An Insight into Black Money, Tax Avoidance & Tax Evasion

A research proposal submitted in partial fulfilment for the course TAXATION LAW-I
for attaining the degree B.A., LL.B.(Hons.)

A Proposal made by Shubham

Roll-1764
B.A., LL.B.(Hons.)

A Proposal submitted to Dr. Ganesh Prasad Pandey

Faculty of Taxation Law

November, 2020

Chanakya National Law University,

Nyaya Nagar, Mithapur

Patna-800001

1|Page
 DECLARATION BY THE CANDIDATE

I hereby declare that the work reported in the B.A., LL.B (Hons.) Project Report entitled “An
Insight into Black Money, Tax Avoidance & Tax Evasion” submitted at Chanakya National
Law University; Patna is an authentic record of my work carried out under the supervision of
Dr. Ganesh Prasad Pandey . I have not submitted this work elsewhere for any other degree or
diploma. I am fully responsible for the contents of my Project Report.

(Signature of the Candidate)

SHUBHAM
Chanakya National Law University, Patna.

2|Page
 ACKNOWLEDGMENT
“IF YOU WANT TO WALK FAST GO ALONE
IF YOU WANT TO WALK FAR GO TOGETHER”

A project is a joint endeavour which is to be accomplished with utmost compassion, diligence

and with support of all. Gratitude is a noble response of one’s soul to kindness or help
generously rendered by another and its acknowledgement is the duty and joyance. I am
overwhelmed in all humbleness and gratefulness to acknowledge from the bottom of my
heart to all those who have helped me to put these ideas, well above the level of simplicity and
into something concrete effectively and moreover on time.
This project would not have been completed without combined effort of my revered Taxation
Law teacher Dr. Ganesh Prasad Pandey whose support and guidance was the driving force to
successfully complete this project. I express my heartfelt gratitude to him. Thanks are also due
to my parents, family, siblings, my dear friends and all those who helped me in this project in
any way. Last but not the least; I would like to express my sincere gratitude to our Corporate
Law teacher for providing us with such a golden opportunity to showcase our talents. Also
this project was instrumental in making me know more about the role of auditors.
Moreover, thanks to all those who helped me in any way be it words, presence,
Encouragement or blessings...

SHUBHAM
1764
VII SEM
B.A., LL.B (Hons.)

3|Page
 TABLE OF CONTENTS

1. INTRODUCTION 5-6

2. BLACK MONEY,TAX AVOIDANCE 8-

& TAX EVASION: A CONCEPTUAL 10
SETTING

3. CAUSES & CONSEQUENCES OF 11-

BLACK MONEY & TAX EVASION 12

4. METHODS TO GENERATE BLACK 13-

MONEY & EVADE TAXES 14

5. MEASURES TO CURB THE TAX 15-

EVASION 19

6. MEASURES ADOPTED TO CURB 20-

BLACK MONEY & TAX EVASION 22

7. CURRENT STATUS OF BLACK 23-

MONEY & TAX EVASION IN INDIA 24

8. FURTHER REFORM SUGGESTED 25-

REGARDING TAX EVASION 27

9. CONCLUSION & SUGGESTIONS 28-

35

4|Page
 INTRODUCTION
Black money and tax evasion eating away the social and moral framework of Indian economy
are undermining the socio- economic objectives and are responsible for manifest and lavish
consumption. Black money and tax evasion foster concentration of economic power in the hands
of undesirable groups in the country. With the liberation of restriction and relaxation of foreign
exchange control, fresh opportunities have emerged for tax evasion; globalization has decreased
the cost of these sophisticated methods and thus, has facilitated generation of black money. It is
possible that the black money procreated by the Indian is being routed back to India (Ministry of
Finance, May 2012, Para 2.8.5). A multi-pronged strategy can settle the issue of generation of
black money and its illicit transfer outside the country by both the Central and State
Governments in a coordinated manner.
In a society where people are living together as a group or community sharing some common
interest have come together and formed a system which has regulated their activities and
protected the common interest of the society.” Collecting the contribution from the member to
run the regulatory system, which in turn spend such money on the welfare activities of such
society or for the overall public good is in practice in one or the other from since time
immemorial. In ancient days the subject used to pay tax to the monarch and monarch in turn used
to take the responsibility of the protection of life and property of his subject. This has developed
as a system of public finance and collection of contribution from the public for the common
public good is the base line of the tax system all over the world.
In the due course of time this has developed as a great system and gradually different kind of
activities were brought under the purview of this taxation. Today in almost all the countries
collection of tax from its citizens have become the main source of revenue. Significant growth
has led to creation of several developments to handle theses aspects. as it involves lot of public
money , there felt the need of regulation of the system of collection and administration of the
same which has resulted in several enactment and statutes to monitors the system. Tax can be
broadly classified into two types as directs taxes and indirect taxes. The direct taxes are the taxes
where the liability to pay the tax is directly on the affected person. For example income tax,
wealth tax etc. Indirect taxes are the taxes, where the liability for payment is not directly of the
affected person. For example exercise tax, customs tax, service tax etc. when we talk about tax or
revenue collection we generally come across terms namely tax evasion. The tax evasion is an act

5|Page
on the part of the taxpayer to minimize the tax liability but breaking the law, i.e., by adapting
illegal means. The concept of tax avoidance is difficult to distinguish from other two. Because
tax avoidance is not a clear concept. It has the component of both tax planning and tax evasion.
So, tax avoidance means planning ones activity in such a way that it should tax burden by taking
advantages of the loopholes in the act. It become problematic issue to determine whether the
transaction entered into by the taxpayer is a tax planning tax avoidance or tax evasion. This is
more so because these terms have not been defined by legislature in precise words and in
practice. These is a very thin different between theses terms and it may not be possible to
determine the intention of the person who is transaction.

6|Page
AIMS & OBJECTIVE:

 To study the various aspects of black money, tax avoidance and tax evasion.
 To study the main reason behind the tax evasion and generation of black money.
 To study the effectiveness of tax laws for the prevention of black money, tax
avoidance and tax evasion.
 To find out remedial measures to curtail the black money, tax avoidance and tax
evasion.
 To study the current status of black money, tax avoidance and tax evasion in India.

HYPOTHESIS:

 Taxation, besides being a major source of revenue to the government. It is therefore a

major tool used by government to promote economic growth and development. However,
these have been greatly impaired due to the menace of tax evasion and avoidance.

RESEARCH METHODOLOGY:

The researcher has used descriptive methodology of research for analyzing the
various provisions relating to tax avoidance and tax evasion in India. The
researcher will going through Act, Article, Journals and web search for the
purpose of analyzing the various provisions.

METHOD OF WRITING:
The method used in writing this research is primarily analytical.

SOURCES OF DATA:
PRIMARY SOURCES

 INCOME TAX ACT, 1961 ( Provisions, Statutes & Amendments)

SECONDARY SOURCES

 BLOGS AND ARTICLES/JOURNALS.

 BOOKS

7|Page
 BLACK MONEY, TAX AVOIDANCE & TAX EVASION:
A Conceptual setting.

