What Demonetization Means for the Salaried?

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Wishfin understands the buzz around the most asked question, What demonetization means for the salaried? Clamping down heavily on the black money, the Prime Minister Narendra Modi on Nov 8 announced the demonetization of Rs. 500 and Rs. 1,000 notes. The government, in a harder stance, has imposed a tax levy and penalty on deposits above Rs. 2.5 lacs if found unaccounted in the investigation. Though the move is expected to bring in radical economic changes if experts are to be believed, but not everyone is aware of its tangible benefits. So, if you are salaried and want to know how much the move will impact your life cycle, you can glance through the article to understand the same.

Read Here : 26 Things to know about RBI's new directives of scraping Rs500 and Rs 1000 currency notes

Tax Exemption Limit to Rise

As a salaried, you would want a relief from the tax burden, right. So, demonetization is here to let you achieve it in the true sense. The Finance Minister Arun Jaitley recently said that people, who have stashed illegal money abroad, will now have to bring in those to the banks, which will result in the collection of both direct and indirect taxes for the government to pass on the benefits to the end consumers. With the surge in tax collection, it is very well expected that the government could increase the tax exemption limit to Rs. 4-5 lakhs from the existing 2.5 lakhs. Suppose your annual income is Rs. 8 lakhs. Let's see below the tax implication of both current and expected scenarios.

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Tax Implication

On Current Tax Exemption Limit of Rs. 2.5 LakhsOn Expected Tax Exemption Limit of Rs. 5 Lakhs
Upto Rs. 2.5 Lakhs- NIL

10% of next 2.5 Lakhs-25,000

20% of next 3 Lakhs- 60,000

Tax payable-85,000
Upto Rs 5 Lakhs- NIL

20% of Rs. 3 Lakhs-60,000

Tax payable- Rs. 60,000

Net tax saving= Rs. 85,000-60,000= Rs. 25,000

So, you are expected to save a tax of upto Rs. 25,000 if the tax exemption limit grows to Rs. 5 lakhs.

Purchasing Power of the salaried to get a Lift

The inflation will come down as a result of the crackdown on the black money. If the illegal wealth makes their way out of the system, the money supply will reduce to a great extent, thereby bringing down the inflation. With the lowering of essential food items and other products, your affordability index for those will go up.

Home Ownership to Grow

Real estate sector has started grabbing most of the public eye ever since the news of demonetization broke up.The reason being most of the black money are prevailing in the real estate space due to the extensive use of cash component in the transactions. With the cleaning up of black money, the land prices are expected to fall rapidly and thus bringing down the home prices. With the fall in prices, your dream home will no longer be a dream. When you will have the key to your dream home, then you will be able to tell exactly what demonetization means for the salaried class.

Real Estate Employees-Be Ready to Face the Music

While the move has significant benefits up the sleeve for the home seekers, it is terrible for the real estate industry that largely revolves around the cash economy. The anti-black money drive will suck out the cash component from real estate developers and bring it into the hands of banks. With cash being drained out of real estate space, the industry players could feel the liquidity crunch and may end up firing their employees. So, if you are working in a real estate firm, get yourself ready for the torrid times ahead.

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Employees of High-End Segment to Feel the Heat

The demonetization of currency notes will also impact the workers of high-end consumer segment like luxury cars, high-end mobile phones, SUVs, etc. The short-term disruption in business and erosion of wealth are expected to dent the balance sheet of companies existing in the industry space. When things go awry for a company, it's invariably the employees who bear the brunt by losing their jobs.

 

So, there can be some with smiles on their face and few to ponder about their future in the wake of demonetization of Rs. 500 and Rs. 1,000 notes. There are a lot of further announcements in the cards but if we have to summarize what demonetization means then we can easily say that achche din is not a distant reality anymore !