According to Bbc.com Mr Jaitley said the move would flush out tax evaders, adding that all old notes deposited in banks would be subjected to tax laws.
The surprise move, announced on Tuesday evening, is part of a crackdown on corruption and illegal cash holdings.
The announcement was met with shock in India.
Media described the move variously as a "surgical strike" on tax evaders in the country's overwhelmingly cash-based economy and a "big bang note". The banknotes declared illegal tender represent 85% of cash in circulation in India.
Mr Jaitley said that the move would also help India move towards a cashless economy, saying that farmers could "now keep their money in banks".
He added that new 2,000 (about $30; £15) and 500 rupee denomination notes to replace those removed from circulation would be injected into the economy over the next "three to four weeks".
On Tuesday there were long queues at ATMs as people tried to withdraw 100 rupee notes, which are still legal.
Banks and ATM machines were shut on Wednesday.
The most affected are likely to be small traders, vendors and labourers but newspapers were quick to point out that India's wedding season, due to start in a few days, will also be hit hard.
"Black money and corruption are the biggest obstacles in eradicating poverty," Prime Minister Narendra Modi said in his address to the nation on Tuesday evening.
He said the move would "cause some hardship" but asked people to "ignore" it, calling the step a "celebration of honesty".
People will be able to exchange their old notes for new ones at banks over the next 50 days but they stopped being legal tender at midnight on Tuesday. There are also going to be limits on cash withdrawals from ATMs starting on Thursday.
The move is designed to lock out money that is unaccounted for - known as "black money" - which may have been acquired corruptly, or be being withheld from the tax authorities.
Finance Secretary Shaktikant Das warned people with large amounts of hidden cash that banks would closely monitor the exchange of old notes for new ones.