It came as a surprise cum shocker for the country when Prime Minister Narendra Modi in his address to the nation announced that the Rs. 500 & Rs. 1000 Indian Rupee notes will be invalid since midnight of 8th November, 2016. This move was taken in order to curb black money and fake currency.
Major part of the Indian population was happy with the decision. These were people victim of corruption and black money. Their hard earned money got them fearless sleep. Whereas a small section of the society holding cash in huge sums got shocked and panicked. Everybody is searching for a channel to park their money and somehow get away from the lens of income tax department.
At this crucial point of time we would like to give you a word of caution on a few critical and important points.
- Do not deposit huge cash in your savings bank account. This can put you under the tax lenses. Only deposit if you :
- Withdraw cash from your account for daily needs especially salaried employees who have regular ATM withdrawals.
- The amount is earned out of income you have disclosed in your income tax returns.
- Government has asked Income tax department to track the individuals depositing an amount more than Rs. 2 lakhs in their account during this conversion exercise.
- Do not deposit cash in your current/credit accounts unless you can prove that you have earned it by legal means and the same is tax paid money. For Example:
- If you are businessmen, it shall be your cash in hand as per books of account.
- If you are trying to increase your cash using turnover/sales, beware there is a TDS provision applicable for sale above Rs. 2 lakhs.
- If you are an agriculturist, it shall be from the sale of your crop.
- Any cash you deposit can be treated as first your savings, second your cash income for the year and third your undisclosed income.
- If a friend calls you up and ask you to help with some cash deposition in lakhs, say NO. Protect yourself before others.
- Do wait for your turn and deposit the specified notes in your bank account and try to help others in spreading information.
- Do not wait for any further relaxation or last day to deposit the specified notes.
Surprises coming your way:
- Highly likely the farmers of the country may deposit cash in their Credit accounts. This will reduce the willful defaulter’s number, who were sitting on the cash and not depositing in their bank account.
- You might start getting calls from your debtors to accept cash on behalf of their outstanding balances.
- Some business like gold trading, retail, petrol pumps etc. might record highest sales in the month of November.
- Jan Dhan Yojana initiated by the honorable Prime Minister got Rs. 65,000 crores in the banking system. Imagine how many lakh of crores might flow in the banking system.
Impact on Indian Economy
In the long term, there will be a substantial boost for the Indian economy. The Indian GDP is bound to show improvements, and there can be a surprise jump above the 10% mark as well.
However, in the short term, there will be a decline in the economy or at least will stand still until the transactions improve. People won’t be able to spend and transact, which will impact each and every sector of all industries.
So, in the short term, a decline is very likely, but the long term prospects are bright.
How Indian Rupee may trade Vs Dollar and other?
The Indian rupee is very sensitive when it comes to the market sentiment. It opened higher today, and then later recovered. The market will sooner or later realize that this will benefit the INR in the long run. We can even witness the USD/INR rate reaching the 60 mark.
This again brings to the economy factor. A higher value INR will help in phasing out inflation. So, the economy will be boosted in the long run with a lot of inflows.
However, the middle class people relying on the interest rates may face a lot of hurdles going forward. If there is a decline in the CPI, there are a lot of chances of the RBI reducing the interest rates further. If that is the case, saving rates and FD rates could also be reduced by the banks in the near term.
Where Money can Flow? Gold and Bitcoins?
People have already started looking at the Indian rupee alternatives. One of the main alternatives is Gold. People may tilt to Gold in the short to long term. However, there will always be fear in the market, and the market cap may then come into play.
So, there will be a huge surge in the demand of Bitcoins. India is already considered one of the fastest growing Bitcoin markets, and this may boost it further.