Generally speaking, the term Black Money stands for money earned by illegal means and
kept secret and unaccounted for. It has many synonyms including underground economy,
parallel economy, shadow economy, unofficial economy, unaccounted economy, etc. Thus,
black money is neither reported to the public authorities at the time of its generation nor
disclosed at any point of time during its possession. Black money may be generated either
by illegitimately drug trade, terrorism, corruption, or legitimate failure to pay the dues to the
public exchequer yielding the generation of unaccounted wealth. There are certain sectors
and activities like land and real estate transactions, bullion and jeweler dealings, complex
financial market transactions, charitable activities, informal sector and cash economy, self-
employed professionals, external trade and transfer pricing, which give birth to the
generation of black money.
Tax avoidance and tax evasion are two expressions, which find no definition either in the Indian
Companies Act 1956 or the Income Tax Act 1961.
Tax avoidance is generally the legal exploitation of the tax regime to one's own advantage, to
attempt to reduce the amount of tax that is payable by means that are within the law whilst
making a full disclosure of the material information to the tax authorities. Examples of tax
avoidance involve using tax deductions, changing one's business structure through incorporation
or establishing an offshore company in a tax haven.
By contrast tax evasion is the general term for efforts by individuals, firms, trusts and other
entities to evade the payment of taxes by illegal means. Tax evasion usually entails taxpayers
deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to
reduce their tax liability, and includes, in particular, dishonest tax reporting (such as
underdeclaring income, profits or gains; or overstating deductions).
Tax avoidance may be considered as either the amoral dodging of one's duties to society, part of
a strategy of not supporting violent government activities or just the right of every citizen to find
all the legal ways to avoid paying too much tax. Tax evasion, on the other hand, is a crime in
almost all countries and subjects the guilty party to fines or even imprisonment. Tax resistance is
the refusal to pay the tax for conscientious reasons (because they do not want to support the

8|Page
government or some of its activities), sometimes breaking the law to do so. Some donate their
unpaid taxes to charity, while others take creative "deductions" such as not paying a percentage
of tax equal to the defence budget. In either case, they typically do not take the position that the
tax laws are themselves illegal or do not apply to them (as tax protesters do) and they are more
concerned with not paying for what they oppose than they are motivated by the desire to keep
more of their money (as tax evaders typically are). Some have suggested the term tax aversion
for people who adopt the techniques of tax avoidance in the service of tax resistance, thereby
doing tax resistance legally.
Judicial doctrines, relying on a purposive construction of tax legislation, are being evolved to
prevent tax avoidance involving circular, self-cancelling transactions or where steps with no
commercial purpose other than the avoidance of tax are inserted into a transaction.
Controversially, in the 2004 Budget, it was announced that 'promoters' and users of certain tax
avoidance schemes would be required to disclose details of the schemes to the Inland Revenue. 1
Tax avoidance is the legitimate minimizing of taxes, using methods approved by the IRS.
Businesses avoid taxes by taking all legitimate deductions and by sheltering income from taxes
by setting up employee retirement plans and other means, all legal and under the Internal
Revenue Code or state tax codes. Tax evasion, on the other hand, is the illegal practice of not
paying taxes, by not reporting income, reporting expenses not legally allowed, or by not paying
taxes owed. Tax evasion is most commonly thought of in relation to income taxes, but tax
evasion can be practiced by businesses on state sales taxes and on employment taxes. In fact, tax
evasion can be practiced on all the taxes a business owes.2
‘Tax avoidance’ and ‘tax evasion’ are terms so frequently referred to in economic and business
relationships today that they constitute part of our conversational language and people in general
use these terms even without knowing their exact meaning and difference. Whereas tax
avoidance implies a situation in which the taxpayer reduces his tax liability by taking advantage
of the loop-holes and ambiguities in the legal provisions, in the case of tax evasion, facts are
deliberately misinterpreted and the tax liability is understated. Thus, while tax avoidance is

1
http://albinet.com/articles/offshore-company/taxes last visited on July 25,2018

2
http://biztaxlaw.about.com/od/businesstaxes/f/taxavoidevade.htm last visited on July 29,2018

9|Page
perfectly legal and is, at times, referred to as ‘tax planning’, tax evasion is illegal and, therefore,
carries with it the risk of penalties and prosecutions under the tax laws. As such, the black
economy comprises the sum total of all the various methods of tax evasion but does not
include tax avoidance. Accordingly, whereas the consequences of the two phenomena are
different for the taxpayers, both reduce the revenue of the Exchequer and consequently need to
be checked to the greatest extent possible. 3
If a serviceman earns Rs.10.0 Lakhs per year, he has very limited scope to avoid tax payment.
He can at best save some money in tax saving schemes and reduce tax liability by at most 20 to
30 thousand rupees. He will have to pay Income tax to the tune of rupees one to two lakhs as
income tax per year. They cannot avoid tax payment but they can if they like, earn bribe up to
any extent to compensate they lose in tax payment.But a manufacturing company earning profit
of more than one corer per year can avoid tax payment completely by using various tools of tax
avoidance suggested by tax officials, tax consultants and Chartered Accountants.

3
Supra note 1.

10 | P a g e
 CAUSES & CONSEQUENCES OF BLACK MONEY & TAX EVASION.
Causes
The factors responsible for the generation of black money are mainly either through illegal
or legal activities.

Illegal Activities
It includes the criminal component of black money involving a host of activities of anti-
social in nature as smuggling of goods; forgery, embezzlement, counterfeit currency and
other financial frauds (i.e. Chit funds); production/ trade of contraband goods (i.e.
narcotics, illicit liquor and arms); illegal mining and falling of forests; hoarding and
black marketing of price-controlled materials and services; theft, robbery, kidnapping and
extortion, human trafficking, sexual exploitation and blackmailing; bribes to public
offices to secure favors such as altering land use, regularizing authorized constructions;
speed money to circumvent/fast-track procedures, and commission to secure government
purchase orders. These illegal activities reflect the declining social and moral values and
are punishable under the various Acts of the Central and State Governments and also the
schedule of Prevention of Money Laundering Act, 2002.

Legal Activities
Legally permissible economic activities also create a substantial portion which is beyond
disclosure to the public authorities as per provisions of the law to evade taxes. Too much
procedural regulations sometimes create an incentive to conceal the actual position and
thereby remaining outside the reported and accounted proportion of one’s activities.
Increased globalization and economic liberalization have an impact on cross-border
transactions resulting in growing opportunities for sophisticated devices to avoid tax
payment following the different tax rules of different countries and use of tax havens.
Global trade amongst multinational companies has increased misuse of transfer pricing
leading to estimations that developing countries like India might be losing significant
resources owing to transfer pricing manipulation.
The factors or causes of tax evasion are the high level of tax rates, less respect to the
Government and its laws, lenient penal action, and nature of the economy. High tax rates
usually make tax evasion more tempting. Tax evasion is more in those countries where
there is general apathy on the part of people towards the Government and its laws. Tax
evasion by politicians sends wrong signals to the general public relating to non-
compliance with rules and laws; lenient penal action also sometimes encourages tax
evasion. Usually, countries with relatively poor implementation of regulations tend to
have a high share of the unaccounted economy than others performing due to the

11 | P a g e
 implementation of the same and sound deterrence. Peculiar characteristics of
underdeveloped countries with mostly agricultural-based, much illiteracy, lack of
accounting practices, limited monetization, shortage of administrative resources cause
breed tax evasion and black money.

