Question

State any three features of ‘Demonetisation’.

Hint:

Demonetisation makes people declare hidden wealth, warns against tax evasion and moves savings into banks.

Answer 1

Step 1: Meaning of demonetisation:
Demonetisation means the government declares old currency notes of certain values as no longer legal tender.
People have to deposit these notes in banks or exchange them for new notes. It was a major step by the government in the economic environment of business.

Step 2: Feature 1: A tax administration measure:
Demonetisation forces people to declare unaccounted wealth when they deposit old notes.
They must pay tax on it, often at a penalty rate. So it works as a way to bring hidden money into the tax net.

Step 3: Feature 2: A strong signal against tax evasion:
The step shows that the government will no longer accept or tolerate tax evasion.
People who hold black money are made to come out in the open, so it changes how citizens look at tax payment.

Step 4: Feature 3: Moves savings into the formal system:
Cash kept at home has to be deposited in banks. So savings flow into the formal financial system.
Banks then have more funds to lend, and the money can be tracked.

Step 5: Feature 4: Leads to a cash-lite economy:
When cash is less available, people use cheques, cards and digital payments more.
This creates a less-cash economy and improves tax compliance. Any three of these features are enough for full marks.

Final Answer:
The three features are: it is a tax administration measure, it signals that tax evasion will not be tolerated, and it moves savings into the formal financial system (a cash-lite economy is a fourth feature).