Indian black money

In India, black money is funds earned on

the black market, on which income and
other taxes have not been paid. Also, the
unaccounted money that is concealed
from the tax administrator is called black
money. The black money is accumulated
by the criminals, smugglers, and tax-
evaders. Around ₹22,000 crores are
supposed to have been accumulated by
the criminals for vested interests, though
writ petitions in the supreme court
estimate this to be even larger, at ₹900
lakh crores.[1]

Map of tax havens, using the 2007 proposed "S top Tax Haven Abuse Act"

The total amount of black money

deposited in foreign banks by Indians is
unknown. Some reports claim a total of
US$10.6 – $11.4  trillion is held illegally in
Switzerland.[2] Other reports, including
those reported by the Swiss Bankers
Association and the Government of
Switzerland, claim these reports are false
and fabricated, and the total amount held
in all Swiss bank accounts by citizens of
India is about US$2 billion.[3][4] In
February 2012, the director of India's
Central Bureau of Investigation said that
Indians have US$500 billion of illegal
funds in foreign tax havens, more than
any other country.[5][6] In March 2012, the
government of India clarified in its
parliament that the CBI director's
statement on $500 billion of illegal
money was an estimate based on a
statement made to India's Supreme Court
in July 2011.[7]

In March 2018, it was revealed that the

amount of Indian black money currently
present in Swiss and other offshore
banks is estimated to be ₹300 lakh
crores or US$4 trillion.[8]

Sources of black money

income
The root cause for the increasing rate of
black money in the country is the lack of
strict punishments for the offenders. The
criminals pay bribes to the tax authorities
to hide their corrupt activities. Thus, they
are rarely punished by the judge. The
criminals who conceal their accounts
from the government authorities include
big politicians, film stars, cricketers, and
businessmen. Some Indian corporations
practice transfer mispricing, by under-
invoicing their exports and over-invoicing
their imports from tax haven countries
such as Singapore, UAE, and Hong Kong.
Thus, the promoters of the public limited
companies who hold rarely more than
10% of share capital, earn black money
abroad at the cost of majority share
holders and tax income to the Indian
government.[9] By the year 2008, the
cumulative Illicit Financial Out flows from
the country touched US$452 billion.[9]

Political organizations, corrupt politicians

and government officials take bribes
from foreign companies then park or
invest the money abroad in tax havens
for transferring to India when needed. In
addition, locally earned bribes, funds and
collections are often routed abroad
through hawala channels in order to
evade Indian tax authorities and
consequent legal implications.[10]

In the Vodafone-Hutchison tax case, a

foreign multinational company also
evaded tax payments in India by making
transactions with shell companies
registered in tax haven countries.[3]

The unlawfully acquired money kept

abroad is routed back to India by the
round tripping processes. Round tripping
involves getting the money out of one
country, sending it to a place like
Mauritius and then, dressed up to look
like foreign capital, sending it back home
to earn tax-favoured profits.[11]

Foreign direct investment (FDI) is one of

the legal channels to invest in Indian
stock and financial markets. As per data
released by the Department of Industrial
Policy and Promotion (DIPP), two of the
topmost sources of the cumulative
inflows from April 2000 to March 2011
are Mauritius (41.80 per cent, US$54.227
billion) and Singapore (9.17 per cent,
US$11.895 billion). It is not plausible that
the small economies of Mauritius and
Singapore are the true origins of such
huge investments. It is apparent that the
investments are being routed through
these jurisdictions in order to conceal
from revenue authorities the identities of
such tax evaders; In many cases they are
Indian residents who have invested in
their own companies.[12][13]

Investment in the Indian stock market

through participatory notes (PNs) or
overseas derivative instruments (ODIs) is
another way in which the black money
generated by Indians is re-invested in
India. The investor in PNs does not hold
the Indian securities in her or his own
name. These are legally held by the FIIs,
but derive economic benefits from
fluctuations in prices of the Indian
securities, as also dividends and capital
gains, through specifically designed
contracts.

Foreign funds received by charitable

organisations, non-government
organisations (NGOs) and other
associations need not disclose the Indian
beneficiary.[3]

Gold imports through official channel and

smuggling is a major conduit to bring
back the black money from abroad and
convert into local black money as the
gold commands high demand among the
rural investors particularly.[14] Also
fictitious high value round trip
transactions via tax haven countries by
diamonds and precious stones exporters
and importers is a channel for to and fro
transactions outside the country.[15] Also,
fictitious software exports can be
booked by software companies to bring
black money into India as tax exemptions
are permitted to software companies.