Consequences
People have observed the nexus between tax evasion and black money and its distortion
of the redistributive role of tax policy in India's Seventh Five-Year Plan. A reduction in
the scale of black money generation can improve the distribution of income and wealth
after taxation. In addition, reduction in the extent of tax evasion can generate a high
volume of tax revenue and more public expenditure will benefit the poorer section of the
population of the society (Planning Commission, 1985-90). The success of an inclusive
growth strategy highly depends on the capacity of society to eradicate the evils of
corruption and black money from its very foundations. Black money in every sphere of
social, economic, and political space of the country has a debilitating effect on the
institutions of governance and conduct of public policy in the country. Governance
failure adversely affects the interests of vulnerable and disadvantageous sections of
society. The effects of tax evasion resulting in black money on Indian economy are
indeed disastrous. A few consequences/effects are as follows:

 Tax evasion resulting in black money prevents the resource mobilization efforts
of the Government. Shortage of funds distorts implementation of developmental
plans and forces the Government to resort to deficit financing in case public
expenditure is inelastic.
 Tax evasion interferes with the declared economic policies of the government by
distorting saving/investment patterns and availability of resources for various
sectors of the economy.
 Tax evasion undermines the equity attribute of the tax system. Honest taxpayers
willingly bear disproportionate tax burden, feel demoralized and lured to join the
tax evaders' camp.
 Tax evasion and black money encourage concentration of economic power in the
hands of undeserving groups in the country which, in turn, is a threatening to the
economy in its way.
 Evasion of tax consumes time and energy of tax administration to disentangle the
intricate manipulations of tax dodgers.
 Unsocial activities like bribery, intimidation, blackmailing, tampering with official
records, submitting fake documents, etc. are all abuses degrading social and
moral values that ultimately go with tax evasion.

12 | P a g e
 METHODS TO GENERATE BLACK MONEY & EVADE TAXES.

Black money may be procreated through the crude approach of not declaring or
reporting the income or the activities leading to it. Failure to comply with regulatory
obligations or tax evasion on income from legitimate activities can create black money.
Different kinds of manipulations of financial statements resulting in tax evasion and the
generation of black money are elaborated in the following sections.

Out of Book Transactions:

This mode is usually prevalent among the micro and small enterprises and providers of
unskilled and semi-skilled services. With a view to evading reporting activities or the
income generated, taxpayers may resort to keeping two sets of books of account - one for
their own consumption to manage their own business and the other for the regulatory and
tax authorities. The second set of books of account kept for the purpose of satisfying the
legal and regulatory obligations for reporting to different authorities may be manipulated
by omitting receipts or falsely inflating expenses to evade taxes or other regulatory
requirements. This category also includes unaccounted assets, investments in shares of
listed companies through sham entities, etc.

Manipulation of Books of Accounts:

Manipulation of Sales/Receipts
Manipulation of Sales or receipts is the easiest method of tax evasion. Diversion of sales
to associated enterprises located in different tax jurisdictions may give rise to issues
related to international taxation and transfer pricing. The associate entity may not report
its activities or income at all or may show sales to such a dummy associate entity at a
lower price thereby reducing its reported profits. Complex scenario emerges to the dummy
associate entity situated in a low tax jurisdiction having very low tax rates. Underreporting
of production is another device of artificially reducing tax liability. In fact, suppression of
sales or receipts, diversion of sales to associated enterprises (dummy or genuine), the
interrelation between unaccounted sales and purchases, artificial determent of revenues,
and stamping of incorrect price are the other methods to manipulate sales or receipts
thereby creating black money.

13 | P a g e
Manipulation of Capital
Manipulation of capital is possible either by laundering black money or introducing it in
the books of accounts. Manipulation can also take place through shares at a high
premium, bogus gifts, and capital gains, purchase of false losses, etc.

Manipulation of Closing Stock

Suppression of closing stock both regarding quality and value is one of the most common
methods of understating profit. Undervaluation of inventory is possible in the way of that
while expenses are accounted for in the books but, the value added is not done so; thereby
artificially lessening the profits.

Manipulation of Capital Expenses

Overvaluation of the fixed asset is an approach adopted to claim higher depreciation and
thereby reduce the profit of the business. Increasing capital to enable the businessman to
borrow more funds from lending institutions or capital market is also another device.

International Transactions through Associate Enterprises

Inter-corporate transactions between the associate enterprises
belonging to the same group in different perspectives are often arranged and manipulated
in such a way as to lead to tax evasion.

These are possible by arrangements of shifting taxable income to the low tax
jurisdictions or tax havens, leading to accumulation of black money earned from India to
abroad.

14 | P a g e
 THE MEASURES TO CURB THE TAX EVASION

There are three kinds of measures to curb the tax evasion in India which are as follows-
 Legislative Anti- Avoidance Measures
 Judicial Anti- Avoidance Measure
 Administrative Anti- Avoidance Measures
In India, the proposed Direct Tax Code, 2010 (DTC, 2010) seeks to address miscellaneous
issues, concerned tax evasion and tax avoidance; by bringing in General Anti-Avoidance Rules
(GAAR), in addition to various transaction-specific Special Anti-Avoidance provision. The
concept of GAAR is not new to India since India already has a Judicial Anti-Avoidance Rule,
similar to some other jurisdictions 4.The concept of Anti-avoidance rule can better be understood
by classifying the method(s) of its implementation into three categories namely: (i) measured
based upon principles of law interpreted by the judiciary; (ii) General Anti-Avoidance Rule and
lastly (iii) Specific Anti-Avoidance Rule. Discussing each classification herein under:

1. Measure based upon principles of law interpreted by the Judiciary

Over the years the Hon’ble Supreme Court has tried to save the interests of Tax Authorities and
the Assesses by interpreting the law according to the principles laid down by various National as
well as Foreign judgments. This includes range of philosophies and debates regarding
‘substance’ over ‘form’ and 5‘abuse of law’

4
Vodafone international v. UOI, (2012) 1 UJ 128. [hereinafter Vodafone]

5
Commissioner of Income-Tax v. A. Raman & Company, AIR 1968 SC 49 [hereinafter A. Raman]; McDowell and
Co. Ltd. v. Commercial Tax Officer, (1985) 47 CTR (SC) 126 [hereinafter McDowell]; Union of India &Anr. v.
AzadiBachaoAndolan and Anr, [2003] 263 ITR 706 (SC) [hereinafter AzadiBachao]

15 | P a g e
 2. General Anti-Avoidance Rule

GAAR, as its name suggests, is a set of general anti-avoidance rules which usually take the
form of a legislative instrument; better to consider it as a ‘catch-all’ for tax avoidance. The
main triggering incident of attracting GAAR lies in the fact that the tax avoidance schemes are
becoming increasingly complex, therefore, it is getting tougher for the Tax authorities to
determine the path for tax avoidance. To put in simple words GAAR is basically an attempt to
strike down avoidance of taxes that was not understood a probable method of tax evasion at the
time of drafting any taxation statute. The difficulty with having such a broad scheme has been
heavily debated in various countries as and when they grappled with the thought of introducing
GAAR.

