Keshav chabbra

Probable Reasons as to why the new Rs. 2,000 notes are being issued and actions already being taken before demonetization:

Great move by Sir Narendra Modi for Demonetization of Old High Denomination Notes and I would support the Notification for a very big and bold move to reduce Black money and Corruption.

I would like to explain why Rs 2,000 notes been issued in place of Rs 1,000 notes.

Let us simply take 2 Scenarios to understand this!

Scenario A: If  Rs. 2000 Note are not issued but only New Rs. 1000 Notes are issued.

Let’s say, for example Mr. X has Rs. 1,00,000/- black money in 100 Old Notes of Rs. 1000 each.

Mr. X divides that 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of accounts submitted to Income Tax Department, he will show that he has deposited the same 10 New Notes which was withdrawn on Day 1 : Evening (which is actually still lying in the Locker of House)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 week as there is a limit 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 depositing the same on next day and so on.

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:  Now if New Rs. 2000 Rupee Note instead of Rs. 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 redeposit 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 Stroke by Mr. Narendra Modi, the beloved Prime Minister of our country ?!

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.

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.

Now, what actions which were already taken in progress before demonetization of Old High Denomination notes:

PM Modi had a full blue print for the development of our country right from Day 1 of his being elected.

Firstly they asked for all the bank account number in your Return of Income

Then they linked your PAN with Aadhar

They linked all the subsidies, pension and other benefits directly to your bank account through Direct Benefit Transfer Scheme.

Then they gave opportunity to all the common men to open an account with bank through Jan Dhan Yojna

They entered into revised treaty with most of the countries in which unaccounted money goes through HAWALA e.g. Mauritius and thus the route of Black Money coming from Mauritius which everyone knew is stopped.

They passed few strict laws to overcome the evil of black money such as Benami Transaction Act and Foreign Black Money Act

They levied Excise duty on Gold.

They also made TCS compulsory for Cash transactions above 2 lakhs.

They withdrew lakhs of pending income tax and service tax litigations where Common men had won at Appeal level and Department had gone further.

They also entered into information exchange agreement with such countries.

Then they gave last opportunity to all black money hoarders through Income Declaration Scheme, 2016

Now they have a Scheme for Dispute Resolution Panel again to reduce Litigation till December 2016.

They also given an option to Black money evaders to declare there unaccounted income in Income Declaration Scheme.

Now the masterstroke, that they have banned Rs. 500 &  Rs. 1000 denominations.

Not only the destination of this whole process is commendable but even the journey or the chronology of these events is interesting which explains the ultimate destination and who knows , may be the journey is still not over \


So with the above explanation, it has already been cleared that this notification has been issued to eradicate black money from the economy. No doubt, with one single decision this will result in fighting against corruption, terrorism and enhancing digital payment (part of PM Modi vision of Digital India).

Please share the same on your WhatsApp and Facebook profile so that the nation could know the rationale behind the issuance of new notes.


Hope this article helped you.

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18 responses to “Probable Reasons as to why new Rs. 2,000 notes are being issued”

  1. Rohit says:

    Dear Keshav sir u explained why 1000rs note was not printed, but they could have printed 1000rs note with some changes as they did with 500rs note.

  2. Ahmad says:

    Peak Theory would of above for medical shop, Dispensary,Hospital Petrol pump owner are benefits gets using the peak theory, every day if any one can sales @ 50000 or whichever it may be he was not received as income during the day each not Rs 500 or a 1000. if he received whole day income money rs rs 50000 he shows that he had received only 500 or a 1000 Rs notes but he told the customer to give him 2000 new notes as but he deposit next day black money notes 50000 which was received on the last day & deposited in the bank . Now he withdraws new notes of 2000 notes X 12 Nos =24000 which he kept safe locker. Next day he also again do that & so & So on for till 30th December he deposited his black money in the banks which he should called white.
    & his daily income came in 1000 notes or a 500 notes & he also showing his daily payment transaction not in cash. aswell as his employee salary al other daily expense etc.During period till to December such type of his black money deposited in the bank by showing his income as every notes of Rs 500 & 1000 notes & he showing that he receives by cash transaction in only Rs 500 & 1000 only from old notes If he received assume 100000 Lacs every day income & 30 days income 300000. Also he is not made any cash payment on behalf of purchasing on Credit basis after it when the currency available that he will have no issue and he is ready for to pay tax . It;s my Opinion

  3. k kalyanaraman says:

    Black income in future would be stashed away more conviniently in Rs 2000 notes.But this one time effort should have good effect for quite some time.RBI shoud have issued Rs25 ,Rs250 ,Rs500(new series to be issued only thro ATMS)notes.RBI has mismanaged the issue.

