Demonetization and Business Accounting – How does it Tally?

Last updated on July 16th, 2017 at 10:49 pm


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On 8th Nov 2016, India’s Prime Minister announced demonetization of Rs 500 and Rs 1000 currency notes. This news came as a surprise to many of us! However, if you carefully think through the sequence of measures undertaken by the Government such as opening of bank accounts, linking with Aadhar numbers, introducing the tax amnesty program, announcing a warning for defaulters and so on, you will see a pattern that makes you believe this was well planned.

On the heels of the demonetization, on 20th Nov, the IT department announced that it would send notices to anybody who deposits more than Rs 2.5 lakhs into bank accounts.

Now, what does this mean for a business? It signals that the Government is very serious, and is willing to take bold measures to ensure compliance. It also means that the tax department is already using the power of IT to process large amounts of data from banks in order to identify individuals who deposited more than Rs 2.5 lakhs across different bank branches in a day. Most significantly, it signals the Government’s willingness to make IT the backbone to implement the law.

How has demonetization affected small businesses

Bhaskar is the owner of my neighbourhood kirana store in Malleshwaram, Bengaluru. His business mainly operates with cash. He does not maintain books of account. Home delivery orders come via phone and WhatsApp, for which payment happens after delivery. Some of his regular customers settle payments once a month. His accountant calculates his taxes on a yearly basis before paying tax.

On 10th Nov, Bhaskar visited his bank to deposit cash as usual, and he was surprised that he was asked to explain! In the absence of any accounting practice, this is suddenly a difficult situation since the cash amount was more than what he normally declares as his income.

What if Bhaskar had maintained a simple discipline of recording payments and receipts? His own books of account would then have been used by accountant to calculate taxes. It would have been easy for Bhaskar to explain his cash position using his books of accounts.

The easiest way for a business to remain compliant is to start recording payment and receipt transactions. By bringing such discipline into recording transactions, a business can track buyers, sellers, payables, receivables, payments, receipts, and also reconcile them with bank statements. When in doubt on whom to pay, isn’t it so much easier, if you know who else to pay, what is the order of priority, how much cash is in the bank, and how many payments are due in the next few days?

Uncertainties of changing business conditions will have lesser impact when you can quickly understand its consequence and take decisions reliably. The simplest way to start keeping books of account is to start using an accounting software. If your business is not yet automated, it is highly advisable to start using an accounting software as the first step. This will also help you be prepared and ready when GST rolls out in a few months.

Due to the ongoing currency crunch, many businesses have started accepting payments through plastic cards, online bank transfer and mobile wallets. What is impact of these e-payments on business? Is there a larger play which will impact the way businesses will evolve and stay compliant? Stay tuned for more!


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About the author

Santosh AR


  • Gud night sir;
    Sir i do not understand that when i withdraw from my bank account so just i receive that some amount is debited in your bank account
    But in Tally when withdraw some amount from cash or bank so then we see that some amount is credited from your bank or cash sir please reply soon
    Because i am very confused to take this case thanks all of you good night

  • Gud night sir;
    Sir i do not understand that when i withdraw from my bank account so just i receive that some amount is debitedbin your bank account
    But in Tally when withdraw some amount from cash or bank so then we see that some amount is credited from your bank or cash sir please reply soon
    Because i am very confused to take this case thanks all of you good night

  • Good morning sir
    Sir, i want to know that if i buy tally erp 9 software with single user so what wil be the validity of its tally er9 reply please.
    Thanx. Because i am a learning student of tally erp9 from cisl pbh up india

  • Demonetization is a very good initiative in the Indian economy are practical steps. from Demonetization corruption are stopped at a few time. and online payment is being spreadly very fast.

  • Reforming a small premises is not easy. One man our PM Modiji is Reforming the Country. Corruption is in our blood as tuned in past & we r used for it. God bless our PM to walk through with all criticism & same must be applicable to everyone may be politicians, beaurocrats, Officers, political parties and/or any one.

  • I wonder what government is thinking about the senior and super senior citizen. It is good for all of us because money is being accountable. What about social security. Some people keep cash for health care. Because employed one are looked by employers. Be is private or governments.