GAAR: A Necessity

There are multifarious issues regarding GAAR. Several countries have codified GAAR in
their tax statutes so as to check tax evasion by the assesses. GAAR has been a part of the tax
code of Canada since 1988, Australia since 1981, South Africa from 2006 and China from
20086. The merits of introducing GAAR with regard to Indian perspective are as follows:

Checking abuse of Double Taxation Avoidance Agreement and in turn protecting the
revenue interest of India

India entered into Tax treaties with over 70 countries to ensure that the income taxed in one
country is not taxed again in the other.7 Mauritius and Singapore are the most preferred
jurisdiction for structuring investments into India in view of liberal business environment
offered by Mauritius and the benefits available to the assesses under the India-Mauritius Tax
Treaty. 8

6
RaghuvirSrinivasan, Sweating over GAAR, The Hindu, available
athttp://www.thehindu.com/business/article3339961.ece. last visited on August10,2018

7
S.S.Khan, The Crux of Mauritius Tax Treaty, available
athttp://www.moneymantra.co.in/detailsPage.php?id=2130&title=Banking&wrt=SS%20Khan last visited on August
8, 2018

8
India: Holding Company Planning for Holding Investment, International Tax Review, available
athttp://www.internationaltaxreview.com/Article/3068212/India-Holding-company-planning-for-Indian-
investments.html last visited on August 5,2018

16 | P a g e
 Role of GAAR

GAAR will provide in those instances a statutory right to the tax authorities to question any
transaction which is not made in ‘good-faith’. Tax treaties are usually governed by the Vienna
Convention9. The provisions of the Vienna Convention clearly emphasise that a treaty should
be interpreted and must be performed by parties to it in ‘good faith’ 10.Even the underlying
principle of treaty shopping can come under the purview of absence of good-faith. 11 The main
problem with treaty shopping is that it breaches the reciprocity of a Tax treaty entered into
between two sovereign nations and instead it extends the Treaty benefits meant for residents
of Treaty partner countries to those of a third parties which is not signatory to the Treaty and
may not reciprocate corresponding benefits. Hence the importance of GAAR to protect the
revenue interest of a nation is unquestionable.

Creating certainty in Indian tax regime

Canadian tax laws contain GAAR provisions since 1988 is intended to prevent abusive tax
avoidance transactions or arrangements but at the same time is not intended to interfere with
legitimate commercial and family transactions.

Consequently, the new rule establishes a reasonable balance between the protection of the tax
base and the need for certainty for taxpayers in planning their affairs....” Hence the GAAR,
under the Finance Act, 2012 aimed to create a certainty in taxation laws aftermath the decision
of the Vodafone case. But it also needs further re-consideration before practical
implementation.

9
Vienna Convention on the Law of Treaties was signed in Vienna on 23 May 1969 and entered into force on 27
January 1980.

10
See general, Preamble of Vienna Convention, Article 18, Article 26, Article 27, Article 31, Article 46 Vienna
Convention on the Law of Treaties, U.N. Doc. A/CONF.39/27, Art. 31(1), (1969).

11
See general, Reuven S. Avi-Yonah& Christiana HjiPanayi, Rethinking Treaty-Shopping Lessons For The
European Union, Michigan Law University, available
athttp://www.law.umich.edu/centersandprograms/lawandeconomics/abstracts/2010/Documents/10-002aviyonah.pdf
last visited on August 8,2018

17 | P a g e
THE VARIOUS ONSHORE AND OFFSHORE METHOD OF TAX EVASION:

Onshore is in no way synonymous with transparency; and by contrast some supposedly offshore
places are considering opening up. There are numerous ways to evade/ avoid tax and it is
difficult to throw light on all such practices nevertheless some conventional practices of tax
evasion / avoidance can be classified as follows:

 Money laundering

 Hawala

 Tax Havens

 Transfer pricing

 Trade mispricing

These process are used to evade /avoid both direct as well as indirect taxes. Whereas money
laundering hawala and trade mispricing are more prone to evasion tax heaven and transfer
pricing are typically used as tax avoidance practices nevertheless the processes are often
interrelated and difficult to distinguish in practices.

Tax Havens
The term ‘Tax Havens’ usually denotes to describe any country or locality which levies
very low taxes or none at all on foreigners. The most common device is to use tax haven
only as a conduit for transactions, the real economic impact of which locates elsewhere.
Internationally two high tax rate countries can be channeled through a tax haven
company in such a way that any resulting profit in the haven leads to minimization of
tax. A good number of studies on tax havens show that tax havens are typically small
countries or jurisdictions with low or nil taxation for foreigners who decide to come and
settle there. They usually maintain strong confidentiality or secrecy about their wealth
and accounts creating very attractive locations for keeping unaccounted wealth safe and,

18 | P a g e
thus, make them highly desirable for multinational entities willing to reduce their global
tax burdens. The Multinational entities consisting of several corporate and non-corporate
bodies established organizations in tax havens and artificially transfer their income to
such conduit organizations designing low tax regime.

19 | P a g e
MEASURES ADOPTED TO CURB BLACK MONEY & TAX EVASION.

The Government from time to time takes efforts to restrain tax

evasion and governs black money with the help of various means like lowering of tax
rates, tax amnesties, advance tax payments, restraining tax or tax deduction at source,
presumptive tax for small traders, permanent account number or general register number,
survey of income tax, summons and search and seizure, penalties and prosecutions and
use of information technology in tax administration.

 Lowering of Tax Rates : - Low tax rates improve compliance and revenue yield.
However, expecting low tax rates that would improve compliance automatically is
unrealistic because tax evasion occurs at all levels of income.
 Tax Amnesties: - Tax amnesties or voluntary disclosure schemes bring concealed
money in the open, widen the base of investment, and hence foster economic
development.

In India, the Government from time to time proposes tax amnesties with varied
characteristics to unearth black money. However, tax amnesties are subject to
criticism for the reason that they offer a premium on dishonesty and are unfair to
honest taxpayers.

They set precedents and encourage tax evaders in the hope that they will be let off mildly
for their past misdoings any time in the future. Honest taxpayers are demoralized. The tax
enforcement machinery also loses respect in the eyes of the common men.
Also, the government announces different schemes & bonds like Bearer Bonds, Voluntary
Disclosure of Income Scheme (VDIS) to harness black money for generative purposes
and to bring back the abundant money transferred outside India through these means.
( Ministry of Finance, May 2012, Para 2.4.9 ).

Advance Tax Payment

Through the regular assessment, tax on income is payable by way of advance payment.

Tax Deduction at Source (TDS)

Improvement in the percentage share of direct taxes has taken place due to the widening
of the tax base and presumptive taxation. It also broadens the scope of TDS. But, TDS
scheme suffers from lack of proper monitoring and scrutiny (Planning Commission,
1997-2002).

