In a landmark move to curb black money, corruption and counterfeit currency, Prime Minister Narendra Modi made an unexpected announcement of the withdrawal of ₹500 and ₹1000 notes as legal tender, effective 8th November 2016. While many have welcomed this move, many other are apprehensive about the outcome of the decision.
Here's what you need to know about the scheme and how to go about exchanging the existing currency notes:
You still have 50 days to exchange/deposit for the same value at any of the 19 offices of the Reserve Bank of India or at any of the bank branches or at any Head Post Office or Sub-Post Office till the 30th of December.
For your immediate needs, you can go to any bank, the head post office or sub-post office, show your identity proof (could be your Aadhaar Card, Driving License, Voter ID Card, Pass Port, NREGA Card, PAN Card or any Identity Card Issued by Government Department), and exchange your old five hundred or thousand rupee notes for new notes. The limit for such exchanges has been set to ₹4000 till 24th November, but the limit will be increased in the future. Anything over and above ₹4000 will be receivable by way of credit to a bank account.
If you are unable to exchange your notes by December 30, you can declare them with the Reserve Bank of India till March 31.
Withdrawing from ATMs can take a while to be possible as the banks are still recalibrating their old systems. Once functional, you will be allowed to withdraw up to a maximum of ₹2,000 per card per day up to 18th November. The limit will be raised to ₹4000 per day per card from 19th November onwards.
You are allowed to withdraw cash against withdrawal slip or cheque with a limit of ₹10,000/- in a day within an overall limit of ₹20,000/- in a week (including withdrawals from ATMs) till 24th November.
₹500 and ₹1,000 notes will be accepted for an additional 72 hours in places of importance such as hospitals, railway ticket booking counters, government bus stands, and airports until 11 November midnight.
If you are currently not in India, you may choose to enable another person in India to deposit the notes on your behalf in writing. The person so authorised has to come to the bank branch with the notes, the authority letter provided by you and a valid identity proof.
If you are a foreign tourist, you can purchase foreign exchange equivalent to ₹5000 using the ₹500 and ₹1,000 notes at airport exchange counters within 72 hours after the notification, provided you present proof of purchasing the notes.
New notes of ₹2,000 and ₹500 will soon start circulating from November 10.
If you still have doubts, you may approach the control room of RBI by email. You can mail to email@example.com or call 022 22602201 / 022 22602944.
Furthermore, to get a clearer understanding of the situation, we spoke to financial expert CA Rishabh Parakh who explained that unless the cash at your disposal was generated out of unlawful means and illegal transactions, you have nothing to worry about.
Here are a few tips he outlined that we can take to handle the situation:
Know your Cash Position/Prepare Cash flow summary: Update your book of accounts immediately to know your cash position to track how much amount of cash balance out of your capital account has been generated. Though most businessmen would understand this, but a salaried employee is usually unaware about this and most probably haven't prepared their Balance sheet for that matter.
The time has come to prepare your 'Cash Flow Statement' over the last few years. Apart from using your past income tax returns data, you will also need to look at your cash withdrawals from ATMs or your Bank account to create the statement. This exercise will help you in justifying the cash available to you.
No need to worry about your Cash Deposit: There are various reports stating that you shouldn't deposit more than ₹2.50L in one go or ₹10L lakh in a year (01/04/2016 to 31/03/2017) in your savings bank account as it may attract income tax notice. Any unexplained or unmatched deposits of over above Rs 2.5 lakh during this 50-day window could attract income tax along with a 200% penalty in case of any income mismatch. So, yes, a person with unaccounted black money will have a reason to worry.
But, for those whose money is well accounted for, there's nothing to worry about. The same has been declared in your tax returns as cash income and taxes have already been paid on the same. In this case, an even higher amount of deposits will not be an issue. However, you may have to justify your deposits by submitting an evidence in case of an enquiry.
You can refer to Rishabh's last column on income tax notices and how to handle the same.
File your Tax returns: File them as soon as possible, if the same are not filed for the last two financial years as beyond that you cannot file them. Your income tax return will be matched to see the cash you are depositing and in case you haven’t filed your tax returns, then chances of you getting a notice or an intimation are very likely. Be on the right side of the law and comply with taxation rules with immediate effect.
Using your account for others: Don’t use your account for depositing money for someone else as it will be extremely difficult to justify in case of any enquiry. Your simple act of support to someone will land you in a big soup.
Wallets payments: Use e-wallets, net banking facilities and debit & credit cards in case of any urgent transactions.
Don’t reshuffle your existing investments: Do not shuffle any of your legitimate investments to bank deposits. Let the mutual funds, equity and other financial instruments that you have invested in be stationery. Let the chaos pass.
A permanent measure is likely to cause some temporary pain but in the long run, its implications are expected to be only looked at as profit. Let us all welcome this move which has the potential to change our lives for better and bring forward a corruption free society.
Special thanks to Rishabh for helping us out with his expertise in this field. A Chartered Accountant by profession, he is also the founder Director cum Chief Gardener of Money Plant Consulting, a leading tax and investment service provider. He also writes for several leading publications in India.
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