The announcement by Government of India, under the leadership of Modi, RBI withdrawing the legal tender status of 500 and 1000 rupee notes is a revolution movement of Independence India. The news is most shocking and surprise for every Indian. Modi’s currency balm jolted mainly many illegal sections of the society and all other common man by a half jolt. In fact, for the first day on 9th of November many have been stunned, restrained from spending lavishly, even spending for essential stuff. On the other hand, many feel comfortable with such move, ready to bear for few more days, if such a revolution move changes our country with rejuvenation! Well, it is not a simple and normal stuff. There are many angles to it and in perceptions.
From my thoughts, the following factors stand up..
Major concerning areas, why the cash currency affects the Indian economy and development, directly and indirectly.
- Hawala Cash dealers
- Tax-avoiding Businesses, retail outlets
- Only, Cash handling corporates
- Politicians who piled up cash notes in the yard, below the mattress, pillow, inside wall lockers.
- Government employee and officers, who hold bunch of cash earned from bribe/corruption
- Counterfeit note businesses
- Currency terrorism by neighbouring countries.
- Jewellery Shops.
The actual problems due to cash currency, and cash based markets.
- Evasion of income tax
- Evasion of Sales tax
- Corruption is Cash currency. <>Cash currency is Corruption
- Efficiency of Government projects, they are influenced by corruption. Almost 30~50 % of project cost turns into corrupted cash.
- Stagnating cash, blocks the movement of economy
- Stagnating cash, effects the Ecology of money circulation
- Real Accounting frauds.
- Illegal employments, and salaries paid as cash
- Kick backs happens only through cash
- Lavish spending by political parties, frivolous manner
- Bribing the voters
- Diversion of State Government Money
- Inefficiency in Administration
- Overall, no value for the money, because of too much cash circulation.
- Products have lost value, purchased at any price, wasting such resources.
- Tendering change is biggest problem with high value currency.
- Too much cash gives purchasing power.
- Cash gives employment.
- Gives relaxation from tax obligations.
- Passing on the cash to anyone illegally, purchase any means.
- Pile them below the mattress to feel like a king.
- No dependancy on cheques, cards, online banking, mobile banking etc.
- Buying assets like real-estate and jewels by avoiding tax.
The changes, the scrapping of 500 and 1000 rupees would bring.
- Move the complete cash currency of nearly 7.5 times of counts, back into Scrap/RBI scrap.
- Move the complete cash currency of nearly 7.5 times. to bank account’s official balance.
- The current cash currency circulation would be only in 100’s and 50’s, and other smaller denominations. Higher denominations might loose importance.
- Make a real feel about the value of money, than a cash currency.
What are the those hardships.
- Less spendings
- Less job opportunities
- Less pay scale
- Small time vendors and retailer would see customers with low currency
- Panic and stress
- Feeling guilty for corruption money earned
- ATM’s all time busy and so many queue
- Bank counters really busy.
- Movement of cash from banks to RBI scrap.
- Tax problems
- Price reduction on most of products, consumer goods. (Supply-Demand-Price) Elasticity of Economics.
What to do
- Wait for few days.
- Stand in queue and withdraw 4000 to run daily show for next one week. Then 10000/20000 per week.
- Deposit all 500 and 1000’s back to your account. before 20th December. Don’t leave time.
- Stay calm and don’t spend too much, unnecessarily.
- If you think you have heavy cash, you may distribute to family member accounts, relatives and close friends.
- Lend/donate you son and children, genuinely Needed persons like Education, House loans, health treatments for no interest.
What if you convert all your money to bank.
Well, I think, that is the only way everyone have to go through in some or the other way. Banks will take back your currencies you could very well do that. But one think might come up, if you are depositing above certain limit say above your last year IT filings, at a later the Income tax department would ask for clarification based on PAN.
As such, I guess it won’t be tricky but a simple explanation. If found as illegal asset/income, you might be asked to pay IT @ 30 % or 40% or above based on your slab of income. Additionally another 30 to 40 % as 200 percentage of penalty. According to the Income Tax act 100 percent penalty is 50 % of your slab rate. i.e. 200 percent amount would amount at 60%, (30%+30%). This is according to the Section 270(A) of the Income Tax Act may apply. Better consult your Income Tax Consultant.
As such, one no need worry, for few weeks flow of money, i.e. the cash currency would be restricted, otherwise card payments, cheque payments would be as usual and more powerful. You will/shall feel pride of your money.
Happy banking, conversion.