In November 2016, the Government of India announced that the old currency notes of Rs 500 and Rs 1000 would no longer be legal tender. New currency notes in the denomination of Rs 500 and Rs 2000 were launched. The step was taken to tackle the problem of corruption, black money, terrorism and circulation of fake currency in the economy. The public were advised to deposit their old notes in their bank accounts. In the short run, there were long queues outside banks and ATM booths, and the shortage of currency in circulation had an adverse impact on economic activities. Over time, more people came into the tax net, and households and firms began to shift from cash to electronic payments.
According to NCERT, what did the step described in the passage show about tax evasion?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → It will not be tolerated; it will bring financial penalty and social condemnation.
Demonetisation showed the State’s decision to curb black money. Tax evasion would no longer be tolerated.
Option (1) It will fall because people will now keep more of their savings in cash. — Incorrect. Savings moved out of cash into the formal financial system.
Option (2) It will be checked mainly by issuing new notes of Rs 2000, which are hard to forge. — Incorrect. New notes were launched, but the check on tax evasion came from penalty and condemnation, not from the notes.
Option (3) It will fall because banks will now have fewer resources to lend. — Incorrect. Banks got more resources, not fewer.
Option (4) It will not be tolerated; it will bring financial penalty and social condemnation. — Correct. Tax evasion now brings penalty and condemnation.
NCERT (2026-27): “Box No. 3.2: Demonetisation … The savings of an individual were channelised into the formal financial system. As a result, banks have more resources at their disposal which can be used to provide more loans at lower interest rates. It is a demonstration of State’s decision to put a curb on black money, showing that tax evasion will no longer be tolerated. Tax evasion will result in financial penalty and social condemnation. Tax compliance will improve and corruption will decrease. Demonetisation could also help tax administration in another way, by shifting transactions out of the cash economy into the formal payment system.” |