rs. 1000 notes.
What We Need to Know
As there is no restriction on deposits, you could, by the end of the year, deposit a large amount of cash.
Will the Income Tax Department simply assume that this money is black? Will the money be taxed at the full 30% rate, even if the money is just cash on hand for a business or money withdrawn for a legitimate purpose.
After all, the government did just conclude an Income Declaration Scheme (IDS), under which it pardoned those who declared their black money and only deducted tax at the 30% rate.
Given that IDS has concluded, does the government plan to take action against those who now deposit suspiciously large amounts of cash?
Withdrawals and Payments Over Next Two Weeks
Here are the other key points with regard to withdrawals and payments over the next few days:
1. ATM withdrawals will be limited to Rs. 2000 per day until November 18, 2016.
2. Withdrawals from the bank in cash will capped at just Rs. 20,000 per week and Rs. 10,000 per day until November 24, 2016.
3. Only government hospitals, railways, burial grounds, pharmacies, PSU petrol pumps, among few others will continue to accept old currency noted until November 11, 2016.