The dearth of ₹2,000 notes is acute in many locations in the North and the South | Photo Credit: Channi Anand

The ₹2,000 note seems to be the key tool for unaccounted income and assets.

According to the latest Income Tax data, little less than half of the unaccounted cash seized during this fiscal was in the denomination of the maximum value. It was more than 60 per cent during the last two fiscals.

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As on March 31, 2019, 3,291 million pieces of ₹2,000 currency note was in circulation with a value of ₹6,582 billion.

In terms of volume this currency note has a share of mere 3 per cent, but in terms of value, its share is 31.2 per cent.

In a written reply to Rajya Sabha on Tuesday, Finance Minister Nirmala Sitharaman said an analysis of the search cases involving cash seizures of more than ₹5 crore revealed that the percentage of unaccounted cash seized in the denomination of ₹2,000, out of the total cash seized is 67.91 per cent, 65.93 per cent and 43.22 per cent in Financial Years 2017-18, 2018-19 and 2019-20 (till date), respectively.

However, the government said a declining trend is visible in the seizure of unaccounted cash in ₹2,000 notes.

₹2,000 notes were introduced on November 8, 2016, the day on which currency notes in the denomination of ₹500 and ₹1,000 were taken out from the system.

Even at that time many of the experts and economists criticised the move of bringing ₹2,000 note, but the government said this was required for bigger transactions.

The call for demonetising ₹2,000 note became louder when, on the third anniversary of demonetisation earlier this month, Former Economic Affairs Secretary SC Garg expressed his opinion on this issue.

“A good chunk of ₹2,000 notes are actually not in circulation, having been hoarded. Therefore, ₹2,000 note, is not presently working as a currency of transaction,” he said, calling for its ‘demonetisation’ or withdrawal from circulation.

“It can be demonetised, without causing any disruption. A simple method, depositing these notes in the bank accounts (no counter replacement), can be used to manage the process,” he said.

Meanwhile, supply of new ₹2,000 notes are declining. The government has already indicated that considering the hoarding, supply will be restricted. This has fuelled the speculation that ₹2,000 notes are soon going to be demonetised, however, the government has repeatedly denied this.

The government brought changes in the Income Tax Act 1961 to take action against the unaccounted cash transactions and undisclosed cash holdings. One such recent amendment prescribes that every person, carrying on business, shall, provide facility for accepting payment through the prescribed electronic modes, in addition to the facility for other electronic modes, of payment, if any, being provided by such person, if his total sales, turnover or gross receipts in business exceeds ₹50 crore.

Similarly there will be TDS at the rate of 2 per cent on the amount of cash withdrawal in excess of ₹1 crore from a bank account subject to certain exemptions. The existing threshold of cash payment has been reduced from ₹20,000 to ₹10,000 in a single day. The limit of cash donation to charitable organisation has been reduced to ₹2,000 from ₹10,000.