- Demonetization is seen as a tax administration measure. Cash that was there with the people from their income by performing legal activities, was instantly deposited in the bank in order to exchange against the new notes. But people with the money earned through illegal activities, i.e. the black money had to pay taxes with the penalty rate as their money was unaccountable. It was also made clear by the government that demonetization was a change on their part, showing that tax evasion will no longer be tolerated or accepted.
- Demonetization led to the withdrawal of nearly 86% of currency in circulation. As per the report of the income tax department, an undisclosed income over Rs. 9,334 crore between November 9, 2016 to February 2017 was reported.
- It promoted the variable service of launching a mass awareness campaign against black money. It reduced the informal transactions in the economy.
- Demonetization facilitates channelizing savings into the formal financial system. As a result, some of the new deposit schemes offered by the banks continued to provide base loans at the lower interest that can be used for launching new profitable schemes.
- Demonetization also helped in creating a less-cash economy by bringing an understanding within the general people, i.e., channeling more savings through the formal financial system and improving tax compliance that would improve more chances of a cash-lite economy. This would help in introducing a formal economy in our country.
Concept and Features of Demonetization