system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: Why are the ₹500 and ₹1000 notes being destroyed in India?
gpt
The main stated reason is to target "black" or untaxed money.

What the government is really going after is the hard cash that circulates off the books. By making the current 500 and 1000 rupee denominations illegal tender, anybody who has large sums of money stored in these currencies will have to go to the bank with their PAN card as well as their national ID card, otherwise their money is worthless.

This lets the government record how much money is being exchanged by an individual, and also lets them look at that money with regards to their tax payments and income returns. 

If they find a discrepancy, say, a person makes 100,000 a year, but comes to exchange 300,000 worth of money with no explanation as to where that income has come from, odds are it's not legal, because no Income Tax has been paid on that. It's an extreme example, but it's just to illustrate a point.

At the same time, the government plans to roll out new denominations of 500 and 2000, ~~which are supposed to have more effective tracking technology in order to know exactly where the money is going. These new notes are supposed to have chips in them that can be found by satellites. If they find a large number of these notes accumulating in one place, it's probably being laundered or kept off the books, which would help the IRS and police raid any black money sites.~~

Edit : The bit about the chips is really an unfounded rumor. Sorry about putting that in there. One thing that's for sure is the Reserve Bank of India will be issuing new redesigned notes, which they will be able to keep track of based on the number they've printed and the serials.