The announcement of demonetisation of Rs 500 and Rs 1000 currency notes, has sent many citizens in a tizzy. Many are worried about currency exchange, even though they believe their income is legitimate.
Our economy is on an interesting precipice, either we will get past the black money menace or cash hoarders may get the better of this demonetisation drive.
Here are some COMMON QUESTIONS we’ve been asked about bank notes and their exchange
- What does demonetisation mean?
- What do the RBI guidelines say about 500Rs ban and 1000Rs ban?
- How to exchange 500rs and 1000rs notes at a bank?
- If I am holding cash do I need to pay tax on it? Will deposits above Rs 2.5lakhs attract income tax?
Let’s tackle each one of these-
What does demonetisation mean?
Demonetisation simply means getting rid of old currency. With demonetisation, governments remove old currency notes and replace them with new currency. Many countries have done this to introduce a new unit/print/some other variant of the existing currency in circulation.
What do the RBI guidelines say about 500Rs ban and 1000Rs ban?
- Existing Rs. 500 and Rs. 1000 Currency Notes will NOT be VALID from midnight of 8th November 2016.
- All Rs. 500 and Rs. 1000 notes must be deposited in a BANK OR POST OFFICE between 10th November, 2016 to 30th December, 2016.
- This means OLD currency notes still have VALUE, however instead of being used in the markets they must be first exchanged for NEW currency notes from a bank.
- There is NO limit on how much you can DEPOSIT during this time period.
- If your KYC has NOT been done for your bank account, you will not be able to deposit old currency notes beyond Rs 50,000 (says a notification from RBI).
- However, if you want to EXCHANGE your currency, a maximum of Rs 4,000 can be exchanged per day. [This limit shall apply until 24th November, and is likely to be extended later.]
- As per RBI, cash withdrawals from ATM will be limited to Rs. 2,000 per day per card uptil 18th November 2016 which shall be raised to Rs 4,000 per day per card from 19th November 2016.
- Cash withdrawals from Banks will be limited to Rs. 10,000 per day and later enhanced to Rs. 20,000 per week by the RBI.
How to exchange 500rs and 1000rs notes in bank?
500rs and 1000rs notes can be exchanged in a bank with
- A requisition slip is required to be submitted. [Click here to download deposit-slip for depositing currency or currency exchange of 500rs and 1000rs notes]
- Proof of identity (Voter’s I Card, Aadhaar Card, passport copy)
- Pan Card Copy (do carry original PAN card as well)
If I am holding cash do I need to pay tax on it?
Possibly the question every depositor wants answered is – what are the tax implications of depositing cash. And whether there are any limits.
Here are some answers –
- PAN Norms: Let’s not forget existing norms require that any deposits made in a bank account of above Rs 50,000 must quote PAN. So those rules are still in place. Any deposits of Rs 50,000 are not allowed without PAN. And as we have mentioned before, if your KYC is not in place, you cannot deposit beyond Rs 50,0000.
- Deposit limit: While there is no limit on how much you can deposit, the government has said that any deposits exceeding Rs 2.5Lakhs will be monitored and reported to the income tax department. The income tax department will match these deposits with the income tax returns of depositors. Those with a discrepancy are likely to receive a notice asking for an explanation.
- Penalty: Note that no new provision of income tax has been introduced alongwith this demonetisation drive. An existing section of income tax provides for penalty on under-reported or mis-reported income. So therefore, not only will the government tax your currency deposit based on applicable rates; 200% of the tax calculated can be levied as penalty.
Are you still worried about depositing cash. Want to know what your options are? Need help with calculating the tax impact of these deposits – Ask our experts today Click here. Our experts will answer all your questions and hand hold you all the way!