Presumptive Tax for Small Trades

The Tax Reforms Committee examines the problems and possibilities of taxing the small

20 | P a g e
business sector and suggests the taxes on it. However, this fails to yield the desired
results. In its place, estimated income scheme for retail traders takes place.

Permanent Account Number (PAN) or General Index Register Number (GIR)

To strengthen the efforts at enforcement the Government makes
it obligatory for assessees to quote PAN or GIR on specific transactions.

Survey of Income – Tax

Income-tax authorities may conduct from time to time a shop-to- shop or house-to-house
rope in new assessees. Officials' doing so is a useful measure; a person failing to comply
with the notice under section 133B is liable to pay the penalty under section 272 AA.

Summons, and Search and Seizure

Under Section 131, an authorized income-tax officer can issue a summons when he/she
suspects concealment of income by a person within the jurisdiction to enforce attendance
for verifying the authenticity of various types of transactions like capital contributions,
business transactions, borrowing of funds, investment transactions and like nature. The
authorized income tax officials can carry out search and seizure operations. They can
enter and search any building, place or vehicle in the occupation of the concerned person,
break the lock and examine any box, locker, almirah, etc. and seize any books of
accounts, other documents, money, bullion, jewelers, etc.

Penalties and Prosecutions

Income-tax Act contains provisions for penalties and prosecutions for various defaults and
offenses committed by the taxpayers. Section 273A (4) of the Income-tax Act permits
Income-tax Officers to reduce or waive penalties for tax evasion on the ground of genuine
hardships. Furthermore, under section 279(2) of the Act empowers the officers to
compound an offense either before or after the institution of prosecution proceedings
although these powers are discretionary and nobody can challenge these in a court of law.

Use of Information Technology in Tax Administration

E-payment of tax is a facility provided to the taxpayers for making tax payments through
internet banking facility or internet by using debit or credit cards. A person desiring to
furnish a return of income can use E filing, another contrivance through the internet and
sign it digitally or manually.

Legislative Measures to Prevent Generation of Black Money

The Government has also taken a large number of proactive measures to prevent a
suitable framework for arresting the generation of black money and for its detection like

21 | P a g e
Prevention of Money Laundering Act (PMLA), 2002, Benami Transaction (Prohibition)
Bill, 2011, Public Procurement Bill, 2012, Lokpal and Lokayukta Bill, 2011, Citizens'
Grievance Redressal Bill, Indicial Standards and Accountability Bill, 2010, Public Interest
Disclosure and Protection to Persons Making the Disclosure Bill, 2010, and Electronic
Delivery of Services Bill, 2011.

22 | P a g e
 CURRENT STATUS OF BLACK MONEY & TAX EVASION IN INDIA.

Recently, the issue of black money and corruption has come into being with the
participation of our civil society and parliament institutions. In this connection, two
emergent issues have emerged:
i) firstly, without any sufficient factual basis, a magnitude of black money and
unaccounted wealth is stashed abroad every year;
ii) secondly, the Government's response to applying this issue has not been adequate
or considerably negligible.

Most of the sectors in India like real estate, financial market, bullion and jewelry market,
non-profit organizations, external trade, etc. generate black money and evade tax for its
survival in the market. Apart from this, black money in India persists owing to the
existence of DEMONSTRATION EFFECT, which means the way to live a life in terms
of others point of view. People of India are very much affected by the lifestyles of other
people of the society who are maintaining considerably high status, and in turn, want to
be like them. As such, to fulfill these desires or to
maintain their status in society they force themselves to generate and use the black
money. Corruption in India is a major issue

that adversely affects in every field of economy. In India, people are very emotional
towards Spirituality, and many such persons make misuse of their emotions and sentiments
and referring to themselves as spiritual leaders generate a considerable amount of black
money. In India, Manipulation of Accounts sometimes helps to generate a significant
amount of black money. Several times, the Government of India has failed to collect the
estimated amount of tax from the people of our country and for this, credit has to go to the
black money driven an underground economy.

23 | P a g e
Concluding Observation

Prevention and control of black money is pre-requisite for establishing an equitable,

transparent and efficient economy. Black money and tax evasion – the two fiscal maladies
are undermining the socio-economic objectives and are responsible for manifest and lavish
consumption, reduced savings and increasing gap between the rich and the poor. Even
after an uproar in Parliament, the Government of India came out with a White Paper on
Black Money in May 2012 (Ministry of Finance, 2012), presenting the different facets of
black money and its complex relationship with policy and administrative regime in the
country which also reflected upon the policy options and strategies, the Government has
been following to address the issue of black money and corruption in public life.
Globalization and liberalization of restrictions on the cross -border flow of goods and
services, relaxation of foreign exchange control etc. have accelerated new opportunities for
tax evasion through tax havens, misuse of transfer-pricing and other sophisticated
methods. They have also reduced the cost of these sophisticated methods thereby
facilitating generation of black money and its transfer across the border. The fight against
generation and accumulation of black money and curbing black money is far more complex
and prolonged requiring new strategies and stronger intervention of the state, which, in
turn, needs a hardy legal framework, co-extensive administrative setup and a very strong
determination to fight the threat. Effective implementation of the tax laws can arrest tax
evasion. Relaxation in tax laws, simplification of tax laws, removal of drawbacks in the tax
system, proper processing of information available can be the best tool for the betterment
of Indian tax compliance. Educating the people about the tax laws is vital as it will create an
atmosphere to perform their duties to the nation. The Government of India has announced
several schemes offering opportunities to bring back black money overboard but the result
is not fruitful. DTC Bill, 2010 is an urgent need for the effectiveness of tax laws for the
prevention of tax evasion. Tax evasion and generation of black money have `been
producing severe impacts on the social and economic system of the country.

24 | P a g e
FURTHER REFORM SUGGESTED REGARDING TAX EVASION & TAX
AVOIDANCE IN INDIA & LAW COMMISSION REPORT.

In a globalising environment, tax reforms can serve a multitude of needs. They can help enhance
revenue productivity, reduce economic distortions, and help create a stable and predictable mar-
ket environment. Given the growing mobility of capital and skilled labour which raises new tax
issues continual reforms also serve, simply, to keep the country up-to-date with changing
conditions. Furthermore, tax reforms can help address equity concerns. However, unlike in the
past, equity in tax policy should not involve reducing the incomes of the rich, but raising those of
the poor. Hence, there needs to be a paradigm shift, away from a socialistic focus on vertical
equity (i.e. the unequal treatment of unequal’s) and towards horizontal equity (or the equal tax
treatment of equals). Until very recently, this preoccupation with vertical equity in the Indian tax
system created enormous incentives for tax avoidance. While this is starting to change, many
reforms remain unfinished. In response to its changing developmental strategy, India’s tax
system, too, has been undergoing profound changes. Within the framework of a closed and
heavily planned economy, the tax system was based on multiple objectives.
While this system may have been sustainable within a closed economy in today’s globalising
world, it is more critical than ever to put in place an efficient tax system. A competitive tax
environment means that a country’s tax policy must be calibrated on three levels: architecture,
engineering, and management. Paradoxically, an open economy presents bigger challenges in
setting tax rates - since there are fewer ‘degrees of freedom’ available to policymakers. In such
an environment, not only do tax rates impact foreign investment, but they can also shift the
incidence of taxation in unexpected ways. (For instance, studies find that, in a small open
economy, a tax on capital can effectively become a tax on labour.) Hence, being a large and
complex economy, India needs to learn from worldwide best practices, but apply them
judiciously to meet its specific needs. In an increasingly-open economy such as India’s, there is a
need to focus on the efficiency aspect of the tax system more than ever before. This means
minimising three different costs: the cost of collecting taxes; the compliance costs to taxpayers;
and the distortion costs to the economy at large. (One such distortion, in India’s case, is an
excessive reliance on tax revenues from the (largely State-controlled) petroleum sector - which
has a cascading impact on other areas of the economy.) Given that distortions tend to increase