Unlike in earlier decades, the interest

rates offered abroad in US currency is
negligible and there is no capital
appreciation if the money is parked
abroad by the Indians. So, Indians are
routing their foreign funds back to India
as the capital appreciation in Indian
capital markets is far more attractive.[16]
The use of Swiss banks for
storing black money
In early 2011, several reports in the Indian
media alleged Swiss Bankers
Association officials to have said that the
largest depositors of illegal foreign
money in Switzerland are Indians.[2][17]
These allegations were later denied by
Swiss Bankers Association as well as the
central bank of Switzerland that tracks
total deposits held in Switzerland by
Swiss and non-Swiss citizens, and by
wealth managers as fiduciaries of non-
Swiss citizens.[3][4][18]
James Nason of Swiss Bankers
Association in an interview about allowed
black money from India, suggests "The
(black money) figures were rapidly picked
up in the Indian media and in Indian
opposition circles, and circulated as
gospel truth. However, this story was a
complete fabrication. The Swiss Bankers
Association never said or published such
a report. Anyone claiming to have such
figures (for India) should be forced to
identify their source and explain the
methodology used to produce
them."[4][19]

In August 2010, the government revised

the Double Taxation Avoidance
Agreement to provide means for
investigations of black money in Swiss
banks. This revision, expected to become
active by January 2012, will allow the
government to make inquiries of Swiss
banks in cases where they have specific
information about possible black money
being stored in Switzerland.[20]

In 2011, the Indian government received

the names of 782 Indians who had
accounts with HSBC. As of December
2011, the Finance Ministry has refused to
reveal the names, for privacy reasons,
though they did confirm that no current
Members of Parliament are on the list. In
response to demands from the Bharatiya
Janata Party (BJP) opposition party for
the release of the information, the
government announced on 15 December
that, while it would not publish the
names, it would publish a white paper
about the HSBC information.[21]

According to White Paper on Black

Money in India report, published in May
2012, Swiss National Bank estimates
that the total amount of deposits in all
Swiss banks, at the end of 2010, by
citizens of India were CHF 1.95 billion
(INR 92.95 billion, US$2.1 billion). The
Swiss Ministry of External Affairs has
confirmed these figures upon request for
information by the Indian Ministry of
External Affairs. This amount is about
700 fold less than the alleged $1.4 trillion
in some media reports.[3]

In February 2012, Central Bureau of

Investigation (CBI) director A P Singh
speaking at the inauguration of first
Interpol global programme on anti-
corruption and asset recovery said: "It is
estimated that around 500 billion dollars
of illegal money belonging to Indians is
deposited in tax havens abroad. Largest
depositors in Swiss Banks are also
reported to be Indians". In a hint at
scams involving ministers, Singh said: "I
am prompted to recall a famous verse
from ancient Indian scriptures, which
says – यथा राजा तथा प्रजा. In other words, if
the King is immoral so would be his
subjects"[5][22] The CBI Director later
clarified in India's parliament that the
$500 billion of illegal money was an
estimate based on a statement made to
India's Supreme Court in July 2011.[7]

After formal inquiries and tallying data

provided by banking officials outside
India, the government of India claimed in
May 2012 that the deposits of Indians in
Swiss banks constitute only 0.13 per cent
of the total bank deposits of citizens of
all countries. Further, the share of Indians
in the total bank deposits of citizens of
all countries in Swiss banks has reduced
from 0.29 per cent in 2006 to 0.13 per
cent in 2010.[3]

The through the Investigation Division of

the Central Board of Direct Taxes
released a White Paper on Black Money
giving the Income Tax Department
increased powers.[23]

2015 HSBC leaks

In February 2015,balances for the year
2006–07 in HSBC's Geneva branch. The
list was obtained by French newspaper
Le Monde and included the names of
several prominent businessmen, diamond
traders and politicians.[24] The number of
Indian HSBC clients is roughly double the
628 names that French authorities gave
to the Indian Government in 2011.[25]
Indian government said it will probe into
this matter.[26] The balance against the
1195 names stood at ₹25,420 crore
(US$3.2 billion).[27]

