<h5>What is income tax and who has to pay it?</h5>  <p>Every person who makes more money than a certain amount has to pay tax in India. Tax is the money that people have to pay for public services such as the usage of roads, public transport, etc. Non-payment of taxes is a punishable offence.</p>
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One of the many types of taxes is income tax. Income tax is the amount of tax a person pays depending on how much money they earn. Demonetisation is a process that the government uses to check whether people have paid the correct amount of income tax. 
</p> <h5>What happens during a demonetisation?</h5>  <p>When demonetisation happens, the government invalidates the currency of certain or all denominations. Denominations that are demonetised have no value and cannot be used to purchase goods or services. </p>
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<p>To use this money again, people have to exchange old demonetised money with new money of the same value. The government keeps a track of how much money a person is exchanging. This helps the government to identify people who are exchanging more money than the money on which they have paid income tax. The government may ask such people questions on why they did not pay the correct amount of income tax.</p>
<p>For example, a person earns Rs. 100 in one year. They are supposed to give 10% of their earnings as income tax. This means they have to pay Rs. 10 to the government. Once demonetisation happens, this person gets Rs. 500 exchanged. This means that person should have paid 10% of Rs. 500 i.e., Rs. 50 as income tax rather than Rs. 10. 
</p> <h5>When have demonetisations taken place in India?</h5>  <p>Demonetisation has happened twice in the past - in 1946 and 1978. During both times, only high denominations of currency were demonetised, so only a small number of people were affected. </p>
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On 8 November 2016, Narendra Modi, Prime Minister of India, announced that the currency notes of Rs. 500 and Rs. 1,000 would be demonetised from midnight. People could exchange these notes with new notes of Rs. 500 and Rs. 2,000. Further, people who had money on which tax had not been paid would be fined 200% of the tax which would have to be paid on this money. The objective of the demonetisation was to curb tax evasion. 
</p> <h5>What was the impact of the recent demonetisation?</h5>  <p>People rushed to banks and post offices where currency notes could be exchanged. People often stood outside banks for hours waiting to exchange their old notes. Small businesses that are mainly reliant on cash were left without money and struggled to procure raw materials and make payments.</p>
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Since physical notes were unavailable due to excess demand, the demonetisation also led to a growth of electronic payment methods. A large number of people who did not pay income tax earlier also started paying income tax.
</p> <h5>What was the result of the recent demonetisation?</h5>  <p>In 2018, the RBI announced that 99.3% of the demonetised currency had been exchanged with new currency. This meant that only a tiny amount of money was not exchanged (on which income tax had not been paid). Many questioned whether the inconvenience caused to the people because of the demonetisation was even worth it.</p>
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Demonetisation is not a foolproof way of catching people who do not pay income tax. This is because demonetisation only affects the money people have with them physically. If people have purchased land, gold or any other asset using money on which income tax has not been paid, demonetisation will not be able to catch them.
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