President Pranab Mukherjee on Friday gave his assent for the promulgation of Ordinance that criminalises holding, transfer and receiving of the demonetised notes an offence.
The Ordinance -- Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 provides for a fine of Rs 10,000 or five times the cash held, whichever is higher, on holding of more than 10 banned 1,000 and 500 rupee notes.
A top government official said that the Ordinance was required to prevent continuation of the old currency as a medium of trade and commerce.
"We didn't want a parallel economy to be run on the banned currency notes," he said.
While NRIs have been given time till June 30 to deposit their old notes, any individual returning to India from abroad will have to make a declaration to customs authority at the airport about the number and denomination of the specified bank notes (SBNs) or junked currency he or she is carrying.
"The details of the declaration and statements that are required to be submitted along with the SBNs at the time of deposit in RBI Issue Offices will be separately announced by the RBI. Any false declaration will invite a fine of Rs 50,000 or five times the amount of the face value of the SBN tendered, whichever is higher," a Finance Ministry statement said.
The government had, while announcing demonetisation on November 8, given a 50-day window to exchange or deposit the old notes. That window ended on December 30. But a special window will be available for NRIs and special cases like armed forces personnel to deposit their holding at specified RBI branches even beyond December 30.
The fines on holding and transfer of specified bank notes (SBNs) will kick in after March 31 when the window for exigencies ends.
The Ordinance also provides for amending the Reserve Bank of India (RBI) Act, 1934 to provide legislative support for extinguishing the central bank and government's liability on the demonetised banknotes that are not returned.
"The main objectives of the Ordinance are to provide clarity and finality to the liability of the RBI and the Government of India for the specified bank notes (of 1,000 and 500); to provide an opportunity to those persons who were unable to deposit the SBNs within the time provided; and to declare holding, transferring or receiving SBNs as illegal, with provisions for penalty for contravention of any of the provisions of the Ordinance," it said.
Those keeping the junked notes for "study, research or numismatics" purposes would be exempt from penalty provided they hold not more than 25 number of such notes irrespective of the denomination.
The Finance Ministry in a statement said the Ordinance is intended towards preventing "any continued parallel transactions with the old notes of Rs 500 and Rs 1,000 denominations by unscrupulous element".
This decision follows a number of steps taken to eliminate the menace of unaccounted money in the economy including setting up of a Special Investigation Team (SIT), enacting a law regarding undisclosed foreign income and assets and amending tax treaties with tax havens.
Besides, the government has been encouraging the use of non-cash and digital payments and also amended the Benami Transactions Act.
"It is a move in line with the government's initiatives to curb unaccounted money in the system, money laundering and tax avoidance," the statement said.
As on December 30, 2016, a part of the Specified Bank Notes (SBN) have come back to the Reserve Bank of India and these are now a part of the formal financial system, increasing the deposit base of the banks and improving their ability to lend.
"The ecosystem of digital payments infrastructure is continually being improved and strengthened to make it easier for more people to adapt to this form of payment," it added.
With PTI Inputs