The list which had names of dictators

and international criminals, was
simultaneously published by news
organisations in 45 countries including
The Guardian, UK; Haaretz, Israel; BBC,
London.[28] HSBC had helped its clients
evade taxes[29] and said in a statement
that "standards of due diligence were
significantly lower than today."[30]
2016 Panama Papers leak
The 2016 Panama Papers scandal is the
largest-ever leak of information on black
money in history.[31] International
Consortium of Investigative Journalists
first obtained the leaked information,
revealing over 11 million documents.
These documents pertain to 214,000
offshore entities and span almost 40
years. The papers originated from
Mossack Fonseca, a Panama-based law
firm with offices in more than 35
countries. The list of names exposed in
the scandal includes 500 Indians who
flouted rules and regulations, such as
Amitabh Bachchan, Aishwarya Rai, Niira
Radia,[32] KP Singh, Garware family,
Harish Salve, and others.[33][34][35]

2016 demonetisation drive

From 2011 to 2014, the BJP included the
return of Indian black money in their
manifesto. In speeches, their prime
ministerial candidate Narendra Modi
promised to get this black money
(estimated to be ₹90 lakh crores or
US$1500 billion) back to India.

On 8 November 2016, in a sudden

address to the nation, the Prime Minister
Narendra Modi announced that
banknotes of ₹500 and ₹1000 would
cease to be legal tender from midnight.
He said this decision was taken to crack
down on black money and corruption
which was destroying the country. He
also said that the process of cash
circulation was directly related to
corruption in his country impacting the
lower classes of society.[36][37][38]
However, neither Indian banks, nor the
Reserve Bank of India (RBI) were
adequately prepared for this, resulting in
currency shortages up to March 2018
and difficulties for Indian citizens.[39]

As per government figures, the number of

income tax returns filed for 2016–17
grew by 25 per cent to 2.82 crores
(compared to growth rate of 9.9% in the
previous year), and the advance tax
collections during that period rose 41.8%
over the one-year period, as more
individuals filed their tax returns after
demonetization.[40][41] By 28 December
2016, official sources said that the
Income Tax department detected over
₹41.72 billion (US$520 million) of un-
disclosed income and seized new notes
worth ₹1.05 billion (US$13 million) as
part of its country-wide operations. The
department carried out a total of 983
search, survey and enquiry operations
and has issued 5,027 notices to various
entities on charges of tax evasion and
hawala-like dealings. The department
also seized cash and jewellery worth
over ₹5.49 billion (US$69 million) out of
which the new currency seized (the
majority of them ₹2000 notes) is valued
at about ₹1.05 billion (US$13 million).
The department also referred a total of
477 cases to other agencies like the CBI
and the Enforcement Directorate (ED) to
probe other financial crimes like money
laundering, disproportionate assets and
corruption.[42]

Domestic black money

The Economic Times reported that Indian
companies as well as politicians
routinely misuse public trusts for money
laundering. India has no centralized
repository— like the registrar of
companies for corporates—of
information on public trusts.[43]

SIT and Supreme court case

Noted jurist and former law minister Ram
Jethmalani along with many other well
known citizens filed a Writ Petition (Civil)
No. 176 of 2009 in the Supreme Court of
India (SC) seeking the court's directions
to help bring back black money stashed
in tax havens abroad and initiate efforts
to strengthen the governance framework
to prevent further creation of black
money.[44]

In January 2011, the SC asked why the

names of those who have stashed
money in the Liechtenstein Bank have not
been disclosed.[45] The court argued that
the government should be more
forthcoming in releasing all available
information on what it called a "mind-
boggling" amount of money that is
believed to be held illegally in foreign
banks.[46]

The SC on 4 July 2011, ordered the

appointment of a Special Investigating
Team (SIT) headed by former SC judge
BP Jeevan Reddy to act as a watch dog
and monitor investigations dealing with
the black money. This body would report
to the SC directly and no other agency
will be involved in this. The two judge
bench observed that the failure of the
government to control the phenomenon
of black money is an indication of
weakness and softness of the
government.[47]

The issue of unaccounted

monies held by nationals, and
other legal entities, in foreign
banks, is of primordial
importance to the welfare of
the citizens. The quantum of
such monies may be rough
indicators of the weakness of
the State, in terms of both
crime prevention, and also of
 tax collection. Depending on
the volume of such monies, and
the number of incidents
through which such monies
are generated and secreted
away, it may very well reveal
the degree of "softness of the
State."