25 | P a g e
with higher marginal tax rates, a simpler system with lower tax rates is desirable.
Finally, three additional points must be kept in mind while tracking the progress of tax reforms
in India. First, legal reforms are just as important as tax reforms in driving changes in this area.
Second, as the experience of VAT demonstrates, it is critical to have coordinated reforms, across
States, especially in the area of indirect taxation. Third, it will require great political will to
ensure that the existing, discretionary policy and administrative framework is not further
perpetuated. Having seen the influence of the tax mix and tax policy on capital formation, it is
necessary to ensure that these policies promote growth with equity. The various
recommendations of the Chelliah Committee, which were implemented in India during the
1990s, were targeted at removing loopholes in the direct tax system and providing horizontal
equity. However, there are still difficulties with the present income tax system and the current
tax policies do not adequately address issues relating to vertical equity There is a dilemma as to
whether to consider personal income or expenditure on personal consumption as the base of
direct taxation. Taking expenditure as the tax base poses a lesser problem since it taxes what
people take out of the economic production system rather than what they put into it. Moreover, a
progressive expenditure tax falls more heavily on the rich who are using capital resources to
finance their consumption expenditure and, at the same time, it provides greater opportunity than
progressive income tax to finance the development of private enterprises out of private savings.
As the economy moves from the take off stage to the stage of high mass consumption, it is better
to levy tax on personal consumption expenditure, since it promotes vertical equity. 12

LAW COMMISSION REPORT:

The Indian tax authorities, meanwhile, chose not to make any tax demands on the basis of the
retrospective taxation provisions. After Mukherjee resigned in July 2012, the prime minister
constituted another committee to rework the GAAR guidelines. This committee recently
recommended in its draft report that (i) the implementation of the GAAR provisions be deferred
until April 1, 2016, (ii) GAAR treaty override provisions not apply in respect of a tax treaty that
includes anti-avoidance provisions in the form of a limitation of benefits provision (e.g., the
Singapore-India treaty), (iii) GAAR provisions not be invoked to examine whether an entity is a

12
http://www.chinahomeindia.com/upload/201112/20111201084222719.pdf last visited on November 30,2013

26 | P a g e
genuine resident of Mauritius when such entity has been issued a tax residency certificate by the
Mauritius Revenue Authority ("MRA") and (iv) capital gains on listed securities be abolished.

The committee's recommendation that a tax residency certificate issued in Mauritius should be
conclusive proof of residence in Mauritius echoes the law on this point as laid down by the
Supreme Court of India in the AzadiBachaoAndolan case [263 ITR 706 (SC)]. The Authority for
Advance Rulings (a governmental body that provides binding advance rulings on tax questions
brought before it) recently relied on the AzadiBachaoAndolan case to confirm that a fund
incorporated in Mauritius, being the holder of a valid tax residency certificate issued by the
MRA, would be eligible for treaty benefits under the India-Mauritius DTAA. The Authority
rejected the Indian tax authorities' arguments that the fund was controlled and managed in India
since the majority of the fund's board of directors were from India and that routing investments
through Mauritius constituted a scheme to evade capital gains tax [Dynamic India Fund, AAR
No. 1016 of 2012, decision dated July 18, 2012].

The new finance minister, P. Chidambaram, also directed this committee to review the
retrospective tax provisions, promising that such provisions would not be "rashly" implemented
by tax authorities. The committee recently issued a draft report on this subject,
recommending, inter alia, that (i) the retrospective tax provisions be applied prospectively, (ii) a
transaction involving the sale of shares of an overseas company that derive their value, directly
or indirectly, from Indian assets be taxable in India only where such assets constitute more than
50% of the global assets of the Indian company and (iii) transfers of minority shareholdings
(defined as less than 26%) and interests in registered foreign institutional investors ("FIIs") not
be taxed. The committee also noted that retrospective application of tax law should occur only in
"exceptional" cases and after due consultation with those affected. 13

13
http://www.mondaq.com/india/x/202402/Export+controls+Trade+Investment+Sanctions/Recent+Developments
+In+India+Aim+To+Encourage+Foreign+Investment last isited on November 26,2013

27 | P a g e
 CONCLUSION & SUGGESTIONS

In Respect of Tax avoidance and Tax Evasion:

Given the growing magnitudes of public revenue loss because of tax dodging,
governments of different countries are reviewing some of their tax laws, for instance
transfer pricing laws, to minimise tax avoidance practices. The distinction between tax
evasion, tax avoidance and tax planning remains contentious and needs serious scrutiny.
both tax evasion and tax avoidance) is a serious global issue. While the evasion is
relatively straightforward to understand, the nature of tax avoidance is now
increasingly complete requires greater examination. There is a need for raising
awareness around tax issues, promoting a culture of tax compliance, increasing tax
transparency among multinational companies, and increasing international
cooperation between governments on tax matters. Also, capacity enhancement of
tax administration systems of different countries is required to check diverse and
complex tax dodging practices. Coordination between countries with regard to tax laws is
essential; as variations in tax laws in different jurisdictions might enhance ambiguities,
providing scope for further tax dodging. Global accountability and cooperation of countries
with respect to policies like Tax Information Exchange Agreements (TIEAs) and end of
banking secrecy has become crucial in this regard as well as exchange of essential
information regarding national interests. Modification of tax laws of 'tax haven' countries
is an important issue. There are a number of 'tax havens', which may be used to avoid
paying taxes by a number of companies, which emerges as an external factor beyond the
scope of Income Tax Authorities. Unless global pressure is created on 'tax haven'
countries to amend their tax laws to impose certain taxes on offshore transactions and
broaden tax bases on such transactions, it is difficult to tackle tax avoidance practices.
There is a need for clear legal guidelines distinguishing tax evasion, tax avoidance and
tax planning, and those indicating what type of strategies under what circumstances
would be taxable or subject to penalty. On the other hand, there is also a concern that tax
laws should not harass honest taxpayers. In the era of globalization and liberalization,
competition among multinational corporations has increased tremendously. As a result,
there may be a natural tendency for such companies to try to reduce their 'tax costs' by
28 | P a g e
any affordable means. The challenge lies in framing appropriate legal provisions to
tackle such practices in an unambiguous manner. The General Anti Avoidance Rule (GAAR)
is crucial in this regard, and a policy option for India is to learn from other countries'
experiences (those which have adopted and are practicing GAAR). Countries like
Australia, Canada, Germany, France, South Africa and China have GAAR provisions; India
also needs to introduce such provisions to tackle tax avoidance practices. However, for
proper implementation of GAAR, there is a need to study closely the experiences of
other countries. In-depth discussions are required for distinguishing between
'acceptable' tax avoidance/tax planning practices on the one hand and abusive tax
avoidance practices on the other. With regard to the Double Tax Avoidance Agreements
(DTAAs), the inclusion of appropriate Limitation of Benefit (LoB) clauses between India
and other countries needs to be considered. However, if General Anti Avoidance Rule
(GAAR) has an overriding power over LoB clauses, then appropriate application of GAAR
in tax avoidance practices assumes a crucial role. The role and functioning of the
Dispute Resolution Panel (DRP) would also be vital in this regard.

