Black Money

In India, black money is one of the biggest corruption-related problems. It refers to unaccounted money held in the hands of individuals that have not paid taxes. The existence of a large amount of black money is one of India’s primary sources of corruption. Black money is made on the black market, on which earnings and other various taxes have not been paid. This money could be obtained in various ways, such as smuggling, tax evasion, shares, stocks, etc. This article provides a brief understanding of black money in India, stemming from how the tax is not paid in India.

Black Money

Black money is one of the major problems of our nation. When it comes to black money, it is termed as the amount of money that is earned through some illegal procedures. The individual earning black money has the priority to hide their source of income, and amount of income to prevent the legal taxes that will be imposed on the revenue. This black money affects the economy drastically, with the increase in the collection of black money, there will be an increased level of corruption.

One of the most widely used methods to hide black money is to deposit it overseas, ie., in foreign banks. The total revenue of black money in India that is assumed to be deposited in the Swiss Bank is approximately $1 Trillion. In the general case, instead of transferring the money to a foreign land, people keep their black money hidden in gold and silver jewellery, diamonds, gems, land, real estate, luxury cars, vehicles, buying shares, and depositing money in the name of relatives, etc.

Almost half of the government’s revenue goes toward the salaries of the government employees. And these salaries are continuously increasing. However, there is a major corruption behaviour among the government employees. There is leakage of government revenue from scams like Bofors, Spectrum, Commonwealth, etc. In such a situation, control of black money means that collecting more tax from the public should be spent on the luxuries of government employees.

Black money is undoubtedly harmful to the economy. This black money is earned through illegal activities, therefore it can be used only on the underground economic activities. This is the reason why this money is used in other countries. Tax is not paid by providing false information to the tax department. This reduces the government’s revenue and hinders a lot of governmental activities that were meant to be managed for the upbringing of the nation’s economy.

How is black money generated?

There are two ways to collect black money, and both of them are considered to be Illegal. They are:

The Illegal method: One of the majorly adopted methods in the collection of black money is the illegal method, where the money is captured, collected, or taken forcefully under several conditions. Several illegal activities are Smuggling, Poaching, Drugs, Illegal Mining, Counterfeiting, and Scams.

Hiding Income: One of the methods adopted by most highly paid individuals is to hide their income, providing false income information to the tax department to save tax, hiding the source of their incomes, etc.

How big is the black economy in India?

The accumulation of black money had been practised since very early days. The reports go back to the dates of 1983-84 when a huge amount of money was considered to be mishandled. The reports of NIPFP show that there was a total evaluation of ₹32,000 to ₹37,000 crores, which was attested to be the overall amount of black money. A similar survey report was conducted by Global Financial Integrity of the United States, which evaluated the amount of black money collected since the establishment of the government. Therefore, the reports show that an amount of $462 billion has been shipped out of the nation between the years 1948 and 2008.

How can black money be estimated?

One way to find this out is the input-output ratio. A particular quantity of goods is produced on a specific amount of input in a country. If the output is low, then the outcome is believed to be under-reporting. However, this method does not work when there is a change in the economy’s structure, increase in capacity, and technology up-gradation. Another way to find this out is by comparing currency circulation to the size of the economy.

The system is based on the belief that the currency is used in standard and parallel economies. A large currency circulation in a small economy means that there is also a parallel economy. But in such an estimate, the economy of the unorganised sector is not included in the regular economy.

The reason behind hiding black money

Black money is termed as the unbounded hard cash, that is kept hidden overseas, i.e., in any foreign bank, as well as this revenue is unregistered under the income tax department to avoid tax paid on a certain amount of money.

1. High tax rate: One of the major reasons for hiding the money is the tax implementation over the money. According to the tax law, the percentage of tax that will be imposed over the money, revenue, or salary will depend upon the overall sum. Therefore, the high amount of money is either unregistered or filed with false information to prevent the tax payment.

2. Price control policy: The government regulates the price of certain valuable items such as fertilisers, sugar, cement, etc. This policy is rigid and does not affect the volatility in the market. Private factories and dealers have benefited from this policy, resulting in the accumulation of black money.

3. Real estate transactions: Real estate is the field of business that has the major loopholes for collecting a tremendous amount of black money. There is a great deal of information mishandling during the transactions of several real estate budgets. This results in the accumulation of a large amount of black money through the real estate business.

Conclusion

Black money is one of the major problems of the nation. It plays the role of a parasite that eats up the nation from the inside. As the majority of the people involved in the collection of black money are government officials. Moreover, the term black money is used for that sum of money that is collected or accumulated through an illegal procedure. As the black money is an illegal revenue, it cannot be used in the open market instead of which it is used in the underground economy.

Black money affects the overall growth of the nation, as it acts as a barrier for numerous works that were supposed to be carried out with help of the money that is now deducted from the fund, in the form of illegal revenue. However, several policies and Acts are being implemented to prevent the adverse effect of black money on the nation.