— Justice B Sudershan
Reddy and Justice S S
Nijjar, Supreme Court of
India, Source:[44]

The government subsequently

challenged this order through
Interlocutory Application No. 8 of 2011.
The bench (consisting of Justice Altamas
Kabir in place of Justice B Sudershan
Reddy, since Justice Reddy retired) on 23
September 2011 pronounced a split
verdict on whether government plea is
maintainable. Justice Kabir said that the
plea is maintainable while Justice Nijjar
said it is not. Due to this split verdict, the
matter will be referred to a third
judge.[48][49]

In April 2014, Indian Government

disclosed to the Supreme Court the
names of 26 people who had accounts in
banks in Liechtenstein, as revealed to
India by German authorities.[50]
On 27 October 2014, Indian Government
submitted name of three people in an
affidavit to the Supreme Court who have
black money account in foreign
countries.[51] But on the very next day,
Supreme Court of India orders centre
Government to reveal all the names of
black money account holders which they
had received from various countries like
Germany. The honorable bench of the
Supreme court also asked the Centre not
to indulge in any kind of probe rather just
pass the names to them and Supreme
court will pass the order for further
probe.[52]
But the facts were the other way round,
as the clarification affidavit filed by the
Finance Ministry on 27 October
revealed.[53] The affidavit asserted that a
complete list of cases where information
had been obtained from the German and
French governments, with the status of
the action taken by the government was
submitted by the Central Board of Direct
Taxes on 27 June. It added that the CBDT
officials also met and briefed the SIT on
the status of the cases, background of
the information received, non-sharing of
information by Swiss authorities, and
constraints faced by the government and
alternative methods of securing account
details.[54]
On 12 May 2015, Ram Jethmalani
attacked Modi Government for failing to
bring back the Black money as was
promised before Election.[55][56][57]

International tax lawyer Ashish Goel has

argued that the Modi Government failed
miserably to take steps to bring back
black money stacked in foreign
banks.[58][59]

On 2 November 2015, HSBC

whistleblower Herve Falciani said he is
willing to "cooperate" with the Indian
investigative agencies in black money
probe but would need "protection".
Prashant Bhushan and Yogendra Yadav
furnished a letter written by Falciani on
21 August 2015, to Justice (retd) M B
Shah, who is heading the SIT on black
money.[60][61] Under the supervision of the
SIT the I-T department has recovered just
around Rs 3,500 crore from some of the
account holders and expected to recover
a total of 10000 crore till March 2015.[62]

Double taxation agreements

Indian Government has repeatedly

argued before the Court that it cannot
divulge the names. It has further argued
that the privacy of individuals would be
violated by the revelation of data. These
arguments are only designed to stall the
revelation of names of some favoured
entities. BJP leader Dr. Subramanian
Swamy said that DTA was not a valid
reason for not revealing names of the
accounts of Indians held in foreign
banks.[63][64]

DTA Agreement is about declared white

incomes of entities so that tax may be
levied in one or the other country and not
in both. Black income is not revealed in
either of the two countries so there is no
question of double taxation. Further, this
data would not be available to either of
the two countries to be exchanged. It is
no wonder then that till date, no data has
been supplied to India by any of the
countries with which this treaty has been
signed. In brief, DTAA is about white
incomes and not black incomes, so it is
disingenuous to say that in future no data
would be given to us if names are given
to courts.[65]

Criticism of government

Different governments have tried to stall

SIT.[66] A bank has been revealed to have
acted like a "hawala" operator.[67] Other
MNC and private Indian banks are also
suspected to have indulged in these
activities.[65]
The HSBC Black money whistleblower
Herve Falciani, who works with a team of
lawyers and experts, told NDTV that
there is "1000 times more information"
available for investigators and there are a
lot of business procedures to be unveiled
to them. "It's just up to (the Indian
administration). They can contact us," he
said. He said India was given only 2 MB
of the 200 GB of data. "If India asks
tomorrow we will send a proposal
tomorrow," he added.[68] On 2 November
2015, Falciani told in a press conference
organised by Prashant Bhushan and
Yogendra Yadav that, India has not used
information on those illegally stashing
away black money in foreign bank
accounts, and still millions of crores
were flowing out.[60][69][70]

