TMI BlogIMPACT OF RECENT DEMONETIZATION OF HIGH VALUE CURRENCYX X X X Extracts X X X X X X X X Extracts X X X X ..... IMPACT OF RECENT DEMONETIZATION OF HIGH VALUE CURRENCY - By: - Dr. Sanjiv Agarwal - Service Tax - Dated:- 11-11-2016 - - In an unprecedented move, the Government of India has indeed played a trump card by hitting at so many targets by just one shot demonetizing the two most valued currency notes in India, viz ₹ 500 and ₹ 1000. While nobody prevented any of the Governments in the past to do so to check various malpractices financial, social, political or otherwise, this move of Prime Minister Mr. Narendra Modi has pleasantly surprised most of the countrymen and shockingly surprised some of them. The announcement is unprecedented as it has never happened this way nor was expected at this point in time. It was kept top conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idential and handled so efficiently that even media and most of people in Government, banks etc were left unaware. While it is a very bold and positive step for the country as a whole, it may not auger well for some - for those whom it will be difficult to disclose or use this money any more. The announcement came around 8.30 PM and came into operation from midnight leaving just 200 minutes for people with such currency to use it. Yet, some people did managed that and purchased high value items, bullion jewellery and even gift vouchers at branded stores. Great minds indeed ! The declaration of ₹ 500 and ₹ 1000 currency notes to be no longer 'a legal tender' will address many problems of the country, viz C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounterfeit / fake currency notes Money used in terrorist activities Corruption in politics / administration / business Imbalance between haves and have notes (to some extent) Malpractices in political system Unaccounted / black money menace Overnight, all such problems have been addressed and dealt with boldly and heavily with tangible results in the offing. From today, we will not have fake currency notes of these denominations, there will be no black money in the system to the extent of value of such currency, whole country get purified (even households) from such currency, entire lot of terrorist money comprising of these notes gets washed out and of no use and whatever money was kept as earned out of corrupt pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actices gets dumped. From today on, there may be no need to conduct searches or raids by income tax / other tax collectors, CBI, Anti-Corruption and other such bodies and there will be relatively free for other productive works. Even the corrupt officers and people will have to start earning afresh or stop such dealings. Not only this, from today, it will be known that they have earned by illegal means after 09.11.2016 in terms of fresh accumulations. The country's political system will also get cleaned and the way elections are funded and political parties function will witness a sea change for good. Election Commission would be too happy on this. On business / economy front, it may create a liquidity crunch in short term, besides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adversely affecting business of hotels, real estate construction etc. It may also affect spending habits of people with easy money, e.g. luxury hotel restaurant spends, liquor consumption, travel holidays and investment in real estate where part of consideration was cash component. The share market may also take a hit initially but will rebound. Bullion may be costlier due to being a preferred choice now. With this, while the currency gets filtered, commercial transactions will also get addresses from 1 st April 2016, when India migrates to GST as is most likely, unaccounted transactions may not be there or will get substantially reduced in GST regime. The impact of demonetization of high value notes shall be largely seen post Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, 2017 when GST is introduced in India. If GST comes by then, Indian Government would be achieving both siphoning out of black money from system and check on unaccounted (cash) transactions between suppliers of goods and / or services and buyers or recipients. Moreover, it would add to liquidity as the mostly 'dead or illiquid' currency will come into the main stream economy. Another good impact could be that people will now fear hoarding hard cash at home, e-commence and electronic payment will grow and cash transactions will substantially be reduced. While banks will be flushed with saving and fixed deposits, their liquidity will to go up which may result in marginal (upto one percent) lowering of interest rates. However, thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s may be passed on to borrowers by way of lower interest rates. All said and done, the step taken by Government ought to be appreciated, commended and propagated. If not for all individuals, there are going to be 'good days' at least for India as a whole. - Reply By LALIT MUNOYAT as = Question: There is a wide spread confusion in the minds of those who are depositing cash in their bank account. One view is that the accumulated cash at the closure time can be deposited in the bank account after 09.11.2016 but up to 30-12-16 any number of times without restrictions. However the second view is that the total accumulated cash at the closure time has to be deposited totally in one installment at any time up to 30-12-16. The logic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being forwarded for this view is that once you have calculated your cash in toto then why deposit it in installments meaning thereby all the installments deposited after initial installment shall be treated as out of fresh accumulation which is not permitted after the closure time. In the FAQ issued by the RBI, there is no clarification on this issue. Please enlighten. Dated: 12-11-2016 Reply By Dr. Sanjiv Agarwal as = I would tend to go with first view. After all it is your money . At best, u may have to explain the source when any enquiry is made Sanjiv agarwal Dated: 12-11-2016 Reply By LALIT MUNOYAT as = The question is not from the point of view of taxability under Income Tax Act. Rather, it is related with any criminal law w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich prescribe punishment/fine for dealing with currency which is not legal tender. We are not supposed to accept such currency after the closure time at 00:00 of 09-11-16. So if you to deposit such currency for the second time, will it not be assumed that you have accumulated it after the closure hour, the actual accumulated currency at closure hour having already been deposited with the initial installment ? Dated: 12-11-2016 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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