Quick Mail

Please enter your name

Please type your message

Your captcha code looks wrong

Rashmin Sanghvi & Associates

Chartered Accountants

220, 2nd Floor, Arun Chambers,
Tardeo Road,
Mumbai - 400 034,
Maharashtra, India.

Tel. Nos.: (+91 22) 2351 1878, 2352 5694.

Fax : (+91 22) 2351 5275.

Email : [email protected]

Home Articles Taxation         Share :

Demonetisation Explained and Notifications issued till now



Demonetisation Explained

Article date: 12th November, 2016.

CA Rashmin Sanghvi.

There are unnecessary fears and rumours about demonetisation. I am trying to explain the law and remove the unjustified fears of people having white money. The Demonetisation explained in simple terms: “Cancellation of Old High Demonetisation (OHD) notes of Rs. 500 and Rs. 1,000 means Demonetisation of these notes”.


Sr. No.







General observations

Annexures (Download in one PDF by clicking here)


Ministry of Finance (Department of Economic Affairs)


Press Release – Cancellation of high denomination notes


Notification No. 3407(E) dated 08.11.2016


Notification No. 3408(E) dated 08.11.2016


Notification No. 3416(E) dated 09.11.2016


Notification No. 3417(E) dated 09.11.2016


Notification No. 3429(E) dated 10.11.2016


Notification No. 3445(E) dated 11.11.2016


Reserve Bank of India


FAQs on withdrawal of Legal Tender Character of the Old High Denomination Bank Notes


A.P. (DIR) Circular No. 16 dated 09.11.2016


Central Board of Direct Taxes


Any mismatch between cash deposited and declared income would attract 90% tax and penalty


Miscellaneous – Replies given by Revenue Secretary

1. Clarifications.

I.1. White Cash:

All those persons who have white / declared/ tax paid cash on hand – should not worry at all. They can deposit all their cash on hand with their bank. Sufficient time – upto 30th December, 2016 is available for depositing old notes in the bank. One need not worry and need not go to the bank when there are huge lines.

Full value will be credited in their account. They will not suffer any loss. Deposit can be on one or more days. There is no restriction that the whole amount has to be deposited in one day only.

Present restrictions on withdrawals of cash from bank accounts may be because: Few billion notes will have to be issued. The logistics involved in transporting so much cash to lakhs of bank branches all over the country is huge and difficult. It seems, within a month all Indians should get all cash that they want. In the meanwhile, people do suffer when they don’t have enough cash in smaller denominations for daily expenses. Those who have adequate cash can go to bank after a week or ten days and avoid the rush.

Important: People with white cash and people having less than
Rs. 2,50,000 should not incur any losses by buying gold at premium or selling old notes at discount.

I.2. How much cash can be deposited in Bank?

In case of business concerns, they would have their up-to-date accounts. Some businessmen’s cash books may not be up-to-date. They should update their books and ascertain cash on hand. This amount can be deposited in bank. The whole of their cash on hand as per books can be deposited. For example, a partnership firm having big business had withdrawn from bank, cash of Rs. 20 lakhs on 5th November, 2016. It can redeposit the whole amount.

Some banks are saying that they have restrictions on – “how much cash they can accept”. There is no such restriction. I am quoting below:

Government of India, Ministry of Finance, Department of Economic Affairs. Notification No. SO 3407(E) dated 8th November 2016:

Extracts of Paragraph 2: in italics:

“2. The specified bank notes held by a person……..may be exchanged at any Issue Office of the Reserve Bank or any branch of public sector banks, private sector banks, foreign banks, Regional Rural Banks, Urban Cooperative Banks and State Cooperative Banks for a period up to and including the 30th December, 2016, subject to the following conditions, namely:—

(i) …………………

(ii) …………………

(iii) there shall not be any limit on the quantity or value of the specified bank notes to be credited to the account maintained with the bank by a person, where the specified bank notes are tendered; however, where compliance with extant Know Your Customer (KYC) norms is not complete in an account, the maximum value of specified bank notes as may be deposited shall be Rs.50,000/-;

(iv) the equivalent value of specified bank notes tendered may be credited to an account maintained by the tenderer at any bank in accordance with standard banking procedure and on production of valid proof of Identity;

(v) ………………..

Extract of Paragraph 4:

4. Every banking company ……shall at the close of business of each day starting from 10th November, 2016, submit to the Reserve Bank, a statement showing the details of specified bank notes exchanged by it in such format as may be specified by the Reserve Bank.”