Hasan Ali case

Hasan Ali was arrested by Enforcement
Directorate and the Income Tax
Department on charges of stashing over
₹60 billion in foreign banks.[71] ED
lawyers said Hasan Ali had financed
international arms dealer Adnan
Khashoggi on several occasions.[72]

However, media sources claimed this

case is becoming yet another perfect
instance of how investigative agencies
like Income Tax Department go soft on
high-profile offenders.[73][74][75][76] Hasan
Ali's premises were raided by ED as far
back as 2016. According several news
reports, the probe against him has
proceeded at an extremely slow pace
and seems to have hit a dead
end.[77][78][79][80][81][82]

Today claimed that it had verified a letter

confirming the US$8 billion in black
money was in UBS bank account, and the
government of India too has verified this
with UBS.[83]

The UBS bank has denied Indian reports

alleging that it maintained a business
relationship with or had any assets or
accounts for Hasan Ali. Upon formal
request by Indian and Thailand
government authorities, the bank
announced that the documentation
supposedly corroborating such
allegations were forged, and numerous
media reports claiming US$8 billion in
stashed black money were false.[84][85]
Today, in a later article, wrote, "Hasan Ali
stands accused of massive tax evasion
and stashing money in secret bank
accounts abroad. But the problem is that
the law enforcement agencies have
precious little evidence to back their
claims. For one, UBS Zurich has already
denied having any dealings with Hasan
Ali."[86]
Estimates
As Schneider estimates, using the
dynamic multiple-indicators multiple-
causes method and by currency demand
method, the size of India's black money
economy is between 23 and 26%,
compared to an Asia-wide average of 28
to 30%, to an Africa-wide average to 41
to 44%, and to a Latin America-wide
average of 41 to 44% of respective gross
domestic products. According to this
study, the average size of the shadow
economy (as a percent of "official" GDP)
in 96 developing countries is 38.7%, with
India below average.[87][88][89]
Public protests and
government's response
In May 2012, the Government of India
published a white paper on black money.
It disclosed India's effort at addressing
black money and guidelines to prevent
black money in the future.[3]

MC Joshi committee

After a series of ongoing demonstrations

and protests across India, the
government appointed a high-level
committee headed by MC Joshi (the then
CBDT Chairman[90]) in June 2011 to study
the generation and curbing of black
money. The committee finalised its draft
report on 30 January 2012. Its key
observation and recommendations
were:[91]

1. The two major national parties (an

apparent reference to Indian
National Congress, BJP) claim to
have incomes of merely ₹5 billion
(US$63 million) and ₹2 billion
(US$25 million). But this isn't "even a
fraction" of their expenses. These
parties spend between ₹100 billion
(US$1.3 billion) and ₹150 billion
(US$1.9 billion) annually on election
expenses alone.[91]
2. Change maximum punishment under
Prevention of Corruption Act from
the present 3, 5 and 7 years to 2, 7
and 10 years rigorous imprisonment
and also changes in the years of
punishment in the Income Tax
Act.[91]
3. Taxation is a highly specialised
subject. Based on domain
knowledge, set up all-India judicial
service and a National Tax
Tribunal.[91]
4. Just as the USA Patriot Act under
which global financial transactions
above a threshold limit (by or with
Americans) get reported to law
 enforcement agencies, India should
insist on entities operating in India
to report all global financial
transactions above a threshold
limit.[91]
5. Consider introducing an amnesty
scheme with reduced penalties and
immunity from prosecution to the
people who bring back black money
from abroad.[91]

Tax Information Exchange

Agreements

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.[92]

