Currency withdrawal, TCS will revive uncertainty, not economy

On May 16, GoI announced it would impose a TCS (tax collected at source) of 20% on international credit and debit card transactions made by Indians on foreign travels from July 1, 2023. On May 19, RBI announced the ?2,000 note would be withdrawn but would remain legal tender. The consensus seems to be that both are non-events, will not impact many and will not cause real damage to the Indian economy. That may well prove correct. But the interpretation misses the wood for the trees. We need to take a step back and understand that both announcements are problematic.

First, it is not clear why either measure was necessary. The Rs 2,000 note was introduced during the demonetisation episode of 2016 partly as a means to rapidly remonetise the economy till currency notes of other denominations became available. As per RBI’s recent notification, these notes have served their purpose and are no longer commonly used for transactions.

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Views expressed above are the author’s own.


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