What’s a little inconvenience for the greater good?

payment-473685Long lines outside banks, non-functioning ATMs and a fast-declining enthusiasm against major economic reforms…the common man is at his wit’s end with the current demonetisation move.

Some events are so momentous that they stay with us forever. The Mumbai terror strikes of 26/11. The falling of the GBP to a lowly Rs 45 immediately after the Brexit vote. The shock election of Donald Trump as the USA’s new President. And now, the demonetisation of Rs 1,000 and Rs 500 notes in India.

This last one has hit hard more than the others, because it has gone to the root of what we hold dear: our daily life. Let’s face it, each of us have a stash of currency at home, much of it in denominations of Rs 500, and some of it in Rs 1,000. We’ve been using this money for transport, settling small bills, paying for vegetables and groceries, and other cash payments. By no means have we been hoarders, this is petty cash that sees us through one day to the next.

Take it away – or render it useless, like the present Government has done – and it awakens all that is fiendish inside us. Suddenly, we are forced to stand outside banks in serpentine queues, without food or water or even a restroom break, simply to get our hands on our own money. And for what – so that the Government may weed out black money and corruption, both of which are not a part of our lives by a wide stretch.

It’s been days since the historic announcement to pull the plug on Rs 500 and Rs 1,000 notes, and not all of us have been able to get our hands on the cash lying in our accounts, nor dispose of the useless notes we are sitting with. But beneath the simmering tension and open hostility that many people are now feeling towards a Government that has pushed this move down our collective throats, is there really anything more serious than a little inconvenience?

Bear this current situation with a smile, because…

* There is no need to panic. Though you feel that your bank is going out of its way to work at a snail’s pace, the RBI contends that Indian banks performed over 10 crore exchange transactions[1] (where you surrendered the old notes and got Rs 4,000) till Sunday – that’s a lot of money that has legally changed hands and operations are set to pick up the pace this week.

* ATMs are being loaded with more cash, so that you won’t be the unfortunate chump that waits in line for an hour only to be told that the machine is out of cash.

* Banks are working overtime to dispense Rs 2,000 notes from ATMs[2], though a complete overhaul is expected within two to three weeks. So if you line up to withdraw money, you might find a shiny new Rs 2,000 leap out at you!

* Rs 500 notes are coming back![3] If you were left scratching your head after a string of stores refused your Rs 2,000 note citing a lack of change, you can take heart in knowing that new and improved Rs 500 notes are also coming back. Rs 1,000 notes will also be brought back in a new avatar by the end of the year.

* The ‘shadow’ economy is set to go. If you were ever infuriated that your local sabziwallah or the guy who does your laundry has more ready cash than you – and he doesn’t even pay any taxes, grrr! – you can now feel happier knowing that this crackdown on the ‘parallel’ economy that exists only in cash dealings will bite the dust. Though small payments to the tune of Rs 500 are still a possibility, the larger picture is a better one: businesses dealing in ‘black’ will have a tougher time hiding from the law.[4]

* Things will be restored with Rs 2,000 fuelling the economy. India is primarily a cash economy, but the Government is trying to walk the tightrope between ‘less cash’ and ‘cashless’ economy models. Though the situation seems grim at the moment – and it is, if you are left with only a few hundred rupee notes – things will go back to normal as the market is infused with Rs 2,000 notes.[5]

* Finally, there is a crackdown on corruption and non-declaration of wealth. The Government gave non tax-payers and those with undisclosed income enough time to declare till September 30 this year. Many did, and were not penalised heavily but were taxed as per the arrears and tax structure payable. However, the demonetisation is a heavy blow to those hoarding cash to the tune of crores of Rupees. Declaring anything above Rs 2.5 lakh till December 31, 2016 is liable to come up for scrutiny. Indeed, every person is now under the scanner of the tax authorities.