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.[93]
Demonetisation of 500 and
1000 rupee currency notes
Following recommendations from the
OECD on curbing black money on 22–23
February 2014 and previous moves by the
RBI, on the night of 8 November 2016 the
Indian Government decided to ban old
notes and change them with new 500 and
2000 rupee notes. Similar moves had
been made earlier in pre-independence
era in 1946 and also in 1978 by the first
non-Congress government called Janata
government.[94] ATMs all over India
remained closed for two days and banks
for one day. Also, until 31 December,
people were only allowed to withdraw Rs
2,500 maximum per day from ATMs, Rs
24,000 per week from banks.[95] Online
bank transactions have been granted
exemption from such limits. The issuing
of the ₹2000 sought to throw hoarders of
black money off by rendering the cash
money they held in large denomination
currency notes as useless. This meant
they would need to get the notes
exchanged at a bank or post office, which
would be near impossible due to the
exchange limits. Additionally, banks and
authorities would question the large
amounts of cash held by many hoarders,
who now risked an official investigation
being launched into their money situation.
Economists and financial analysts
believe that a large percentage of black
money being held in cash in India would
now be brought into the mainstream
economy through the banks, which would
bolster economic growth over the long
term. Furthermore, the move is also
intended as a way to cut down on the
funding of terrorism, by rendering useless
the large currency denominations of
black money or counterfeit currency
being paid to sleeper cells.[96]

Previous Information

In 2012, the Central Board of Direct Taxes

had recommended demonetisation,
saying in a report that "demonetisation
may be a solution for tackling black
money or economy, although it is largely
held in the form of benami properties,
bullion and jewellery".[97][98] According to
data from income tax probes, black
money holders keep about 9% of their ill-
gotten wealth as cash, hence targeting
this cash may be considered as a
successful strategy.[99]

On 28 October 2016 the total banknotes

in circulation in India was ₹17.77 trillion
(US$220 billion). In terms of value, the
annual report of Reserve Bank of India
(RBI) of 31 March 2016 stated that total
bank notes in circulation valued to
₹16.42 trillion (US$210 billion) of which
nearly 86% (around ₹14.18 trillion
(US$180 billion)) were ₹500 and ₹1,000
banknotes.[100] In terms of volume, the
report stated that 24% (around 22.03
billion) of the total 90266 million
banknotes were in circulation.[101]

In the past, the Bharatiya Janata Party

(BJP) had opposed demonetisation. BJP
spokesperson Meenakshi Lekhi had said
in 2014 that "The aam aurats and the
aadmis (general population), those who
are illiterate and have no access to
banking facilities, will be the ones to be
hit by such diversionary
measures."[102][103][104][105]
The Government of India devised an
Income Declaration Scheme (IDS), which
opened on 1 June and ended on 30
September 2016. Under the scheme, the
black money holders could come clean
by declaring the assets, paying the tax
and penalty of 45% thereafter.[106]

Modi said that the queues due to

demonetisation were the last queues that
would end all other queues.[107][108]
Proposals to prevent Indian
black money

History

Even in colonial India, numerous

committees and efforts were initiated to
identify and stop underground economy
and black money with the goal of
increasing the tax collection by the British
Crown government. For example, in 1936
Ayers Committee investigated black
money from the Indian colony. It
suggested major amendments to protect
and encourage the honest taxpayer and
effectively deal with fraudulent
evasion.[109]
Current Proposals

In its white paper on black money, India

has made the following proposals to
tackle its underground economy and
black money.[3]

Reducing disincentives against

voluntary compliance

Excessive tax rates increase black

money and tax evasion. When tax rates
approach 100 per cent, tax revenues
approach zero, because higher is the
incentive for tax evasion and greater the
propensity to generate black money. The
report finds that punitive taxes create an
economic environment where economic
agents are not left with any incentive to
produce.

Another cause of black money, the report

finds is the high transaction costs
associated with compliance with the law.
Opaque and complicated regulations are
other major disincentive that hinders
compliance and pushes people towards
underground economy and creation of
black money. Compliance burden
includes excessive need for compliance
time, as well as excessive resources to
comply.
Lower taxes and simpler compliance
process reduces black money, suggests
the white paper.[3]

Banking transaction tax

Arthakranti, Pune-based think-tank has

outlined policy prescription that involves
replacement of most direct and indirect
levies with a banking transaction tax and
de-monetisation of currency notes of Rs
500 and Rs 1,000 to help prevent Indian
black money, ease inflation, improve
employment generation and also lower
corruption.[110][111]
Economic liberalisation

