What is the impact of demonetization in relation to tax collection?

The correct answer is Option (1) → Rise in income tax collection because of increased disclosure

Option (1) Rise in income tax collection because of increased disclosure — Correct. After demonetisation, people had to show hidden cash and income. This increased disclosure brought more income under tax, so income tax collection rose.

Option (2) Rise in income tax collection because of higher tax rates — Incorrect. Demonetisation withdrew old high-value notes. It did not raise tax rates. The rise came from more income being disclosed.

Option (3) Rise in income tax collection because of higher interest earned on bank deposits — Incorrect. Bank deposits did increase, but interest on deposits is not the reason given for the rise in tax. The rise came from disclosure.

Option (4) Decline in income tax collection because of the fall in private wealth — Incorrect. Tax collection rose; it did not decline. The fall in private wealth is a separate impact of demonetisation.