  4. Ganeshram says:

    Mr Hema sudhakar Greetings
    I would like to emphasise that We the Middle Class is the Roor cause for curroption.
    We slog for others and dont manage our personal lives.
    So we dont want to take leave from office , take few hours permission, go to the Govt Office to get our work done by bribing the officials.
    We dont have the patience to get our things done without giving bribes.There are various mechanism , where you can report about the corrupt govt officials , we dont do so.
    There is no reason to say middle class people are the sufferres.
    In one way you are right, we middle class have the Biggest EGO so you dont want to stand in the q and so dont cast your vote.
    If you had cast your vote to the right candidate in spite of the fact he may not win, you have done your Democratic Right of voting.
    Since you dont go, your vote is cast to these unscrupulous politicians, who rule us.
    If Only All we Middle class Exercise our Franchise , we will bre better off.
    Iam not just preaching, but never miss an opportunity to cast my vote .
    So let all of us-Middle Class people exercise our franchise and select Good Law Makers.
    Please Excuse me if Iam blunt.
    Pl ponder over

  5. ksnnsn says:

    I conclude the above as ””the indian economy will be go to docks before the end of Modi regime.

  6. Rakshit M Shah says:

    Dear Sir, the article was very informative. Thank you for writing a good article. Kindly let me know Is there any need of closing the cash account on 08.11.2016 & starting a new cash account from 09.11.2016 stating “cash a/c – new tender”. Kindly explain.

    Rakshit M Shah

  7. Bankim Master says:

    (Hope this suggestion reaches the authorities concerned) Government should decide and declare that all new currency notes of denomination of Rs 500 & Rs 2,000 will cease to be legal tender with effect from a future date, say 31.03.2019 or 2020 and notes in hand thereafter will not be replaced or exchanged but could only be deposited in a bank account before say 05.04.2019 or 2020. This will ensure nobody will hoard the new notes (dishonest & corrupt will find it difficult to hoard smaller denomination notes), common people will not be inconvenienced (due to knowledge in advance) and it will reduce the tendency & habit of cash transactions. The cost of replacement currency will far outweigh the benefits to the country and its economy. (This view was expressed by me in response to another article which appeared in taxguru two days ago but nobody responded or reacted to it….perhaps not found comment-worthy…but am still reproducing the same here. Thanks.)

  8. Shailendra K. Agarwal says:

    Will the graph of corruption be down or up due to new currency note of Rs. 500/- and 2000/-. I don’t thick so spreading corruption will root out from grass root level immediately. Was it not possible if new notes could have phased out step by step instead of one jerk. Let us not forget that some time back change of currency notes movement was held calm and quietly. There was no hue and cry seen. Hon’ble PM’s new move is praiseworthy, but practically unrealistic. The present situation is not less than as “Financial Cries/Emergency” considering unavailability of new notes in public at large. All ins and outs should have been taken into consideration by the Central Government before issuing new notes. What do you say about it?

  9. Chandra Mohan says:

    I don’t understand hoe this move aga8nst corruption and recovering black money. With this move the entire black money is sanitized (no value) and not a single rupee coming to our economy that will benefit to loyal tax payers. And the other main point is all criminals or corrupt officers/MPs/MLAs moving freely in society. It’s just their stocked money has no value will turn into ash. After settling and with new 2000 notes the corruption standards will increase more to cover loss with this demonetization.

  10. SASTHAMANI says:

    Wonderful. Your analysis clearly shows what a great devotee of Mr N Modi, you are. You almost guards him as a mother would. In the process you have forgotten ( or did not know) the exact procedure Banks are following to record receipt of now defunct 500 & 1000 Re notes. You are also projecting out IT Deptt as ” the stupid Police Commissioner, played by Late Iftekar in a late sashi kapoor film”.

  11. Ashutosh Aggarwal says:

    I beg to differ. If Mr. x deposit first lot to 10 notes of old Rs 1000 note and withdraw new note same evening. If Mr. X will deposit next lot of 10 Old Rs 1,000 note, that will be recorded by bank and will be clear that those are not the note withdrawal by him, and will be clear that it is out of the money he had earlier. Can you please clearify

  12. nikhil says:

    Peak Theory would not a justifiable answer to AO for deposits 10k for this period of Nov-Dec2016 in India as everybody knows what those transactions were actually related to and also a maximum of around 1.5lakhs could be converted in that manner which is very nominal. (compared to croces of blackmoney our there)
    In my opinion, 2000 notes are printed in less quantity compared to new 500 notes and additional 100 notes. It would be with intention to not affect the business sectors which are completely cash based like agricultural sector and related rural based business, as it would take time for farmers and illiterates to absorb this big CHANGE.


    Explanation is very informative and supporting the reason

  14. Rajesh Chaturvedi says:

    Excellent explanation. It needs to be circulated widely.

  15. Abhishek chauhan says:

    Superb analysis…

  16. T Hema Sudhakar says:

    Yes, the probable reasons why 1000 new notes are not issued immediately is convensing and the article is informative. The only drawback in the total program in curtailing the black money is hardships faced by the the middle class people.

  17. Shubham Bhardwaj says:

    Really very Informative

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