New Delhi, Nov. 9: The Narendra Modi-government's decision to demonetise Rs 500 and Rs 1,000 currency notes will push the country towards a cashless economy, finance minister Arun Jaitley today said.

"This one decision will change the way the people spend and keep their money," said Jaitley.

Efforts have been made to push the cash-dependent economy towards paperless transactions. A draft paper had been published recommending sops and incentives for those opting for online and plastic payments. However, the move has remained nascent.

High-denomination bank notes account for 86 per cent of the Rs 1,64,000 crore of currency in circulation. With inflation raising prices, most people prefer notes of higher denomination.

The move will now force people to tap netbanking, e-commerce and plastic money for transactions.

"The whole idea is to move the society towards electronic transactions and away from cash... as this helps us to monitor money flow and check black money," said officials.

The officials said the move would also keep a check on the flow of fake notes, which has been haunting the financial markets for years.

The government and financial institutions could also build a credit history based on the electronic transactions to give consumers higher credit on easier terms.

Earlier in the day, Jaitley told a television channel that the deposits of the defunct currency notes in bank accounts would not enjoy immunity from tax and law would apply on the source of such money.

"If the money is legitimate, which had been previously withdrawn from the bank or earned legally and saved and had been disclosed, there is nothing to worry about."

Jaitley expects tax collections to rise in the medium term as also bank deposits.

"India cannot afford to live with black money any longer. Honesty, integrity and ethical conduct are requirements of India's development," the minister added.