The Prime Minister stunned the whole nation when he suddenly announced that existing Rs 500 and Rs 1000 notes will not be legal tender from midnight.
So where Can I use my old Rs 500 and Rs 1000 Notes?
For three days you can use your Rs 500 and Rs 1000 notes at certain places. These include:
- Use them in government hospitals to buy medicines there
- Use them in government-owned stores like Safal stores
- In petrol pumps to buy petrol (they will have to keep a record of it)
- For purchasing air, rail, state-owned bus service tickets
- Exchange them for other notes in airports while leaving the country or entering
- To pay for burial
How do you get rid of the notes you have?
- Submit them in banks and post offices till December 30 midnight
- Submite them after December 31 in authorized exchange centers with ID proof
So why has it been done?
To end corruption and black money.
How will it work in that context?
Black money is basically money that is undeclared to tax authorities is primarily in cash and stored in the form of currency notes by various businesses, political parties and individuals.
Example: If you pay your landlord half your rent in cash and the rest in cheque, the landlord doesn’t declare the cash income in his tax returns and only the amount given by cheque.
Small businesses often deal in cash. Many builders demand payment for houses partly in cash so that they don’t have to declare it to tax authorities. Political parties accept a lot of their donations in cash so that they don’t have to declare the source of income.
Bribes are also paid in cash, since most of these transactions involve large sums of money are often done using Rs 500 and Rs 1000 notes. By banning these notes, people who are holding onto old Rs 500 and Rs 1000 notes are forced to submit them back to banks and declare them as income.
What’s the problem with black money?
Black money since undeclared, can be used for any purpose. It is estimated that 20 percent of cash transactions in the Indian economy is supposed to be dealing in undeclared cash transactions.
Black money can be used to pay bribes and also fund terrorism.
Black money can also contain many fake notes, which is allegedly printed in Pakistan. Because it is not declared to authorities, it can be widely traded and keeps such fake notes in circulation.
The amount of fake notes in the banking system is very high due to the presence of black money. An RBI official said that the amount of black money circulated has grown greatly over time.
Does this bring back black money from foreign bank accounts?
This does not affect money stashed away in foreign accounts in anyway. The government had announced an amnesty scheme for those who had money in such bank accounts and will proceed against them separately.