In Respect of Black Money & Evasion:

A multi-pronged strategy is essential to deal with the issue of generation of black money
and its illicit transfer outside the country and for bringing back to India. The factors
leading to a generation of black money in India along with the various measures attempted
to controvert it make it clear that there is no single remedy to curb, control, and finally,
arrest the generation of black money. In fact, both the Central and State Governments
necessitate a comprehensive mix of well-defined strategies and put into practice in a co-
oriented manner. The effect of black money on the economy of the country cannot be
described as calamitous. Now, India is seriously handicapped in its endeavor to march
forward. The resources required for development are not adequately appearing for the
reasons that business is running on in the ‘black'. Black money is like a cancerous growth
in the country's economy which, if not checked timely will surely bring to its ruination.
This paper makes an attempt to present the various aspects of black money and tax
evasion and also their relationships with the policy and administrative measures in India.

29 | P a g e
It shows the policy and strategies pursuing in the context of current initiatives or
necessitating taking up in the near future to address the issue of black money and tax
evasion and corruption in common life. Black money is a curse to any country and grows
the underground market. Needless to mention that existence of black money has a
significant impact on social, economic and political levels of the Indians which has a
significant effect on every organization of governance and conduct of public policy in
India. It is not possible to curb, control and finally prevent the generation of black money
in near future as well as repatriation of black money rather, it may be possible with
pursuance of a comprehensive mix of well-defined strategies and policies patiently and
perseveringly by the Central and State Governments and putting them into practice in co-
ordinate manner. It is a challenge for the Governments to properly form committees and
run them in an efficient and effective manner.

The Government should leave no stone unturned to bring back black money from abroad
to convert them into "white" money with a view to putting an end of the generation of the
same.

Suggestions to unearth Black Money & curb Tax Evasion in India:

 In a federal structure and democratic nature of Indian governance, any long-term

strategy to deal with black money and tax evasion must ensure public acceptance,
broad-based political acquiescence and commitment to implement it that require
necessary cooperation between the Central and State Governments.
 A globalized economy needs strong initiatives on the part of the Government, mutual
co-operation internationally, institutionalization and expansion of information
exchange network at the international level for checking cross - border flow of illicit
wealth. India should participate in the global crusade against black money.
 In a fast-growing economy like India, storage, and cross - checking of economic
information through a computer and related facilities is essential to generate actionable
intelligence.

30 | P a g e
 Appropriate legislative framework and speedier judicial processes are required to deal
with illicit money and tax frauds.
 Social sector schemes involving public expenditure under various programs reportedly
suffer from possible manipulations and leakages. Direct transfer to the accounts of
beneficiaries can make a solution because it would prevent manipulations like bogus
muster rolls, etc.
 The Hon’ble Prime Minister, Mr. Narendra Modi constituted a Special Investigation
Team (SIT) soon after assuming office on May 26, 2014, to look into the issue of
black money, investigation, initiation of proceedings and prosecution in some high-
profile tax evasion cases.
 Mix strategy for curbing generation of black money from legal and legislative
activities consists of different pillars such as - a) Reducing Disincentives against
Voluntary Compliance (e.g., rationalization of tax rates, reducing transaction costs of
compliance and administration, further economic liberalization, etc.); b) Reforms in
Vulnerable Sectors of the Economy (e.g. financial sector, real estate, bullion and
jeweler sector, cash economy, mining and allocation of property rights over natural
resources, equity trading, misuse of corporate structure for generation of black money,
non-profit organizations and the corporate sector, etc); c) Creating Effective Credible
Deterrence (e.g. integration of databases leading to actionable intelligence by
monitoring agencies strategies to strengthen direct tax administration & prosecution
mechanism, enhanced exchange of information, income-tax overseas units, efforts to
be undertaken at international forums, international taxation and transfer pricing,
effective curbing of structuring through tax havens, supporting indirect tax
administration, Financial Intelligence Unit, Central Economic Intelligence Bureau, the
Directorate of Revenue Intelligence and Enforcement Directorate, Joint Task Force,
etc.)

 Supportive Measures (e.g. creating public awareness and public support, enhancing
the accountability of auditors, protection to whistleblowers and witnesses, need to join
international efforts and use platforms, require to fine-tune relevant laws and
regulations, etc.

31 | P a g e
Strategies for Curbing Generation of Black Money through Illegal or Criminal
Activities
Strategies for curbing the illegal or criminal activities require the active participation of
the State Governments. All political stakeholders should commit themselves to pursue
these activities. Organized crime exists in many areas and often can get mixed up with
unreported legitimate activities in vulnerable sectors. Strict action by either the
Governments is required to curb them. Arresting corruption also requires multipronged
strategies consisting of both broader reforms as well as the more focused capacity of the
building of institutions assigning the responsibility of preventing it. Besides these, there
are other criminal activities also like counterfeit currency, drug trade, and terrorism that
are the usual sources of black money generation and controlling them is one of the
challenges of society. Both the Central and the State Governments should actively draw
out long-term strategies to bring them to a halt.

Strategies for Repatriation of Black Money Stashed Abroad and Issues Related to
Confidentiality of information Strategies include:

 Repatriation of Black Money stashed abroad requires coordination and cooperation

of the other country and to achieve this end, the Government has been sternly
working to evolve an environment and create legal mechanisms through global
consensus and specific bilateral treaties.
 Voluntary Disclosure Schemes and Tax Recovery is another
strategy for bringing back black money stashed overseas .
 Agreement between Countries for Revenue Sharing is also a strategy to arrest black
money. India has already taken up this issue with Switzerland. It requires assessing
the costs and likely benefits of the steps before taking any policy decision. Thus,
India will decide first, as to whether such type of agreement will meet its national
objective.
 Efficient tax machinery capable of cross-checking a large number of invoices through
an elaborate computer system is pre-requisite for the successful implementation of
the VAT. Goods and Service Tax (GST) Act is a right direction in this respect.

