As the Indian government announced the cancellation of Rs.500 and Rs.1,000 bank notes, we can’t use those old paper money any more. It means that we can only use NEW 500-rupee note, instead of old one.

Since tourists don’t have enough information and knowledge about local money, we tend to get involved in trouble and get scammed. Already some cases of trouble have been reported when tourists exchange their currency for Rupee at the ‘AIRPORT’. Therefore the Embassy is arousing attention to trouble prevention.

After changing money, we must check bank notes more more carefully than usual.

Indian government decided to cancel the High Denomination bank notes of Rs.500 and Rs.1000, in order to crackdown on corruption and illegal cash holdings. The government expect further effects like moving move towards a cashless economy.
There are no over the counter exchange of old Rs 500 and Rs 1000 notes, as well.

Details:

I quote the resources below from the homepage of The Ministry of Finance, Government of India.
✔Cancellation of the legal tender character of the High Denomination bank notes of Rs.500 and Rs.1000 denominations issued by RBI
✔Check the new notes (Rs.500) 
✔The is is the first time Indian government released Rs.2000 notes. Check the new notes (Rs.2000)