Extract from notification completed.

No bank can disobey Finance Ministry’s notification. In other words, a person having declared cash of any amount can always deposit full amount in the bank without any limit. It is for the depositor to decide how much cash he wants to deposit in his own bank account. Bank has no authority to place any limit on the deposit. If the depositor has deposited black money, it will be Income-tax department’s lookout. Bank has no responsibility nor authority to look into tax issues.

I.3. Income-tax Enquiry:

If a person deposits large cash in the bank, he is likely to face income-tax department’s enquiry. How should he be prepared?

The depositor should prepare his books of accounts, and ascertain the cash on hand as per his books. If the amount deposited is equal to or less than the cash on hand as per books; he need not worry. In short, he should be able to explain availability of cash and the reasonableness of the amount – in case of scrutiny assessment.

When the amounts are small/ reasonable, there may be no inquiry. What is reasonable? As per Finance Secretary Mr. Hasmukh Adhiya’s tweet, an amount upto Rs. 1,50,000 may be okay. Subsequent advertisement by Government says that for deposits upto Rs. 2,50,000; banks will not report to income-tax department. Still, I would say that the depositor should be ready with his explanations. The cash deposited in bank will appear in the books of accounts, and will come out at the time of Income-tax assessment. The assessing officer may still ask for explanations. Hence a businessman should not deposit more than the cash on hand as per his books of accounts.

Consider a successful retailer whose daily cash sales are around Rs. 10,00,000; and he has been depositing this amount in his bank account for past several years. Such a person may have cash on hand of even Rs. 25,00,000. He can deposit the amount in bank. Thus reasonable amount depends upon the facts of each case. The depositor should consult his tax advisor to decide the amount.

I.4. House Wives:

There are several persons whose incomes may be below Rs. 2,50,000 and hence not filing their income-tax returns. This includes house wives who may not have independent incomes & may not maintain books of accounts. How much amount can they deposit in bank?

I personally believe –Every depositor should be able to explain how he /she got the amount. Once this is possible, the amount will be decided based on facts of each case. For a deposit of Rs. 1,00,000 or less, Income-tax department may not make any enquiry. A person earning less than Rs. 2,50,000 per year may not have larger cash on hand.

II. General Observations:

II.1 Objectives of Demonetisation:

As stated by the Honourable Prime Minister and other authorities on 8th November, they had two objectives for demonetisation: (i) More important: make it difficult for terrorists & criminals using fake currencies to destabilise Indian economy & stability; and (ii) cause damage to black money.

With demonetisation, will black money generation stop?

Certainly not. One of the reasons for Black money being generated is - paying bribes to ministers and bureaucrats who exercise authorities over businessmen. Will they stop asking for bribes?

Black money generation is like a river having several tributaries. Demonetisation is a onetime event. Some black money lying in cash will be lost. The river will start with new currency notes. Black money Generation is a process. Demonetisation is an event.

On the whole, this is a good step in right direction. We can't and should not expect complex problem of black money to be solved by any one step. At the same time, News on 12th November show huge lines all over India for people to withdraw & deposit cash. Some people have even died due to the stress. Businesses like daily fruits & vegetables sales are seriously affected. This shows that Government and RBI have failed in their planning & logistics. Even one death is not acceptable. India is very large country, population is large and need for daily cash is huge. Any disruption can mean huge difficulties. All India planning needs to be much better.

II.2 A suggestion to all husbands:

Many wives will make disclosures to you about cash - which was not disclosed to you and is held by your wife. Don't fight, don't embarrass the ladies and deposit the cash in bank account - after consulting your tax advisor. In this respect allow me to quote a story from Mahabharat:

Part 1 as told by Ved Vyasji:

After the Mahabharat war, the Pandava brothers came to know that Karna was their eldest brother and Mother Kunti had hidden this secret all the time. In ignorance, they had killed their own brother. Yudhishthir was upset. He cursed:" From now onward, no lady shall be able to keep any secret in her heart".

Part 2 - My extension of the story:

Kunti was sad. She pleaded with Yudhishthir to withdraw the curse. However, once the curse was out, he could only withdraw partially. He said:"Okay. Ladies will be able to keep secret - (i) Their Stridhan and (ii) all matters relating to their parents.

So friends, don't get upset when your wife makes disclosure to you.

Rashmin Chandulal Sanghvi.

Annexures (Download in one PDF by clicking here)