Withdrawal of Rs 500 and Rs 1000 Currency Notes- understand consequences of exchanging with fresh currency

Withdrawal of currency notes of Rs 500 and Rs 1000 from circulation can have serious impact on some assesses. The scheme of withdrawal of these notes is shared below and also be careful of pitfalls of exchanging the currency with fresh one and check if such exchange of currency will not bring any problems?

For past about 30 hours, since the announcement by Prime Minister, Mr Narendra Modi, there has been a lot of discussions on the subject and a sort of feeling of panic is there with many individuals due to move.

Is this panic on withdrawal of notes from circulation justified?

Before we come to this issue, lets first see, was the move justified? I am also one of the person affected by the move. Today as the milk stall owner refused to honor Rs 500 denomination note, I had to borrow money from my domestic help to get milk, and obviously I was not amused. But think of general good. As Indian, our fate is inextricably linked with the growth of the country. With so much of black money in circulation and good number of fake notes from friendly neighborhood country, things can never be good, hope we all agree? The notes from our dear neighboring country have been so authentic that many a times even experienced bankers failed to detect the same with naked eye and not to forget this money is being used to finance 26/11 type of attacks in our country.

If you are not a tax evader, you pay higher rate of taxes than your neighbor who evades tax and as a result, we all and the country is suffering. If we go through suffering for few days, when the currency is not valid, what a big fuss? I am sure, we all have credit cards, and no contingency will come to halt.

Why panic on such discontinuation of currency?

The currency is stil valid its worth. You may deposit any time on or before 30^th December 2016 and get the credit for the same

Day to Day expenses

You have the option to draw up to Rs 4,000, per person, in cash and if you need more, you can get it credited to your bank account and then draw from ATM. For amount upto Rs 4000 you can go to any branch of the bank where you have the account, with of course valid proof of identity

What are Proofs of Identity

Any of these documents as Aadhaar Card, Driving Licence, Voter ID Card, Pass Port, NREGA Card, PAN Card, ID card issued by PSU to its staff is a valid proof of identity

I don’t have Bank Account

Again no reason to worry. Just go to any bank account with identify documents, get the account opened and deposit the cash. You can even deposit money for your relative whgo does not have a bank account but do take his permission in writing along.

Withdrawing Money from ATM

ATMs and banks will remain closed on November 9, 2016. After this date, money can be withdrawn up to a maximum of Rs 2,000 per card per day till November 18 and Rs 4000 from November 19 onwards.

Withdrawing against Cheque

Money can be withdrawn against cheque or withdrawal slip subject to ceiling of Rs 10,000 in a day within an overall limit of Rs 20,000 in a week (including withdrawals from ATMs) for the first fortnight, that is up to November 24, 2016.

Online transfers- would these continue?

Yes, these will continue and come handy for routine payments

What is deadline of 30^th December 2016 is missed

After 30^th December 2016, one would have to approach RBI office and submit specified documentation to get money exchanged and this facility would be available till 31^st March 2017

Can NRI, NRO s can deposit Money

Yes, theycan deposit money in their bank accounts

Meanwhile, where all the money can be used

The money can be used for paying off your hospitalization charges at government hospitals, for travel by PSU buses, train tickets, and air tickets till 11^th November 2016.

Short Term Struggle

Till about 15^th December, for about a month, till normal operations are restored, there will undoubtedly be a significant shortage in cash supply and carrying of cash will become a hassle. Even smaller denomination notes may not be easily available.

Who all are expected to suffer

Those having large amounts of unexplained money are for sure going to be in trouble. These may include some businessmen who never paid taxes as due, real estate brokers, rogue politician, sponsors of terrorism who will not be able to explain source of their money,

If idea is to curb flow of paper money, why Rs 2000 note is issued

Honestly no clear answer is emerging from various statements. The nearest answer appears that it would help small businessmen. In the RBI and finance ministry press conference today, Das carefully noted that the central bank would cautiously “monitor and regulate the issuance of Rs 2,000 notes in the future”. This means that it is unlikely that the Rs 2,000 notes will not be issued in large numbers.

What are consequences to me- Should I be worried?

First of all, who are you? Are you one of the honest tax payers?

If yes, and you have been filing returns of income tax in time, there is nothing to fear

Please note following-

1. Every person may deposit a sum of Rs 2 lac in his account, which may not be questioned later on. Only the larger deposits would be coming into scrutiny later on.
2. Assuming a family of 4 adults, you can deposit a sum of Rs8 lacs
3. If you have withdrawn large sums of money over past few days, you can deposit such amount as you have reason to explain the source
4. Gifts upto Rs 50000 per child is exempt. Consider taking gifts from relatives where possible. May consult your CA before doing this

Don’t forget to consult your CA to plan and advise yo to make records to justify to Assessing officer the source of cash, that is, should the need for this arise.

What if I don’t take precautions and declare higher amount than I can justify

Be prepared for following-

Notice under section 142(1):

Assessing officer may issue such notice and may require to produce his books of account, other documents and information. You might be astonished but here the A.O has powers even to enquire about your personal belongings and can ask you to submit your personal books of accounts. This notice can ask for information relating to the 3 years immediately preceding the financial year for which assessment is to be made. Failure to comply with this notice may land your case in best judgment assessment and can lead to heavy penalties.

Further, not complying with the notice directives would lead to a minimum fine of Rs 4 per day which may extend up to Rs 10 per day for each day the failure continues. Apart from this you might end up in prison for up to 1 year. Also a penalty of Rs 10,000 will be levied on you for not complying.

2. Notice under section 148:

You would be issued notice u/s 148 for having income that has escaped assessment. Assessing officer has very wide powers under this section and may levy heavy penalties.

Reopening of Assessments

Your assessment for past six years can be reopened

Likely Raids

Unexplained income may prompt assessing officer to raid your premises. In such a case you would not get any advance notice. Such search and seizure proceedings are the most aggressive step which can be taken by the income tax department and hope that you are not the one who gets in its ambit.