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follow justme 2016 Nov 13, 11:40am
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The topic of the exchange of the pre-Nov8 2016 500-rupee and 1000--rupee bills into new 500- and 2000-rupee bills has been incredibly rife with misinformation and people not getting the point AT ALL. Below is a good article that explains what the purpose and mechanics and implications of the exchange is.
In short, nobody will be sitting on worthless money afterwards unless they choose not to deposit their money by Dec 31. People that deposit the old paper money are liable for income taxes on amounts larger than certain age-dependent thresholds.
What do I do with my Rs. 500/- and Rs. 1000/- notes now that theyâ€™ve ceased to be legal tender? Are they worthless now?
No, these notes still have value. You can stop taking photos of them as wrappers of peanuts to circulate on Whatsapp. There are two things you can do with the notes you have on hand â€“ deposit them in your bank account or exchange them for notes of other denomination. There is no limit for the old notes to be deposited in your bank account, and the money will get credited in your account immediately.
Also, you can get these high denomination notes exchanged for notes of other denomination at any bank or post office where you don't have an account, provided you produce any identity card issued by the government. There is, however, a limit for getting old notes exchanged. It is Rs. 4,000. And now that the ATMs are open, you can withdraw a maximum of Rs. 2,000.
1. "We would be getting reports of all cash deposited during 10th Nov to 30th Dec.2016 above threshold of Rs.2.5 lac in each A/C."
2. "Income Tax department would do matching of this with income returns filled by the depositors. And suitable action may follow."
3. "If cash amount of above Rs10 lac is deposited in a bank a/c not matching with declared income, same will be treated as tax evasion"
4. "In such case,tax amount plus a penalty of 200% of the tax payable would be levied as per Section 270(A) of the income tax Act"
Depositors *may* see an effective 30% to 90% tax-and-penalty on cash deposited in excess of the 250k Rs exemption threshold. Only the top 1% of Indian taxpayers are in the 30% bracket.. The tax rates in India are as follows:
Income Tax Slab Income Tax Rate
Income up to Rs. 2,50,000 Nil
Income between Rs. 2,50,001 - Rs. 500,000 10% of Income exceeding Rs. 2,50,000
Income between Rs. 500,001 - Rs. 10,00,00 20% of Income exceeding Rs. 5,00,000
Income above Rs. 10,00,000 30% of Income exceeding Rs. 10,00,000
No doubt, wealthy people will hire poor people to deposit 250k Rs each for them. I think that is why there are such big lines at the banks.
The purpose of the rule that limits direct banknote-to-banknote replacement is of course to force the banknote holders to perform the transaction through their bank account(s). That way, the government can later collect income tax on amounts that correspond to previously undeclared income.
In reality, the wealthy are either hiring poor people to stand in line to exchange 4k rupees at a time, and/or launder 250k (no income tax under 250k) each through their bank accounts.
Sounds like a wise move to me.