  • Our PM Mr. Narender Modi has good intentions but after a month has passed and the way some bankers wanted to fail this demonetization . General public is suffering,shopkeepers are loosing business and it is now becoming hard to cover the expenses I think Mr. Modi will get direct impact on his next elections.

  • Good step But for India to be cash less then social securties like free education to kids , free medical and pension to Income Tax payee after attaining 60 year age should be Given. If these steps strongly considered then everyone pay Tax and there is no need for a person to keep large amount of cash at home

  • It is Good step. If we pay Income Tax then Social securties like free education to kids . Free medical and pension to tax payee after attaining 60 year age. Then there is no need to a person to keep large amount of cash at Home.


  • Yes we support the demonetisation of ₹500/-&₹1000/-.only thing I request the release smaller denomination notes to the banks at the earliest so that retailers do their business which reduced to 10% to 20% due to shortage.

  • I strongly admire Modi govt. Now I want modiji to introduce Rs. 200/- Currency notes and reduce circulation of 2000/-. Also awaiting announcement of low rates of taxes passing the benefits to general public

  • We Indians only understand language of Last Day and Punishment. Therefore, We are far behind of other countries. if this step might have taken 20 years earlier then we have very Strong economy today. My Salam to Modi Ji. JAI HiND!!!!!!!!!

  • This Govt. step is very very good & Tally help the common people for maintain the sale, purchase & daily transaction. But need same simplify easy accounting software for service people to maintain his transaction for year ending tax saving.

  • The demonetization step is a well thought ,benefiting the future economy of the country,effecting a hard blow to traitors of the country dealing in black money.This will certainly benefit the country in years to come.The hardships for a few days will pay off in future.Let us hope for the best.

  • the flawed GST in india is sure to make small honest traders whose turn over is around a crore into desperate dishonest business class and will give them headaches.
    the proposed GST law is not dealer friendly at all. till now common businesses had to report quarterly and now they must report 6o times in a fiscal. it means that compliance is strict and continuous. the traders will have to embrace new technology and software which will cost money. then the technology is to be employed through trained professionals from IT background and the accounting through expert accountants and the lot lot of manual munshis will have to retire. they will become jobless suddenly as most of them cannot change to the new system. now let us understand the costing of a business owner whose turnover is 50 lacs and not to speak of 25 lacks or so whose business comes under mandatory threshold limit for getting registered. income tax allows a consolidated gross profit margin of 8%, it means he notionally earns Rs. 4 lacs as annual income over which he will have to pay income tax . now calculate his fixed expenditure like rent of his business premises, electricity charges, telephone and internet charges, a sales man or a helper and the fuel and travelling expenses, accountants wages, bank interest and other municipal taxes and so on. then please let me know how much money he will take home to spend for food, shelter, mobile phone of himself and his family, education expenses of his children, medical bills of ailing family members and so on. i have not deliberately included the expanses of going out, dine outs etc. in my humble opinion the flawed GST is likely to hit the vast majority of traders in this country and any genuine business man must become dishonest overnight by employing many wrong practices to survive and keep his body and soul together . we must rise to the occasion and tell those living in ivory towers ( bureaucrats and politicians ) enjoying at the expenses of the public exchequer to understand the real ground situation, failing which the scheme will kill many citizens like it is killing this time by the ill conceived and executed demonetization by the state. M

  • This will Secure the Future of India. This is Visionary Step for Your Better Future So Somebody is thinking about Our Future else no body.
    Bharat hamara desh hai. Hum sab bharatvasi bhai behen hain. Hamein apna desh pranon se bhi pyara hai. Iski samridhi aur vividh sanskriti par hamein garv hai. Hum iske suyogya adhikari banne ka prayatna sada karte rahenge. Hum apne mata-pita, shikshakon aur gurujanon ka aadar karenge aur sabke saath shishtta ka vyavahar karenge. Hum apne desh aur deshwasiyon ke prati vafadaar rehne ki pratigya karte hain. unke kalyan aur samridhi mein hi hamara sukh nihit hai. JAI HIND!

  • It’s a very good step taken by the govt, the situation of normal people suffering from last so many years. This is not only the govt responsibility, this is our normal people responsibility to have some patience and help to govt.

  • In beginning it is look like a good step but after see the market and normal people conditions not able to understand that this is right time right step without preparation ?

    Let’s see and hope for best outcome of this step.

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