Given below are two statements: one is labelled as Assertion (A) and the other is labelled as Reason (R).
Assertion (A): Demonetisation is viewed as a tax administration measure.
Reason (R): After demonetisation, restrictions were placed on cash withdrawals from banks.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Both (A) and (R) are true but (R) is not the correct explanation of (A).
Assertion (A): Demonetisation is viewed as a tax administration measure. — True. Demonetisation brought out income that had been hidden from the tax authorities. So it is seen as a step in tax administration.
Reason (R): After demonetisation, restrictions were placed on cash withdrawals from banks. — True. People had to deposit the invalid notes in banks. This came with restrictions on cash withdrawals.
Why R does not explain A?
R is about how much cash people could take out of banks. A is about tax. A limit on withdrawals does not make anyone declare income or pay tax, so R does not bring about A.
The correct reason for A is this. People with declared income could deposit their cash and get new notes. But those with black money had to declare their unaccounted wealth and pay taxes at a penalty rate.
NCERT (2026-27 Edition): “Demonetisation: 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. This led to eighty six per cent of the money in circulation invalid. The people of India had to deposit the invalid currency in the banks which came along with the restrictions placed on cash withdrawals. In other words, restrictions were placed on the convertibility of domestic money and bank deposits. …” “Features 1. Demonetisation is viewed as a tax administration measure. Cash holdings arising from declared income was readily deposited in banks and exchanged for new notes. But those with black money had to declare their unaccounted wealth and pay taxes at a penalty rate.” |