Several News Channels are dramatising the PMs announcement that 1000 and 500 rupee notes will not be legal tender effective midnight on 8th November. Some channels are going as far as to say that the 1000 and 500 rupee notes would be the equivalent of trash and garbage from midnight. Twitterati and WhatsApp groups are full of jokes and rumours which are making the general public more confused. What are the options available with people with large amounts of money at home. I will take each of the possibilities one by one

1. If you have LEGIT MONEY, DO NOT PANIC. How much money can I keep in cash? Is there a limit. There is no law which specifies that there is a limit on the maximum amount of money which can be kept at one's home or office. As long as there is a legitimate reason for keeping the money in cash and an explanation for the source of the money, there is nothing to worry.
2. If you have legitimate money for which tax has been paid and you have kept it in cash for emergencies like weddings, medical, education or just for a rainy day you can exchange it for legit currency at banks and post offices. There will be a limit of 4000 for exchange of notes. Any amount above this would be credited to your account.
3. If you are an NRI have 500 and 1000 rupee notes and are currently abroad you can deposit in NRI or NRO accounts. The amount can be deposited through representatives and you need not return immediately.
4. If you are not able to do the exchange or deposit in banks and post offices by 30th December, 2016 there is still a window to deposit the same with selected offices at RBI by the 31st March, 2017. For deposit in RBI there would be a requirement to submit a declaration to the bank in a prescribed format.
5. In the interim, move to electronic banking and plastic money to the extent possible and there will be no or minimal impact
6. Initial restrictions on withdrawals upto 10000 per day per card and 20000 per week for withdrawals of cash against cheque from banks will be applicable. These limits are to prevent panic withdrawals and would be reviewed again from 24th November. Banks and ATMs would be closed and not available on 9th November to plan for this . Some ATMs which have not been specified may also be closed on the 10th Of November. Withdrawals from ATMs will be restricted to 2000 per day till 18th after which it will be increased to 4000 per day
7. What happens to persons like car mechanics, decorators, carpenters, vegetable vendors, shopkeepers, auto-rickshaws, taxi drivers, roadside vendors, farmers, wholesale vegetable and grain merchants etc who deal with cash as the major means of currency which are largely 500 and 1000 rupee notes? This group and those transacting with this group of persons would be severely impacted by the transition. It would bring a lot of this group of service providers into the legitimate income net and make them a part of the income tax, service tax or VAT network. As a buyer of these goods and services, from this category of vendors you may need to pay more when you pay by cheque or card since applicable taxes would be added to your bill.
8. What happens to cash for business which has been kept in offices for stamp duty, registration of property, labour payments, raw material purchases, transportation , octroi and other legitimate expenses? No issues here. The same can be be deposited in the bank as normal business income and tax paid on it in the current financial year in the normal course. The payments can either be made in plastic or electronically. If there is still an insistence on cash for large amounts there would be an issue since there would be a restriction on the amount of withdrawal till 24th November.
9. What about household help who have received their 500 and 1000 notes from you as part of their salary? You can encourage and help all those impacted within your known circle by opening bank accounts for them and being the introducer. You should do this only for people you know. The second thing is to encourage the use of debit cards so that they are able to reduce the dependence on cash until the system stabilises. The third thing is to personally lead by example and reduce cash expenditure and rely on internet and financial wallets. Lastly you can help the less fortunate in your social circle with purchases on the internet to the extent possible.
10. Finally what to do with Money in the cupboard, which you have accumulated over time and cannot reliably account for. Is it completely worthless? No even this is not entirely true. It may be possible to salvage some of this as well. Money relating to the current financial year is not a problem as they can be deposited and included in the returns and advance tax paid as applicable. Money pertaining to income from earlier years is a bit complicated since IDS is closed. However, even here it may be possible to salvage to the extent it relates to income for the assessment years 2015-16 and 2016-17. For these years you still have time to declare the income which may have been omitted by oversight, by revising the returns and depositing the related tax and applicable interest. It is my personal belief that these legal and statutorily approved processes would still be valid and the prodigals welcomed home. There could be the risk of scrutiny reopening of assessments for earlier years by the department but my general recommendation would be that this is still better than hoarding invalid tender or currency. Specific queries related to large amounts of old currency in hand as on date would need to be addressed individually and taken up with your accountant, tax consultant or auditor for more specific advice for individual cases.

Even though there would be inconvenience to many of us this would still be a huge step in the right direction. At the very least as a nation we should achieve the following objectives

1. Counterfeit money will be out of circulation
2. Illegal betting and "Satta" will starve
3. Terror Organisations would be starved of funds
4. Parallel money in real estate, arms market, commodity markets would choke
5. The drug market as well as the illegal funding of elections would find it increasingly difficult to function.
6. More money will be channelled through the banking system and the white economy will increase
7. Corruption and bribery through cash transactions will be strictly restricted
8. Huge amounts of black money stashed away under mattresses and in trunks and cupboards would be very difficult to circulate and would die a slow and painful death.

As mentioned earlier there would be considerable hardship for certain sections who deal in cash because of the nature of their business and the lack of will, incentive or expertise to move to cash less transactions like car mechanics, decorators, carpenters, vegetable vendors, shopkeepers, auto-rickshaws, taxi drivers, roadside vendors, farmers, wholesale vegetable and grain merchants etc. Those who deal with them which is virtually all of us would also be impacted. My response to that is that if our jawans can make the supreme sacrifice while defending and safeguarding our borders from the external enemy, some sacrifice from us over the next two to three weeks, in this war on corruption and black money, with the enemy within is Necessary.

Should you have any other queries or concerns please raise them in the comments section or send me a message on my LinkedIn or Facebook account and I will do my best to address them.