by Yogiraj Sadaphal
Of course not, we can’t tell if a money is lawful or not just by looking at it. All earnings acquired through illicit activities and otherwise legal income that is not recorded for tax purposes are referred to as “black money.” The proceeds of black money are frequently received in cash from illegal economic activity and are therefore not taxed. Increased amounts of black money in the economy are frequently associated with a rise in corruption.
How Black Money Works :-
Consider a store that only accepts cash and does not provide receipts to its consumers because it would not pay tax on unrecorded purchases, that store is transacting in black money. Consider another the case of a property buyer who pays Rs. 20, 00,000 for a piece of land. There is a Rs. 5, 00,000 black money transaction if the buyer merely discloses 15, 00,000 on the books and pays 5, 00,000 under the table.
Effects of Black Money :-
1. The government’s deficit rises because black money consumes a portion of the tax. The government must balance the deficit by raising taxes, reducing subsidies, and borrowing more money. Borrowing increases the government’s debt by adding to the interest load. If the government is unable to balance the budget, it would have to cut spending, which will have a negative impact on development.
2. Higher inflation results from the flow of unaccounted black money into the economy, which disproportionately affects the poor. It also widens the gap between the rich and the poor.
3. Black money is commonly kept in the form of gold, immovable property, and other hidden assets. Such money does not enter the main economy and, as a result, is mostly out of circulation. The black money keeps circulating among the wealthy and creates more opportunities for them.
4. When the government uses progressive direct taxation to ensure that the tax burden is distributed fairly, tax evasion and the creation of black money undermine the concept of social justice by preventing the desired reduction in income disparities. When illegal activities such as smuggling, for example, cannot be taxed, the government would apply higher taxes on legally authorized.
5. Black money is spent lavishly on travels and tours, entertainment, ostentatious products, and the financing of extravagant elections, among other things. This has also resulted in the many societal ills and a degradation of common people’s life values.
6. The presence of black money has shifted the market’s choice coefficients in favor of luxury, resulting in the diversification of productive resources from essential to non-essential commodities.
7. The consumption pattern is biased in favor of the rich and elite, at the expense of encouraging the production of bulk goods. A rise in overall consumption means fewer resources are available for investment in priority sectors, which has a negative effect on growth.
Government Initiatives to curb Black Money.
1. Black Money Declaration Scheme 2017 –
This scheme was launched by the government headed by PM Modi. This scheme allowed black money hoarders to declare all of their illegal earnings and gave them till March 31, 2017 to do so. Everyone was permitted to report their illegal earnings to the bank or the post office. It was also stated that one must pay a total of 49.90 % of the total unaccounted income in tax, surcharge, and penalty. A 25% of the unaccounted income was to be deposited in the Pradhan Mantri Garib Kalyan Yojana.
2. Demonetization –
This was one of the most significant steps made by Prime Minister Narendra Modi’s government to combat black money in the country. The central government announced the demonetization of the Rs 500 and Rs 1000 notes and the introduction of new Rs 500 and Rs 2000 notes on November 8, 2016. The government took this step as a result of the country’s economy falling behind that of the rest of the world, as well as to combat different terrorist activities that had arisen in the country.
3. Linking Bank Accounts with Aadhaar & Pan –
The government launched the linkage of Aadhaar and Pan cards so that it could keep track of each person’s accounts and even their bank statements, giving the government a source to know how much a citizen earns and how much he pays in taxes. Though this strategy plays a significant role in the removal of fake bank accounts. This system can also be used to track suspicious transactions involving large sums of money.
4. Benami Transactions (Prohibition) Amendment Act, 2016 –
This law prohibits Benami transactions and provides for the confiscation of Benami assets. In 2016, the legislation was amended to provide that if a person is found guilty of a benami transaction offence by a court, he would be sentenced to jail for a period 1 year which may extend to a maximum of 7 years. In addition, the person will be responsible for a fine of up to 25% of the property’s exact market value.
5. New Benami Transactions Informants Reward Scheme, 2018 –
The Income Tax Department has launched this initiative in order to encourage widespread participation of people to fight against black money in the economy. Under this plan, the informant will be paid up to Rs one crore if he provides relevant details to the Joint or Additional Commissioners of Benami Prohibition Units (BPUs) of the Income Tax Department’s Investigation Directorates.