India’s decision to demonetize Rs. 500 and Rs. 1000 denominations of currency notes is indeed a very bold move. It needed not only political willpower, but also financial know-how, and the courage to face the outcome. Experts have predicted the market to crash which will take a few months to recover. But no real change happens without taking risks. This move is indeed a very reasonable risk.
All the buzz about being cash-less for a few days apart, how is it going to affect us as ordinary citizens of India? More specifically, how is it going to affect ordinary women of India? Look at these two case studies:
My mother had saved Rs. 28,000 over the past ten months, to construct a compound wall for the house. The cash is in her purse in denominations of Rs. 1000. November 8th onwards, this amount ceased to exist, and the bundle of notes became just 28 pieces of paper! Luckily, she has a bank account, and can deposit the amount in the bank once the bank becomes operational. She will have to travel 7 kilometers to the bank, but it is not impossible.
My neighbor and wife in Kalyanpur, Uttar Pradesh are daily wage laborers. They earn Rs. 500 to Rs. 650 a day. For the past few years, they have been saving a lion’s share of their earnings for their daughter’s marriage. They have about bought some gold, and the rest- about Rs. 2 lakhs- is stored at home. They are disheartened as the cash is in Rs. 1000 denominations and they don’t have a bank account!
What is the way out for these two cases? In the case of my mother, she can easily deposit the money in her bank account before December 30, 2016. All her troubles will be with it. The case of my neighbors is more complicated. They have to open a bank account first, to deposit the money. And this has to happen before December 30, 2016. They also will have to get a Permanent Account Number (PAN). It is troublesome, but there is a way out. Skeptics might have told you that this is the end of the world. No. It isn’t.
Revenue secretary Hashmukh Adhia assured that small businessmen, housewives, artisans, and workers who have cash as their savings at home should not be worried about any tax department scrutiny.[1] He assured that such small cash depositors will not be harassed by the Income Tax Department. The government gives clear guidelines to follow. Here is what you can do with your Rs. 500 and Rs. 1000 notes:
- Deposit at the bank or post office from November 10 to December 30, 2016
- Exchange them from a bank or post office till 24 November. The limit for exchange is Rs. 4000
- Take Aadhaar card and PAN Card when you go to exchange notes
- After December 30, 2016, these can be deposited at the Reserve Bank with a declaration
- Tourists can change the notes at airports
What about buying gold with the money at home? You can. But if your intention is to hide money, it won’t work. You will have to give your PAN- which means, you have to declare your income. Again, if it is within the non-taxable limit of Rs. 2.5 lakhs, you don’t have to worry.
But if I have Rs. 2 crores stored under my bed in 1000 and 500 Rupee denominations, I am in trouble. I will either have to declare the money to the government and face consequences, or forget about the money and burn the bundles. The government has clarified that cash deposits above Rs 2.5 lakhs during the 50-day window could attract tax in addition to 200% penalty. Tax department can easily see if deposits match with the income returns you filed. Such mismatches will be treated as tax evasion- a criminal offense!
That is exactly what the government wants to happen. Squeeze out and discard all the black and illegal money. It is good for the economy because legal cash generates tax and prosperity. As ordinary tax-paying citizens, or as citizens earning less than Rs. 2.5 lakhs a year, we don’t have to worry at all. Mothers who have saved up money for their children’s school fee and medicine are safe. All legal money can be exchanged at a bank before the deadline.
To understand how demonetization will affect us, especially our women, we need to understand the reason behind the demonetization move. It is simple- to demonetize counterfeit currency and black money.
National Crime Records Bureau (NCRB) reports the seizure of about Rs.32 crores in the year 2015. According to the Indian Statistical Institute, Kolkata, every year Rs. 70 crores worth counterfeit money is injected into India. Their calculation estimates Rs. 400 crores worth fake currency circulating in India at all times. We can easily guess that the real figures are far more than this.[2]
The menace of black money is different. It is not disclosed to the government. It is black money because it is not taxed. The exact amount of black money in the country is not predictable. But again estimates by the government sources say that it could be anything up to a whopping $500 billion![3] That is huge!
From midnight November 8, 2016, all that black and counterfeit money have become worthless pieces of paper. When this illegal cash is flushed down the drains, economy comes under the direct watch of the government. Also, when illegal cash goes out of the scene, transactions ought to happen legally through bank accounts. This is ensured by the laws enforced on the limits of withdrawals and transactions using liquid cash. A daily cash limit from ATMs and from bank branches will force us toward online, debit/credit cards or online transactions.
Now, here is why I argue that the new cash is women’s cash. In other words, that this change is beneficial for our women. It becomes clear when we look at the bigger picture which most of us miss out in the buzz about surprise demonetization. The government wants us to use cashless transactions. They are easy, safe and transparent. When cash transactions become transparent, corruption can be put to an end. For this, we must do three things.
- Open a bank account and a debit card. Get your payments credited into your account. Non-bank transactions promote black money.
- If your annual income goes beyond Rs.2,50,000 you ought to pay tax. Since income comes through your bank account, government knows your finances inside out. You can’t hide.
- Cash withdrawals at ATMs and bank branches have a strict limit. If you want to visit ATMs every day and pay for it (there are only 5 free ATM transactions a month), you are welcome. But otherwise, you will be forced to make use of cashless transactions. If you don’t know how, learn it. If you are not comfortable, get used to it.
How is it going to benefit ordinary women who manage families? First, every family will have at least one bank account. Second, when cash transactions are limited by law, money remains in the account for useful purposes. Third, cash in a bank account makes you financially more aware of what you can and what you can’t buy. This promotes your saving habits. Fourth, since you can’t withdraw money every day, you will become a more organized shopper who makes lists of most essential things. Finally, household economy will become more disciplined, increasing the purchasing power of middle class families.
This surprise demonetization is well-planned, and therefore can be considered ‘good-for-the-families’ move. You might remember how the government asked all Indians to get bank accounts last year. We were given opportunities to declare black money till September 2016. And now, this brilliant and surprise move! We may run around for a few days. But in the long run, this will do us good. Let us hope that this is the beginning of a big change for a better financial future for women, families and our nation.
[1] http://timesofindia.indiatimes.com/india/Deposits-above-Rs-2-5-lakh-to-face-tax-200-penalty-on-income-mismatch/articleshow/55337762.cms?utm_source=facebook.com&utm_medium=referral&utm_campaign=TOI
[2] http://newsite.thehindu.com/news/national/%E2%80%98Demonetisation-to-hit-terror-financing-hard%E2%80%99/article16275304.ece?homepage=true
[3] https://en.wikipedia.org/wiki/Indian_black_money
Disclaimer: This article is for the sake of information only and do not necessarily represent the views of the website. For any further clarification, kindly consult the your tax consultant/practitioner.
