Black money

Black money refers to funds earned on which income and other taxes have not been paid. This money is largely accumulated from:

1. Lower income declared by Businessman in Income tax returns.

2. Money of Politicians & Government official created from bribes and corruption. Dishonesty and corruption have become a normal way of life to set things done.

3. Commission obtained by Government official for arranging government deals and purchase. Foreign multinationals and cartels make heavy pay off to supply their weapons, technology and knowhow.

Government focuses more on undisclosed income of businessman rather than illegal money accumulated by Politician and Government official. In my opinion, issue regarding illegal money is more important. I am personally of the opinion that tax collection can go up dramatically, if corruption comes down to a substantial extent.

Some recent income tax raids would reveal that corrupt Government official have accumulated Black money beyond imagination. Examples of few are:

1. The Income Tax Department has recently raided in November 2014 the residence of Noida Authority's engineer-in-chief Yadav Singh and recovered over ` 10 crore in cash and jewellery worth ` 100 crore. In totality, unaccounted property of nearly ` 1,000 crore is found.

2. Income tax raid in Mumbai at Bhai Thakur's (Politician) office and home in August 2014. The biggest cash found in raid in India ` 13,500 crore.

Since, cash deposit of ` 10 lac or more in a bank in a financial year is covered by AIR (Annual Information Report) to be given by Bank to Income Tax Department. This is a self generated report submitted by Bank software.

Say, a person need to hide just a nominal amount of ` 5 crore, he need to open nearly 50 Bank Accounts. This is really difficult to manage. Thus, such monies are held largely in the form of:

1. Cash

2. Immoveable Property

3. Foreign Bank Account

The amount of domestic black money  is no less than that kept abroad. Real estate transactions involving Black money had led to big rise in price of property.

Proposals to prevent Indian black money

1. Lower taxes and simpler compliance process reduces black money. The tax havens include New Zealand which is ranked as the least corrupt country, Singapore ranked number five and Switzerland number seven. Tendency to evade tax creeps in when tax rates are high.

2. Banking Transaction Tax - Baba Ramdev also known as Yoga guru outlined his policy prescription that involves replacement of most direct and indirect levies with a banking transaction tax

3. De-monetisation of currency notes of ` 500 and ` 1,000 to help prevent Indian black money, and also lower corruption.

4. Modified Currency Notes - Government printing of such legal currency notes of highest denomination i.e.; ` 1,000 and ` 500 which remain in the market for only 2 years. After 2-year period is expired there should be a one year grace period during which these currency notes should be submitted and accepted only in bank accounts. Following this grace period the currency notes will be destroyed under the instructions of The Reserve Bank of India. As a consequence turning most of the unaccountable money into accountable and taxable money.

5. Amnesty - Amnesty programmes have been proposed to encourage voluntary disclosure by tax evaders. These voluntary schemes have been criticized on the grounds that they provide a premium on dishonesty.

Voluntary Disclosure of Income Scheme (VDIS)

Government of India, The Central Board of Direct Taxes launched on June 18, 1997 the Voluntary Disclosure of Income Scheme (VDIS) which provides income-tax defaulters an opportunity to disclose their income at the prevailing tax rates under the umbrella protection of immunity from major laws relating to economic offences.

Those opting for the VDIS would be granted immunity from prosecution under Foreign Exchange Regulation Act, Income Tax Act, Wealth Tax Act and Companies Act.

The scheme was effective from July 1, 1997 to December 31, 1997. Those eligible under the scheme include persons who have failed to furnish I-T returns for any year or those who have part-disclosed their income in returns or have completely escaped assessment.

The scheme covered all persons, corporate or non-corporate. The tax payable on the disclosed income will be 30% in the case of individuals and 35% in the case of other declarants, viz, corporates and firms. The total collection made under the scheme came to only ` 10,000 crore. Over 3,50,000 individuals, with a sprinkling of companies and firms, disclosed their undisclosed incomes. Assets disclosed were worth over ` 260 billion.

6. Leaders and persons in position should file a return of their assets and incomes which should be subjected to scrutiny by a special agency created for this purpose.

7. Registration fees in relation to property and other real estate should be lowered.

SIT (Special Investigating Team) on Black Money

The Modi Government formed an SIT on its first day of rule. SIT in its report given to the Supreme Court, revealed the persons on the HSBC list who held ` 4,479 crore in Swiss banks. This is nothing but infact a leaked list of 628 secret accounts of Indians at HSBC Geneva. List was leaked by Herve Falciani, a former HSBC employee. It also said 201 of the 628 names on the HSBC list were either non-residents or non-traceable, while the cases of the remaining 427 persons were actionable.

Herve Falciani said to NDTV that "India has less than 1% of the information from the original data. I am helping other countries and I am keen to help India."

Estimate of Black Money

Tax Information Exchange Agreements (TIEA)

To curb black money, India has signed TIEA with 13 countries - Gibraltar, Bahamas, Bermuda, the British Virgin Islands, the Isle of Man, the Cayman Islands, Jersey, Liberia, Monaco, Macau, Argentina, Guernsey and Bahrain - where money is believed to have been stashed away. India and Switzerland, claims a report, have agreed to allow India to routinely obtain banking information about Indians in Switzerland from 1 April 2011.

In June 2014, the Finance Minister Arun Jaitely on behalf of the Indian government requested the Swiss Government to hand over all the bank details and names of Indians having unaccounted money in Swiss banks.

Prepared by:

CA Raj K Agrawal

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