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Comment by parennoob | Hacker News Reader

I agree, this is a good first move to get black money that is stored as cash out and taxed. Some forms that still remain are:

* Gold

* Money funneled into "agricultural income" (which is tax free)

* Large properties in metros that are bought and left empty (which raises rates sky-high for ordinary middle class people trying to buy a house there)

However, this move is brilliant in that it removes cash as an intermediary for these transactions, i.e. if a builder is demanding Rs. 50,00,000 for a house "above the table" + Rs. 30,00,000 cash (which he won't declare), then that extra 30,00,000 becomes useless as of 31 Dec.

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If one is buying gold then they need to pay tax for that amount. Because shopkeeper can't hide that money without tax. Shopkeepers knows this money is gonna be useless soon.

For large, low volume transactions foreign currency works just as well if it's a pretty common thing.

The extra becomes useless starting tonight.

No, that's a legal fiction. It becomes useless as soon as there's no way to extract value from a briefcase of Rs.500 and Rs.1000 notes. Tomorrow, someone can trade it in to the Bank of India in exchange for new notes, it's just that this someone needs a plausible reason for holding the money - they have to have paid taxes on enough income that they could theoretically have legal reasons to possess the money. This does not have to be the current owner turning the money in, it can be anyone the current owner pays a premium to in exchange for clean bills.

So tomorrow, the money will need to be laundered in order to help the owner. But a few months down the line, the Bank of India stops taking deposits, and the money becomes actually useless.

He can still pay tax and get away.

If he (and by extension thousands more) pay tax, then there's no "get away" involved – the transaction has been done fairly and the Govt. got the requisite amount of tax.

The point is, if he has been doing this for 10 years and has a massive stack of cash which he tries to deposit now, that is going to bring him to the attention of the Income Tax authorities.

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