What were the specified purposes for which the demonetized notes could still be used at the time of demonetisation?

Paying utility bills

The correct answer is option 2- Paying utility bills.

The Government of India, made an announcement on November 8, 2016 with profound implications for the Indian economy. The two largest denomination notes ₹500, ₹1,000, were ‘demonetised’ with immediate effect, ceasing to be legal tender except for a few specified purposes such as paying utility bills.