Prime Minister Modi made a major announcement tonight. From midnight of November 8, 2016 the Rs 500 and Rs 1,000 denominated notes would cease to be legal tender. In simple terms no one will accept Rs 500 and 1000 notes. This is really a BIG step and would have far reaching impact.
Why was it done?
India is grappling with two problems:
- Fake currency especially on higher denominations which are used in terrorism/drug rackets etc and
- Black money held in cash which are usually held in high denomination currencies
This move would completely get rid of present fake currencies. For the black money there would be some impact as not all money is stored in cash. Many black money holders would have already invested in gold, real estate and other avenues and so would not be impacted.
Save Tax Honestly: Download the Free Tax Planning guide for FY 2016-17
The Details:
1. Rs 500 and Rs 1000 currency notes are no more legal tenders from November 9, 2016
2. These notes can be deposited in personal/business bank accounts and post office accounts. There is no limit on the amount of money you can deposit for KYC compliant accounts. In case the KYC is not complete the amount would be limited to Rs 50,000.
3. The notes can be deposited by third party only after specific authorization from the account holder. Also the depositor would need to give their proof of identity.
4. Bank notes up to Rs 4,000 can be exchanged across the counter from banks, post offices and Issue office of RBI. You would need to fill up requisition slip and give proof of identity.
Also Read: All about Bank Deposit Insurance and How to increase it legally?
5. This limit of Rs 4,000 would be reviewed and revised every 15 days.
6. The notes can be deposited or exchanged on or before December 30, 2016. In case you are not able to deposit your money till December 30, you would be given time after that with necessary documents as specified by RBI.
7. You can withdraw maximum of Rs 10,000 from your bank account over the counter and Rs 20,000 in a week till November 24. This limit would be revised after that.
8. You can withdraw up to Rs 2,000 daily from ATM per card till November 18. This limit would be raised to Rs 4,000 daily per card from November 19.
9. All ATMs, Cash Deposit Machines, Cash Recyclers or any cash dispensing machines would be closed on November 9 and 10 to adapt to the new regulations.
10. The banks would be closed for public dealing on November 9.
11. There is no restriction for use of non-cash payment like cheque, demand drafts, electronic fund transfers like NEFT/IMPS/RTGS, credit and debit cards.
Also Read: 21 Hidden charges in Savings bank Account
12. Following places would still accept till November 11 (next 72 hours) for urgent services.
- Government Hospitals and pharmacies in these hospitals
- Railway ticketing counters
- ticket counters of Government/Public Sector Undertaking buses and
- airline ticketing counters at airports
- for purchases at consumer co-operative societies
- at milk booths
- at crematoria/burial grounds
- at petrol/diesel/gas stations of Public Sector Oil Marketing Companies
- and for arriving and departing passengers at international airports and
- for foreign tourists to exchange foreign currency at airports up to a specified amount
13. New currency notes of Rs 500 and Rs 2000 would start circulating from November 10.
The Impact:
In the short term the move is going to cause inconvenience to lot many people – imagine someone in midst of his travel, marriage in next few days and more such situations
Expect long queues in banks and ATMs when they open next
Lot of people are have debit cards but are not comfortable to use that, mainly because of fear of fraud. The recent case of compromise of card data further enhances this. Government should make some laws and put onus on banks for fraud on debit/credit cards.
Also Read: Where to park money for short term?
Real estate may take further hit as this has the maximum black money.
The consumption would decrease for next few weeks as people would not have much cash.
Expect a new illegal market for currency conversion – ToI reported Rs 1,000 notes being exchanged for Rs 300!
Its good days for digital wallets like PayTm, Freecharge and the likes
Expect more establishments to accept card. wallet payments
Official Notification: Finance Ministry, FAQ on RBI Website
What you should do?
This is an emergency situation for many people as most people do not have Rs 100 or lower denomination notes with them. So the first step would be to search for all the lower denominations Rs. 100, Rs. 50. Rs. 10 Rs. 5 you have to tide over next 2-3 days.
Use your debit/credit cards/wallets (like Paytm)/ Sodexo vouchers as much as possible. Remember big stores like Big bazaar etc accept such payments.
Your maids, drivers etc deal with cash. Help and educate them about these changes, so that they do not fall in some trap.
There is bound to be some inconvenience, gear up to face the situation atleast for next few days.