Hawala works by transferring money without actually moving it. In a hawala transaction , no physical movement of cash is there. Hawala system works with a network of operators called Hawaldars or Hawala Dealers. A person willing to transfer money, contacts a Hawala operator at the source location. The hawala operator at that end collects the money from that person who wishes to make a transfer. He then calls upon his counterpart or the other Hawala operator at the destination place/country was the transfer has to be made. Now the hawala operator at the tranferee’s end, hands over the cash to the intended recipient after deducting a certain amount of commission.
Such illegal dealers who hoard millions in cash will be greatly affected by this decision, as they are left with limited options to convert the old currency with new ones. There are hardly any options available for people with unaccounted cash to siphon off these currency notes as the government will impose penalties at 200% after tax which account for almost 98% of the total value of the currency notes found to be illegitimate income.
The Income tax department is also conducting raids throughout the country to nab such hawala dealers. . .