Penalty for failure to return old notes

If after March 31 next year, you still have a lot of the old series Rs 500 and Rs 1,000 notes, you might have to pay a hefty fine.

According to an Ordinance, cleared by the Union Cabinet on Wednesday, people possessing more than 10 old notes — irrespective of their value — would be committing an offence. But there was no clarity on when this would come into effect.

If those depositing old notes between January 1 and March 31 with the Reserve Bank of India (RBI) give wrong information, they would have to cough up a fine of Rs 5,000, or five times the amount with them. Those not submitting the banned currency even after March 31 would have to pay a fine of Rs 10,000 or five times the amount, whichever is higher.

According to the Ordinance, citizens would be allowed to deposit their stash of old notes with RBI — but only at specific offices. Certain conditions, listed in the Ordinance, would also apply. Besides this, all notes not returned to the banking system by December 30 this year would be extinguished, said a senior official. The Ordinance needs the approval of President Pranab Mukherjee, expected in a day or two.

Prime Minister Narendra Modi announced demonetisation of the old series Rs 500 and Rs 1,000 notes on November 8. At first, people were allowed to exchange their old notes for new ones, but now they can only deposit it in their bank accounts.

“The Ordinance was floated to manage the transition period between December 31 and March 31. Under conditions, promissory status of the demonetised currency will continue till end-March,” said a second official aware of the matter.

Such conditions on holding the notes or depositing them after December 30 could be applicable to those who were abroad, soldiers or paramilitary personnel posted in remote regions or those who can prove that they were holding onto these notes for research. However, officials declined to give out other details on the Ordinance pending the President’s assent.

The Ordinance, however, does provide for amending the RBI Act to give legislative support for extinguishing the demonetised banknotes that are not returned. It is likely that such an amendment will be introduced through the Finance Bill. Till now, only a notification was thought to be enough to end the central bank’s liability and future litigations.

Currency notes carry RBI’s promise to pay the bearer the amount of the value of the note, a pledge that can be nullified only by legislation after giving due opportunity to everyone to return old notes.

There was also confusion regarding a possible jail term for anyone possessing a number of demonetised notes after March 31.

The ordinance is expected to bring much-needed clarity to the Centre’s estimates of the demonetised amount that has come back to the banking system and will help the finance ministry fine tune its projections for the coming Budget.

The last time such a demonetisation drive took place was in 1978 by the then prime minister Morarji Desai’s government. A similar ordinance was issued to end the Centre’s liability on the demonetised Rs 1,000, Rs 5,000 and Rs 10,000 notes.

Prime Minister Modi’s 8 November announcement had sucked out notes worth Rs 15.4 lakh crore from the economy. According to RBI estimates, as of 10 December, Rs 12.44 lakh crore has returned to the system or has been exchanged by people.

No data on deposits have been made available after 10 December.

For those depositing any unaccounted funds, the government has offered them a second chance to come clean through the Pradhan Mantri Garib Kalyan Yojana (PMGKY), which is open from 17 December 2016 to 31 March 2017. Under the scheme, along with the total 49.9% of tax, penalty and surcharge, the declarant will have to deposit 25% of the undisclosed income in an interest-free deposit scheme for four years.

Business Standard New Delhi,29th December 2016

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