For decades, India has struggled with the issue of Black Money. The Income Disclosure Scheme has been announced roughly every ten to fifteen years. The most recent demonetization took place on November 8, 2016, preceded by a ban on INR 1000 notes in the 1970s. The problem of Black Money, on the other hand, is impossible to solve all at once, but it may be managed gradually.
The government recently announced in Parliament that during 2015, the government received INR 2,476 crore in tax and penalties under the one-time three-month compliance window.
- It's also been claimed that no official estimate of Black Money in overseas accounts existed during the previous five years.
- In the Panama and Paradise Paper Leaks, undeclared credits of INR 20,353 crore were discovered by about 930 India-linked organizations.
What is Black Money?
There is no formal definition of Black Money in economic theory. Words like the parallel economy, Black Money, black earnings, unaccounted economy, illegal economy, and an unstable economy are interchangeable. The most basic definition of Black Money is money hidden from tax officials. Black Money does not usually include forged notes or counterfeit money. Currency notes that have been printed unlawfully by unauthorized agents are known as counterfeit notes.
According to confidential research commissioned by the Finance Ministry in 2014, around 90% of undeclared wealth, or Black Money, is held within India rather than abroad.
What is the source of Black Money?
Any of the three methods listed below can be used to earn Black Money:
The illegal activities that can lead to Black Money generation are:
- Non-compliance with tax requirements
- Complex procedural regulations
- Money laundering
- Tax evasion: This occurs when a company refuses to pay taxes owed to the government.
- Tax avoidance: This is when a company uses the system's existing loopholes to avoid paying taxes. This is not, however, unlawful.
Effects of Black Money in India
Revenue Loss -
- Because Black Money consumes a portion of the tax, the government's deficit grows.
- The government will have to reduce the deficit by raising taxes, reducing subsidies, and borrowing more.
- Because of the interest expense, borrowing increases the government's debt. If the government cannot balance the budget, it will be forced to cut spending, which would harm development.
Money Circulation -
Black Money is commonly kept in gold, interest in land, and other illicit means. Because such money does not enter the broader economy, it is often unavailable for use. The rich continue to have access to dark money, which provides them with greater chances.
Rise in Inflation
Higher inflation results from the influx of illicit Black Money into the economy, affecting the poor. It also widens the gap between the wealthy and the poor.
The National Government Took Steps to Combat Black Money.
- Tax measures have been implemented to combat Black Money. The tax base has been expanded, while the rates have been reduced. Reforms are being implemented to include tax deductions at the source.
- Thanks to the Black Money Bill, the government has made it possible to disclose Black Money derived from tax evasion within a specific time limit.
- In 2016, the government implemented the demonetization of INR 500 and INR 1000 notes to render Black Money obsolete.
- To increase transparency, the government is supporting cashless/digital transactions.
FAQs on Black Money
Q.1. What are the institutions in India that deal with Black Money?
In India, the following institutions deal with Black Money:
- Enforcement Directorate (ED)
- Central Board of Direct Taxes (CBDT)
- Financial Intelligence Unit
- Central Board of Excise and Customs
- Directorate of Revenue Intelligence (DRI)
- National Investigation Agency (NIA)
- Central Economic Intelligence Bureau
- Central Bureau of Investigation (CBI)
- Police authorities
Q.2. How is the Hawala system associated with Black Money?
Criminals, businessmen, and nonresidents utilize the Hawala system to send money. The underworld, drugs/arms mafias, terrorists, and smugglers all rely on this system. Business people use it to move money in order to avoid paying taxes and illicitly having Black Money.
Q.3. What does the word Hundis mean, and how is it associated with Black Money in India?
A Hundi is a written unconditional command from one person to another to pay a certain amount of money to the person listed in the order. Hundis have no legal standing and are not covered by the Negotiable Instruments Act of 1881 since they are part of the voluntary system, so it is associated with Black Money in India.
Q.4. What are some international Cooperations set up to fight the problem of Black Money on a global stage?
Some international Cooperations set up to fight the problem of Black Money on a global stage are as follows -
- Double Taxation Avoidance Agreements (DTAAs)
- Foreign Account Tax Compliance Act of the USA
- Financial Action Task Force (FATF)