32 | P a g e
 It is necessary to change the attitude of the people towards
the Government and its laws.
 The disparity between resources deployed by the multinationals and those available
with tax administration, particularly of developing countries requires vast reforms for
improving the capacity of tax administration and equipping it with necessary
resources to deal with such modern challenges.
 The public should be aware of the fact that tax evasion is antisocial.
 High rates of taxation create a psychological barrier and weaken the capacity and the
will to save and invest.
 Current high level of taxation leaves the Government with little scope for
maneuverability for raising additional resources in times of emergency.
 A committee of experts is essential to inquire into the utility of all existing controls,
licensing, permit systems, and suggest elimination of such of those, which are of no
use.
 Changes in law and procedures necessitate ensuring effective administration of the
controls required for the health of the economy and with the least harassment to the
public.
 The Government should provide reasonable grants -in-aid to national political parties
and recognize such parties and determine the extent of grant-in-aid to each of them. A
donation by taxpayers other than companies to recognized political parties is an
allowable deduction from the income subject to limitations.
 The criteria for selecting cases for Annual scrutiny should be made uniform
throughout the country.
 Entertainment expenditure incurred for the betterment of the taxpayers’ business and
directly related to its active conduct is also deductible up to the ceilings prescribed
under section 37(2) of the Income-tax Act, 1961.
 A penalty based on income strikes the small taxpayers more severely and as such, it
should be about the tax sought to be evaded instead of concerned income. The
current policy of having a statutory minimum for penalties has, on the whole, had a
healthy effect and it should, therefore, be allowed to continue.
 The Department should completely reorient itself to a more vigorous prosecution

33 | P a g e
 policy to instill fear and whole-hearted respect for the tax laws in the minds of the
taxpayers. Further, where there is a reasonable chance of securing a conviction, the tax
dodger should invariably be prosecuted.
 There is a need for complete re-orientation in the Department’s approach to its
methods of intelligence and investigation to cope with the increasing techniques of tax
evasion. The tool followed at the command of the Department should be thoroughly
overhauled and streamlined to tackle the menace of tax evasion efficiently.
 Imparting thorough and intensive training to the officers selected to man the
intelligence and investigation jobs at the central staff training college is a prerequisite
to equip with the necessary expertise for satisfactory performance of their onerous and
responsible tasks.

Agricultural income being outside the central tax net offers plenty of scopes for
camouflaging black money. There is an urgent need to integrate such income to
uniform tax more or less equally with the tax on others to eliminate the scope for
evasion of direct taxes of the union government. Article 269 of the Constitution is
subject to the amendment for inclusion of taxes on agricultural income in the list of
taxes levied and collected by the Union. Agriculture should also contribute to the
National Exchequer in the same way as other sectors are doing. It is also essential for
equity and distributive justice.
 Taxation on unexplained expenditure is necessary.
 Presentation of audited accounts in prescribed format is compulsory in the cases of
business or profession where the sales turnover or receipts exceed the limit. Legal
provisions are required to make it obligatory for all permanent account number
holders to intimate any change in their addresses to the appropriate authorities. The
law will also have to provide adequate measures for ensuring compliance.
 The Government should establish a sufficient number of survey circles to ensure
comprehensive and continuing task on a rotational basis.
 CBDT should lay down every year a program and specify
targets for collection, collation, and diffusion information to secure efficient
functioning of the establishment and
standards of work and performance. The Government should consider the desirability
34 | P a g e
 of prescribing a uniform accounting year for all taxpayers. In that case, the accounting
year should concur with the budget year.
 Stringent legal measures are not sufficient to tackle tax evasion. The public should
support the measures taken` against black money and tax evasion.
 The Government should deny the privileges, which are still available to the tax
evaders.
 The Department should treat those taxpayers as starred assesses who have been
filing correct returns and have been finding prompt and regular in meeting their tax
obligations.
 The Government should not give the absolute power of work to any person as it may
create a monopoly and instead should segregate it among many others.
 More involvement of human beings usually brings about corruption, ultimately
generating black money.
 The transaction cost associated with compliance and administration is one of the
disincentives for generation of black money. The reduction of this cost is essential
though it is a challenge to the Government of India.
 The biggest challenge to the Government of India is to bring back money from
abroad. This goal cannot be achieved by the Government alone as it requires
coordination and cooperation of other countries as well as authorities to fulfill this.
So, the Government needs to evolve an environment and create the legal mechanism
through global consensus, coordination, and specific bilateral treaties.

35 | P a g e
 BIBLIOGRAPHY

PRIMARY SOURCES-

Statue-

1) The Income Tax Act, 1961.

SECONDRY SOURCES-

Books-

1 Jain, Anil Kumar (1987). Tax Avoidance and Tax Evasion: The Indian Case”
Modern Asian Studies, 21, pp 233-255. DoI: 10.1017/S0026749X00013792

2.Acharya, Shankar and Associates, Aspects of the Black Economy in India,

National Institute of Public Finance and Policy, New Delhi, 1985.

3.Gandhi, V.P., Some Aspects of India’s Tax Structure- An Economic Analysis,

Vora& Co. Publishers, Bombay, 1970.

REFERENCES:

• CA Agarwal, Lalit Mohan (2012), “White Paper on Black Money”, Journal of

Securities Academy & Faculty for E- education, Vol.72.
• Dr. Devarajappa, S. Devarajappa (2017), “Tax Evasion in India: A Study of its Impact
on the Revenue of the Government”, EPRA International Journal of Economics and
Business Review, Vol.5, No.9.
• Ghuge, Nishant Ravindra &Dr.Katdare, Vivek Vasantra (2016), “A Comparative
Study of Tax Structure of India with respect to Other Countries”,
InternationalConference on Global Trends in Engineering, Technology and
Management (ICGTETM).
• Singh,Vijay Kumar(January,2009), “Controlling Money Laundering in India-Problems
& Prospectives”, 11th Annual Conference on Money and Finance in the Indian
Economy”, The Indira Gandhi Institute of Development Research.
• Sukanta Sarkar (2010), “The Parallel Economy in India: Causes, Impacts &
Government Initiatives”, Vol. 11-12, No.1-2, pp.124-134.

36 | P a g e
 • Tax Research Team (November, 2016), “Demonetization: Impact on the Economy”,
New Delhi,National Institute of Public Finance and Policy, No.14.
• The Government of India, Ministry of Finance (May, 2012), “White Paper of Black
Money”, Para 2.8.5.
• The Government of India, Ministry of Finance (May, 2012), “White Paper of Black
Money”, Para 2.4.9.
• The Government of India, Ministry of Finance (May, 2012),
“White Paper of Black Money”.
• The Government of India, Planning Commission ( 1997- 2002), “Ninth Five Year
Plan”, Vol. 1, p. 168.
• The Government of India, Planning Commission (1985- 1990), “The Seventh Five
Year Plan”, Vol. 1, p. 71

WEBSITES-

1.http://www.cbgaindia.org/files/recent_publications/Tax%20Dodging.pdf
2.http://articles.economictimes.indiatimes.com/2009-08-19/news/27662841_1_tax-evasion-tax-
liability-general-anti-avoidance-rule
3.http://en.wikipedia.org/wiki/Tax_avoidance
4.http://albinet.com/articles/offshore-company/taxes
5.http://biztaxlaw.about.com/od/businesstaxes/f/taxavoidevade.htm

37 | P a g e