After Prime Minister Narendra Modi’s unprecedented demonetisation move aimed at black money hoarders, people are yet to regain balance in their lives. While on the one hand, the Internet is flooded with people taking selfies with Rs 2,000 notes, on the other the long queues in front of ATMs and banks are just getting longer. While many praised the PM’s tactful move, others, including the Delhi CM Arvind Kejriwal, were quick to oppose it.
The main question they had raised was: If the move was to curb hoarding of black money, then why has the PM started the circulation of Rs 2,ooo. While the PM is yet to directly address the politicians’ question, a Gujarat-based CA has volunteered to help them understand ‘How Rs 2000 note will curb black money?’. In an open letter with the same title, Mehul Shah from Surat has written to Kejriwal explaining the PM’s move, step-by-step.
He used two scenarios in the beginning on his letter to clearly lay things out for them.
Edited excerpts from his letter:
“Sir, let us Simply take 2 Scenarios to understand the funda !
Scenario A : If as per your suggestion , Rs. 2000 Note are not issued but only New Rs. 1000 Notes are issued.
Lets say , for example Mr. X has Rs. 1,00,000/- black money in 100 Old Notes of Rs. 1000 each.
Mr. X divides those Rs. 1,00,000/- into 10 Equal Bundles, each comprising of 10 Old Notes of Rs. 1000 each and puts each Stack on a Table.
On Day 1 , in the morning Mr. X would deposit the first Bundle i.e. 10 Old Notes of Rs. 1000 valued at Rs. 10,000 into the bank and on same Day 1 in the Evening he would withdraw 10 New Notes of Rs. 1000 again valued at Rs. 10,000 and put it in the Locker in his house.
Now the real Game starts.
On Day 2 : Morning , Mr. X would deposit the second bundle of 10 Old Notes of Rs. 1000 valued at Rs. 10,000 kept on the Table. However in his books of accounts submitted to Income Tax Department, he will show that he has deposited the same 10 New Notes which was withdrawn on Day 1 : Evening ( which is actually still lying in the Locker of House )On Day 2 : Evening , Mr. X would again withdraw 10 New Notes of Rs. 1000 valued at Rs. 10,000/- and keep the same in Locker . So at the end of Day 2, Mr. X has Rs. 80,000 on Table in Old Notes and Rs. 20,000/- in New Notes in Locker.
Now Day 3 will come in next weekaslimit of Rs. 20000 per week
The same exercise shall continue till Day 10 and by the end of Day 10, Mr. X shall have no Old Notes and Rs. 1,00,000 in 100 New 1000 Rupee Note in the Locker.
However, to the Income Tax Department, Mr. X has shown that he was having only Rs. 10,000/- as black money initially ( i.e. one bundle of 10 Notes of Rs. 1000 ) and he has rotated the same Rs. 10,000/- by depositing it into Bank account in the morning and withdrawing it in the evening and again redepositing the same on next day and so on.
WATCH VIDEO: India Queues Up Outside ATMs
Thus, Mr. X has paid tax only on initial Rs. 10,000 whereas he has managed to convert all his Black money of Rs. 1,00,000 into new Notes.
This Modus operandi is called Peak theory i.e. theory of rotation of same money which is accepted by most of the High Courts and Tribunals. Revenue is also helpless to catch Mr. X because the above scenario can also occur in genuine cases where you withdraw money from bank to purchase something and then when you think that no good deal is available, you may again deposit the same money into your bank account and are not required to pay tax again.
Scenario B : Watch what happens when PM issues New 2000 Rupee Note instead of 1000….!
Mr. X deposits first bundle of 10 Old Notes lying on Table in the Bank on Day 1 : Morning and then he withdraws 5 New Notes of Rs. 2000 on Day 1: Evening and keeps it in locker.
Now on Day 2 : Morning when he goes to deposit second bundle of 10 Old Notes of Rs. 1000 each and wrongly shows the Income Tax Department that he has redeposited the same money which was withdrawn on Day 1:Evening – Bingo !!!
He is caught red handed !! because the Bank slip on Day 2 submitted to bank shows deposition of 10 Notes of Rs. 1000 each whereas the Govt knows that Mr. X could never have withdrawn on Day 1 any note of Rs. 1000 because they were never Printed !!!!
Now Isn’t it really a Master StrokebyMr. Narendra Modi, the beloved Prime Minister of our country ?!
Sir, you have stated in the Video that if Someone gives you the logic of issuing New notes of Rs. 2000 instead of Rs. 1000, you will Salute the PM and support him in his endeavour. I hope this explanations finds you in good health and I am waiting for the support in full sense.
Even if the above explanation is not completely true, we should rely on and respect the PM of our country who is elected through clear democratic majority.
Further, the fact that when someone is holding the new Rs. 2000 Rupee Note , he is phychologicaly getting a sense of freshness that the country is in the growth phase. Messages are being circulated not to write anything on New Notes. Imagine if the Govternment would have never issued new higher denominations notes with inflation and growth we would still be dealing with Annas and Pavlis!!
Sir, the above example also gives you an explanation as to why the withdrawal limit is kept so low because the above modus operandi can still be done with Rs. 500 note however, the incentive would be less because Mr. X cannot withdraw more than Rs. 10000/- in a day and even if he withdraws Rs. 10,000/-, there is every possibility that Banks shall give Mr. X, 2000 Rupee note. So Mr. X cannot follow the above modus operandi.
And believe me Sir, each and every condition in the Notification is seen to take care of the problems likely to be faced by Citizens and at the same time making sure that such Sophisticated theories are not resorted to by Black money hoarders, but questioning everything in the name of Freedom of Expression may create Panic situations or bring out Loopholes and hamper the success of reforms.”
You can read his entire letter here.
You can also access the letter on Twitter, where a user has posted pictures of the blog post.
— 1000 Rupees note (@Vyomnaut) November 13, 2016
In a (rather hilarious) post script to his letter, he has asked Kejriwal to explain this to Rahul Gandhi as well, who seemed to have raised the same question, after the big announcement.
In case you missed it, these were the CM’s doubts about demonetisation that Shah addressed.
Do you think Shah will get his point across with his letter? Let us know in the comments section below.