* It has happened before, and we adapted. Indians have a high propensity for adjusting to sudden shakes and tremors. If you thought demonetisation is a Narendra Modi brainchild, think again: the first such move was made with Rs 1,000 and Rs 10,000 notes in 1946. These denominations were revamped and brought back in 1954 along with Rs 5,000 notes. Then all three were demonetised in 1978. The RBI then next demonetised all currencies in 2015[6]…the point is, it has happened before, and we survived. We will survive this time, too.

[1] http://www.livemint.com/Opinion/i7yroJy3fSATLD0i6fEfjL/Dont-panic.html

[2] http://www.ndtv.com/india-news/old-notes-valid-for-10-more-days-amid-dash-for-cash-10-developments-1625070?pfrom=home-lateststories

[3] http://profit.ndtv.com/news/economy/article-high-security-rs-500-notes-released-for-distribution-1625066

[4] http://scroll.in/article/821073/note-demonetisation-86-of-indian-currency-and-12-of-gdp-has-been-frozen-overnight

[5] http://www.moneycontrol.com/news/economy/demonetization-to-benefit-indialong-term-experts_7936381.html

[6] http://scroll.in/article/821073/note-demonetisation-86-of-indian-currency-and-12-of-gdp-has-been-frozen-overnight

Benami Property? All your questions answered

The country is going into a frenzy with various schemes and changes that Prime Minister Narendra Modi is bringing in, in his fight against corruption. One of the bold steps taken by him last week was the demonetisation of ₹500 and ₹1000 notes in India. Now next is against benami property.

benamiThe ‘Benami’ vultures are circling around many. But before it actually hits, let us understand a few things.

When the Prime Minister was on a national tour which included a visit to Goa, He mentioned, “We will take action against ‘benami’ property. This is major step to eradicate corruption and black money… We are going to take action against the properties which are purchased in the name of others (benami). That is the property of the country. My government feels that it is our responsibility to help the poor and I will do it.”

The New Benami Act

This act came into effect on November 1, 2016. Under this law, people are prohibited to carry out illegal benami transactions. What people do, to hide tons of their black money is, buy property under other people’s names. The law states that people caught guilty of doing so can serve up to seven years in prison and/or a monetary penalty.

So let us deep dive and gather some knowledge. What does this term ‘Benami’ mean?

Benami fundamentally means, owning some kind of property without an attached owners name to it. So basically, the person who pays the money for it, buys it in someone else’s name to ensure that he is not caught by the authorities. A move that is carried out by those who horde cash in the form of assets.

What is it that constitutes Benami property?

All property that is not covered in the points mentioned below constitutes benami property:

  • Property bought in the name of a spouse or child for which the amount paid is traceable, is SAFE.
  • A property that is owned under joint names with blood relatives any other relatives for which the amount is paid amount is traceable, is SAFE.
  • Property that is owned by someone in a fiduciary capacity, is SAFE.

However, the property that is bought in the name of your parents can be classified as benami property.

One of the clauses in the act is somewhat borderline given the fact that the Finance Minister Arun Jaitley agreed to the fact that genuine religious trusts would be left out of the scrutiny of Benami property.

The new legislation will make an amendment to the punishment making it seven-year imprisonment and/or a fine, replacing the earlier reprimand of three-year imprisonment and/or a fine.

So, how will this Benami Act affect you?

Any assets movable, immovable, tangible or intangible, could come under the purview of benami if held illegally. The assets include gold as well as financial securities unless they are owned by you and are declared as personal expenses under your name to the required authorities.

This move of declaring them is done in order to ensure that the money that people declare is in proportion to their incomes. If what they own is dis-proportionality large, then the IT department could swoop in and make itself heard. As for the general public, who deal in white money and declare taxes and property regularly, this move will not be an issue.

Demonetization in India: When good things cause a major jolt!

The current demonetisation drive to weed out black money and corruption has left many a common man fuming. Present-day inconvenience aside, the move will make black money markets take bigger chances to still remain operational.

currency-946932It was a move unprecedented by any other – swift, all-encompassing, panic-inducing. The Prime Minister of the country, Mr Narendra Modi, announced on the evening of November 8, 2016, that all rupee notes of Rs 500 and Rs 1,000 would cease to become legal tender from midnight. After a day’s break, banks would begin the process of exchanging these notes for new Rs 2,000 and the old Rs 100 notes.

