Wednesday, November 9, 2016

500 and 1000 Rupees are No Longer Legal Tender – A Brilliant Move by the Indian Government to Curb Black Money

Last night, the Prime Minister of India came out with a blockbuster announcement that has probably resulted in millions of people losing their sleep. The 500 and 1000 rupee notes that are in circulation right now have been declared as worthless starting 12 AM of 9th November 2016. No, I am not joking.

Yes, the Honourable PM of India has indeed declared that from 9th November onwards, 500 and 1000 rupee notes are no longer considered legal tender in India. You may have read many Memes and articles both pro and against this topic. The purpose of this article is to help you understand the why part of this move as well as how it is going to impact the citizens of India.

Before we Begin:
                  Please note that this is not a politically motivated article. The purpose of this article is to review this recent decision by the Government of India. All views in this article are my own and do not endorse any political party or their views.        

Why this Blockbuster Decision

Have you seen the movie Shivaji where Superstar Rajnikanth blackmails all rich businessmen and politicians to uncover thousands of crores worth of black money hidden in different farm houses, wells, false ceilings etc? Though it was a movie, they actually did not show anything unreal. This is something very common.

One of India’s biggest Economic problems has been rich businessmen and politicians hiding crores and crores of worth black currencies which is unaccounted for and hence considered “Black Money”. The 500 and 1000 rupee notes are especially popular because just one stack of either of these notes represents a lot of money and even a few lakhs worth of money can be easily transported without raising any suspicion. Firstly, this money represents a lot of lost tax income for the country that could’ve been used for developmental schemes for the citizens of the nation. Secondly, this money is holed up in some safe house and not in circulation which defeats its intended purpose.

                  Not just India but the whole world is now in a continual fight against Terrorists. In order to continue their operations Terrorists also need Money. One of the major sources of their funding is the printing of fake currency notes (not just rupee but other major currencies like US dollar as well). Intelligence agencies in India and abroad have reported that thousands of crores worth of fake rupee notes (primarily in 500 and 1000 denominations) have been introduced into India in the past few years by people who are working on behalf of terrorists and the same is being used to fund their activities.

                  By Banning both 500 and 1000 rupee notes, the Government has made its intentions clear that they will neither tolerate black money nor tolerate terrorist financing.

Benefits of this Move to Ban 500 and 1000 rupee notes:

There are a few Direct and Indirect Benefits of this initiative by the Government to ban 500 and 1000 rupee notes.

Direct Benefits:
1.     Hoarders of Black Money would either have to declare their undisclosed income and pay taxes on the same or incur heavy losses and see their stashes of cash become worthless
2.     Funding lines for terrorists and arms smugglers is going to get choked
3.     Circulation of fake currencies in the country is going to reduce

Indirect Benefits:
1.     Money Circulation in the Market/Economy will go up there by easing up stress on the Rupee
2.     Real-Estate prices will potentially come down

Note: When someone deposits Money into their account and the same wasn't declared as income in the past year tax assessments then action will be taken against them to recover the unpaid taxes as well as to punish such individuals. This can be considered yet another indirect benefit where government gets additional tax revenue. 

Wouldn’t an Immediate Ban cause tremendous Inconvenience to the Public?

Of course, Yes. This move is bound to cause some amount of inconvenience however the government has tried to take steps to ensure the inconvenience is minimized. They are:

  1. For the 3 days (9, 10, 11 Nov) all Government Hospitals will continue to Accept the old 500 and 1000 rupee notes for payment
  2. For the 3 days (9, 10, 11 Nov) all Railway/Bus/Airline ticket booking counters will accept the old 500 and 1000 rupee notes for purchase of tickets
  3. For the 3 days (9, 10, 11 Nov) the old 500 and 1000 rupee notes will be accepted at all
    1. Petrol Pumps authorized by the Public Sector Oil Cos
    2. Consumer co-operative stores authorized by the State or Central Government
    3. Milk booths authorized by State Governments
    4. Crematoriums and Burial Grounds
An important point to note here is that, at all of these places, your Identity Information (PAN or Aadhar) will be required when you make transactions using these old notes for record purposes.

What should I with the Liquid Cash I have at home?

All families keep a small amount of money at home for immediate cash requirements. Especially the ladies of the house are fond of stashing away one or two currency notes inside of the lentils jar or under the cloth shelves. Anyways, if we check our home, a few thousand rupees worth of 500 or 1000 rupee notes being found is a very real possibility. It is our hard earned money and we cant just throw them away – right?

So, what are our options?

Option 1: Deposit them into your Bank Account

Starting 10th November until 30th December, all Banks and Post Offices across India will accept deposits of the old 500 and 1000 rupee notes without any limits. All you need is a PAN card or your Aadhar card number in order to make the deposit.

Option 2: Exchange them for New Notes

Starting November 10th, you can exchange old 500 and 1000 rupee notes at any bank or post office branch by showing ID proof (PAN or Aadhar). However, until the 24th of November there is a limit of Rs. 4000. After this date, this limit wouldn’t apply.

Note: please don't deposit money on behalf of someone else. If the government or tax officials ask questions on how you earned the money you will be in trouble. 

Is this Really going to work?

Like with all initiatives by the Government there are blind supporters (party followers mostly), blind Naysayers (opposition mostly) and then the undecided group which get swayed by what they see and hear about the subject. I had a friend who was complaining that this initiative wont work first because we still don’t know the list of all black money holders and secondly people would’ve already moved their money using hawala and laundered it.

My answer for point 1 was – Yes, finding out such a list is very difficult which is probably why such a decision was made. Eventually all those people who are sitting on hoards of piled up black cash have no choice but to declare that income to the bank and convert it to white or lose the money. So, this is more effective than actually finding out who has black money and then initiating an income tax investigation on each tax evader.

My answer for point 2 was – Yes, maybe many of the black money holders have moved all or part of their black money abroad. If that is the case, this move to make 500 and 1000 rupee note worthless will not be beneficial however, not all of them would have. Many politicians and rich businessmen sit on large sums of cash to spend during elections or when some important event happens where they cannot spend their white money or for whatever reason. The rich who are evading tax will most likely have at least a small % of their wealth as stowed away cash somewhere and this move will help either dig that money out or make this a loss for them. So, at the end it is a WIN-WIN for the Nation because black money volume goes down.

On top of this, fake currencies are also going to be erased from circulation in the indian market which is an added bonus because the people who want to harm the nation are now going to find it harder to raise money.

So, Yes I think this new scheme is going to work and kudos to the Indian Government for bringing in such a bold move without worrying too much about implications.

Of course, as a common man, this is going to bring a minor discomfort because I have to make a trip to the bank to convert whatever little money I have in 500’s or 1000’s but I don’t have a problem because firstly it is “All Tax Paid White” income and secondly this is for the nations greater good.

Important Note: There are rumours going around that some micro chip is embedded in the new 2000 rupee notes which may or may not be true. We have not gotten an official announcement from RBI either (I checked their website). So, whether 2000 notes can be traced by government to abolish black money is something we cannot comment now that is why I haven't talked about that in this article. 

Happy Banking and Jai Hind!!!


  1. how about people working abroad but depositing money in their relative account in Indian bank do they (relative) have to pay the Tak?

    1. Whoever is depositing the money has to pay tax on the same


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