Curtains on cash exchange - Rs 1000 notes can only be used to make deposits; speculation swirls around punitive tax

TT, Nov. 24: The Centre tonight stopped over-the-counter exchange of old notes and barred Rs 1,000 notes from cash transactions in exempt categories amid suggestions that a punitive tax on misreported income might be lowered.

The punitive tax had been fixed at 200 per cent over and above the maximum marginal rate of tax with an effective rate of 90 per cent. But after the Union cabinet met tonight, speculation swirled that the effective tax on misreported income could be cut to between 45 per cent and 60 per cent.

The government made no official announcement on any change in the punitive tax as Parliament is in session and such decisions will first have to be shared with the House.

Some depositors have been claiming that cash deposits above Rs 2.5 lakh - which could attract the punitive tax -were earnings for the financial year 2016-2017 on which they were paying advance tax of 30 per cent.

The old Rs 1,000 notes can only be deposited with banks but the invalid Rs 500 note can be used in exempt sectors till December 15.

The ministry's statement was silent on increasing the weekly withdrawal limit of Rs 24,000 from savings bank accounts by individuals. The RBI had earlier said the limit would be up for review on November 24.