The announcement sparked pandemonium like no other, second only to the stampedes at the country’s big religious shrines. Within minutes of the announcement, people lined up outside ATMs to pull out their money, but many were left disheartened as more (now useless) Rs 1,000 and Rs 500 notes shot out of the machines. Since the banks reopened for business on November 10, the country has become one big queue of people waiting to deposit their money and get them changed for Rs 4,000 per person per day.

After the initial shock, anger and desperation have now set in as there are still some people who have not been able to get their money changed. Even worse is the fate of those who do not have bank accounts. An amusing fallout, however, has been that housewives across the country have been caught out hoarding money squirreled away from their savings every month – so the purge has already begun!

How does this move benefit anyone?

1) It’s a sound move to clean up the economy and eradicate black money transfers and businesses. While small businesses argue that the move has destroyed them completely – most of them deal exclusively in cash, and need cash to make bulk purchases as also supply goods to other parts of the country – the larger picture is an extremely positive one. For starters, more people and businesses will now come into the tax net, especially small companies that make a cash profit but show losses in their books every year.[1]

money-18119372) Aimed at breaking the black market economy[2] that circulates cash primarily amongst such entities as the underworld, real estate, politicians and big businessmen, demonetisation aims to bring everybody on the same playing field – whether rich or poor, now everybody has unusable currency. If a person has unaccounted wealth worth crores of rupees at home, he may certainly declare it but also pay a heavy tax on it – which is how honest taxpayers operate.

3) The new Rs 2,000 notes[3] have a host of security features that make duplication difficult – this is a direct blow to the counterfeit money racket operating out of our friendly neighbours Pakistan and Bangladesh. The demonetisation move has already crippled these underground economies to a large extent.

payment-4736854) There is no option but to declare income sources and reasons for cash withdrawal from now on. The Government has imposed limits on unexplained withdrawal of cash – not exceeding Rs 20,000 per week – so the earlier practice of withdrawing bulk amounts is abolished. This makes it more difficult for such businesses as real estate to function – a buyer would have to withdraw money over a period of months to be able to pay the ‘black’ component of the deal. Hence, the transaction will automatically become a ‘white’ one.

5) Private schools and institutions of higher learning will now be more circumspect about asking for ‘donations’ while granting admissions. Parents can simply profess helplessness at withdrawing large sums of cash, and can choose to pay by cheque – thus creating a paper trail for the payment. Bribes will not be eradicated altogether, but they will be in smaller quantities.

6) More payments will go digital. Right now, the biggest problem is that of paying for daily food and groceries with scarce cash. However, if people opt to use online platforms like Paytm and Mobikwik to pay for public transport tickets and buying vegetables, there will be no need to carry cash at all. This also means, however, that the penetration of mobile wallets and payment platforms is set to increase manifold.[4]

7) Banks will be flush with more money from now on, and lending rates are likely to drop in the coming months. Since more money will return to the economy – especially from the previously untaxed businesses dealing solely in cash – lending rates will reduce, thereby benefiting citizens.[5]

Wouldn’t you agree that it’s a clean-up that was long overdue?

[1] http://www.dnaindia.com/analysis/column-this-is-a-new-indian-sunrise-2273153
[2] http://www.livemint.com/Opinion/6FJKaHXaq9lqCYeI93NYsN/Demonetization-is-a-net-positive-move.htmlc
[3] http://www.business-standard.com/article/economy-policy/real-or-fake-check-out-rbi-guidelines-on-rhw-new-rs-2-000-note-116111400170_1.html
[4] http://scroll.in/article/821207/will-demonetisation-help-the-move-to-a-cashless-economy-its-not-that-simple
[5] https://indianceo.in/news/demonetization-indian-currency-note-affect-economy/