Legal and tax insights into India’s demonetization

India “demonetized” 500 and 1,000 rupee bank notes as legal tender from 9 November 2016. Overnight, “demonetization” became the new talk of the town – a vivid example of a change in law having a drastic impact on people’s commercial as well as personal lives. Though the ramifications are wide, the step seems logical. This is the third in a series of major steps being taken in India to fight black money.

It started earlier in 2016 with the introduction of an amnesty scheme, the Income Declaration Scheme (IDS). The IDS allowed people to voluntarily report undisclosed incomes and assets to the authorities. The tax rate was high, at 45%, but the scheme ended with a considerable success. Marketing efforts put in by the government, along with legal advantages such as immunity from penalties and prosecution, contributed to its acceptance by the public.

Second was the recent enactment of a tough law on fictitious property (benami) transactions, the Benami Transactions (Prohibition) Amendment Act, 2016. The law covers transactions where the real beneficiary of a property is not the person in whose name the property is purchased. The new law empowers authorities to hit hard at such transactions, allowing for attachment and confiscation of such properties.