Saturday, November 12, 2016


FAQ for Note exchange scheme:
Following is FAQ I made with my understanding and perception limited to me.
1. how I know if I have white or black money?
                There are 2 categories of money you hold.
                1. White money - You withdrew money from ATM OR You earned it legally but did not deposited it in any bank account. However, you have paid the tax as applicable. Such are not impacted at all. As officially projected, such citizens have to pay a cost of "small inconvenience".
                2. black money holder - these guys would be affected as old notes are going out of currency. There are multiple categories in this, mainly -
                                i. not affected by this change - these are big players (like politicians, big businessmen) who have other means to launder money.
                                ii. affected by this change -
                                Citizens having small amount of black money compared to (i). These are citizens who (evaded income tax) or (earned by taking bribes - like just to look away on wrongdoings). These are the people most affected by this.

2. will category (2.ii) will really be affected?
                People in (2.ii) are directly affected, however, they can still be free to convert black money to white if their income is in non-taxed bracket, only if, they make sure deposits does not cross this limit. If your income crosses tax bracket due to heavy deposits, IT Dept may check last few year’s ITR against you.
                Small businessmen can stop accepting old notes however they can continue depositing old notes (black money) daily. This would be troublesome as queues are huge, but one can manage to launder few lakhs this way.

3. Can black money converted to white money
                Black money can be converted to white any time by paying tax to government and penalties if any.
4. Can black money converted from old notes to new notes (without making them white)?
                Success of this activity is depends upon this. But the short answer is, Yes, it can be converted to new notes without converting it to white money. For instance, Money that is already converted in (gold) or (other nation's currency). However, government is taking measures to track such black money (in form of non-currency). e.g. asking for PAN for gold transaction of 50k, tracking charitable trusts income and expenditure.
5. Who is the "aam aadami" that supposed to benefit from this
                Citizens, irrespective of their income, holding white money (i.e. pays applicable taxes) would be the citizens that are not affected by this. And, can be called as "aam aadami". Citizens earning less than 2Lakhs directly comes in this category, but not limited to only those.
                Such citizens will not directly benefit from this, but indirectly they will benefit as government is expected to earn in taxes, resulting in higher government income from IT (income tax) department. If the amount is very high, we could have big infrastructure projects, or less tax on daily used commodities.

6. What if I do big deposit of white money.
                If you are in non-tax paying bracket and if your big deposited does not change your tax paying bracket you are fine, no action would be taken.
                If aggregated deposits (over snap of next few months) are crossing 10 Lakhs, such would be directly investigated by IT department. If all your money is white, you still can receive a notice from IT dept. all you have to do is provide appropriate reasoning with proofs. This would be again a "small inconvenience".
7. will it help fight against black money
                It is 90:10 rule here, 90% of black money is hold by 10% of citizens. The black money cannot be laundered would be the benefit. But, how much that would be is hard to conclude. We have to wait for government numbers.
8. will bank benefit
                As more and more citizens would deposit their money, bank will have more cash to handle. This would result in bank giving out more loans. will they be cheaper anymore? hard to say.
9. will IT (Income tax) Department benefit
                IT Department might see a spite in ITR as small and medium business men have to put some or all of their money in bank. This will help IT Dept to identify citizens that are not paying IT.
10. will corruption reduce
                Corruption activity is impacted due to cash flow is reduced. However, I don’t see corruption getting reduced. Rather, corruption might increase after 6 months or so as citizens accepting bribes would try to recover their "losses".
11. will common man benefit
                This is one-time activity which would increase the deposits in bank account, but once new notes become normal, situation won't be any different.
12. what is a point of 2k notes, a higher denomination note
                When someone want to convert the old money to new one, we should be able to track. One should not claim that they deposited and withdrew same money again and again.
                However, getting change for 2k is difficult and doing cash transaction may result in exchanging new notes for old ones. I would recommend citizens to try to avoid this, if you cannot, please track the notes that you sent and note that you receive. This information would be useful in future in case you receive IT notice.
13. Why the secrecy, and will it be helpful?
                Secrecy was to avoid pressure on lower denomination notes. This will not give black money holder enough time to convert some or most of its black money into, let’s say, 100 notes. This would have resulted in 100 notes crunch. But, secrecy is the reason you have to wait for hrs in queue. As, 2 days are not enough time to re-calibrate ATMs for different notes of size weight and denominator, neither it’s enough time to higher or train cashiers. Most of the banks are operating with same number of cashiers. However, we should appreciate the time and effort of cashiers and other staff helping them.