Late on Tuesday evening, Prime Minister Narendra Modi took the country by surprise as he announced that currency notes of denominations Rs 500 and Rs 1,000 had been abolished, and that new Rs 500 and Rs 2000 notes will be issued. Since then, speculation has been rife on how the government will ensure that money of such denominations does not fuel the spread of untaxed wealth in the country again. Here’s what you need to know before you head to your bank to encash your old currency notes for new.
Will deposits over Rs 2.5 lakh to be taxed?
Yes, the government said so officially on Wednesday. While there is no limit on how much money you can deposit in your account, deposits over Rs 2.5 lakh will incur a tax. Such deposits will be reported to income tax authorities and an income mismatch will invite a hefty penalty of 200% over and above the tax. Deposits below this threshold will, however, not attract any scrutiny, allowing small businessmen, farmers, and housewives to change their old notes without attracting any tax penalty.
Will ATMs work today? Will there be problems?
Yes, ATMs will again begin dispensing cash today, but there could be some teething problems. Since an ATM machine has limited capacity for storing notes, machines could frequently run out of cash as they will be stocked with Rs 100 notes, as against Rs 500 and Rs 1000 earlier. This could continue for the next few days, till enough number of the new Rs 500 and Rs 2000 notes are released by banks. Also, expect long queues at ATMs.
What if I bought jewellery just before the old notes ceased to be legal tender on midnight of Tuesday?
Jewellers will be asked to furnish PAN card details of such buyers, so there’s no getting away with this one. “When the cash deposits of the jewellers would be scrutinised against the sales made, whether they have taken the PAN number of the buyer or not will also be checked,” revenue secretary Hasmukh Adhia said in a statement.
Has trade in the grey market been impacted? How are sales of white goods doing?
If news reports are to be believed, grey markets, like the big electronics market in Delhi’s Gaffar Market, have indeed taken a hit. These markets almost totally trade in cash and on Wednesday saw virtually no trade. A report in The Economic Times said that the sales of white goods like washing machines, TVs etc could see a 70% drop following the abolition of notes of higher denominations, as a significant portion of these purchases happen in cash. The report said that sales of white goods could remain subdued for the next six months. Shopping malls saw a sharp drop in footfalls and sales of high-end mobile phones were down, the report said.
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