New Delhi, Dec. 30: The Centre today announced that coins below 50 paise will cease to be legal tender from June 30, 2011.
From this date, these coins (denomination of 25 paise and below) shall cease to be a legal tender for payment as well as on account, the finance ministry said, adding that the minimum denomination coin acceptable for transaction will be 50 paise from July.
To make matters simple, entries in account books for pricing products, services and taxes will be rounded off to 50 paise or a rupee from July.
This is being done because inflation has made small change meaningless. Besides, ferritic stainless steel used in making small coins is worth more than its marked value.
People in the big cities hardly use coins below Rs 1. However, 50 paise, 25 paise and occasionally 10 paise are still in use in small towns and villages.
From 1988, 10, 25 and 50 paise coins made of stainless steel were brought in, while Re 1 coins were introduced in 1992.
At present, stainless steel costs more than Rs 3,000 a tonne, which has made even Rs 1 and Rs 5 coins vulnerable to being melted down for profit.
Officials said the shortage in coins was mainly because smaller denominations were being melted down to make razor blades.
These blades are sold in small villages as well as smuggled out for sale in neighbouring countries such as Bangladesh, Myanmar and Nepal, they said.
Apparently, a Rs 5 coin can be melted to yield six blades, which are sold at Rs 2.50 each.
Police raids in 2009 and 2010 had revealed several such shops in Calcutta engaged in smuggling and sale.
Earlier this year, the government had decided to change the metal composition of the coins.
The cupro-nickel content in the new series of Rs 5 coins was increased and stainless steel content reduced.
According to officials, this has worked and the new series of Rs 5 and Rs 10 coins, which have a dull brass inset ring, are not being melted down.
Most of the older 1-20 paise aluminium-magnesium coins are either not accepted in most parts of the country, or have been melted down to be sold as aluminium scrap following a rise in the price of the metal.
S.Sen, a practicing chartered accountant, said, The rule to round off all prices and taxes to the nearest 50 paise or rupee makes good sense. With inflation, it was meaningless to round it off to any figure below that. This should help firms.