The report suggests that non-tariff

barriers to economic activity such as
permits and licences, long delays in
getting approvals from government
agencies are an incentive to proceed with
underground economy and hide black
money. When one can not obtain a
licence to undertake a legitimate activity,
the transaction costs approach infinity,
and create insurmountable incentives for
unreported and unaccounted activities
that will inevitably generate black money.
The successive waves of economic
liberalisation in India since the 1990s
have encouraged compliance and taxes
collected by the government of India
have dramatically increased over this
period. The process of economic
liberalisation must be relentlessly
continued to further remove underground
economy and black money, suggests the
report.[3]

Reforms in vulnerable sectors of the

economy

Certain vulnerable sectors of Indian

economy are more prone to underground
economy and black money than others.
These sectors need systematic reforms.
As example, the report offers gold
trading, which was one of the major
sources of black money generation and
even crime prior to the reforms induced in
that sector. While gold inflows into India
have remained high after reforms, gold
smuggling is no longer the menace as it
used to be. Similar effective reforms of
other vulnerable sectors like real estate,
the report suggests can yield a
significant dividend in the form of
reducing generation of black money in
the long term.

The real estate sector in India constitutes

about 11 per cent of its GDP. Investment
in property is a common means of
parking unaccounted money and a large
number of transactions in real estate are
not reported or are under-reported. This
is mainly on account of very high levels
of property transaction taxes, commonly
in the form of stamp duty. High
transaction taxes in property are one of
the biggest impediments to the
development of an efficient property
market. Real estate transactions also
involve complicated compliance and high
transactions costs in terms of search,
advertising, commissions, registration,
and contingent costs related to title
disputes and litigation. People of India
find it easier to deal with real estate
transactions and opaque paperwork by
paying bribes and through cash
payments and under-declaration of value.
Unless the real estate transaction
process and tax structure is simplified,
the report suggests this source of black
money will be difficult to prevent. Old and
complicated laws such as the Urban
Land Ceiling Regulation Act and Rent
Control Act need to be repealed, property
value limits and high tax rates eliminated,
while Property Title Certification system
dramatically simplified.[3]

Other sectors of Indian economy needing

reform, as identified by the report, include
equity trading market, mining permits,
bullion and non-profit organisations.
Creating effective credible
deterrence

Effective and credible deterrence is

necessary in combination with reforms,
transparency, simple processes,
elimination of bureaucracy and
discretionary regulations. Credible
deterrence needs to be cost effective,
claims the report.[3] Such deterrence to
black money can be achieved by
information technology (integration of
databases), integration of systems and
compliance departments of the Indian
government, direct tax administration,
adding data mining capabilities, and
improving prosecution processes.
Supportive measures

Along with deterrence, the report[3]

suggests public awareness initiatives
must be launched. Public support for
reforms and compliance are necessary
for long-term solution to black money. In
addition, financial auditors of companies
have to be made more accountable for
distortions and lapses. The report
suggests Whistleblower laws must be
strengthened to encourage reporting and
tax recovery.
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 and are unfair to
honest taxpayers, as well as for their
failure to achieve the objective of
unearthing undisclosed money. The
report[3] suggests that such amnesty
programmes can not be an effective and
lasting solution, nor one that is routine.
Excessive demonetised currency
notes

After the recent demonetisation of old

500 and 1000 Rs notes, Reserve Bank of
India (RBI) collected these notes in
excess of (more than INR 2 trillions) what
it had officially released into circulation
earlier.[101] The value of fake notes
received by RBI is negligible compared to
total value. GoI shall conduct thorough
probe to reveal how it has happened and
bring to book the culprits. This could
have happened by unscrupulous
politicians yielding power with the
connivance of RBI top brass to plunder
wealth of the nation.
International enforcement

India has Double Tax Avoidance

Agreements with 82 nations, including all
popular tax haven countries. Of these,
India has expanded agreements with 30
countries which requires mutual effort to
collect taxes on behalf of each other, if a
citizen attempts to hide black money in
the other country. The report[3] suggests
that the Agreements be expanded to
other countries as well to help with
enforcement.
Modified currency notes

Government printing of such legal

currency notes of highest denomination
i.e.; ₹1,000 (US$13) and ₹500 (US$6.30)
which remain in the market for only 2
years. After a 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 cease to be accepted
as legal tender or destroyed under the
instructions of The Reserve Bank of
India. As a consequence turning most of
the unaccountable money into
accountable and taxable money.
Holding United States currency

Many people in India who want to stash

black money keep it as cash in US$ which
will fetch appreciation in its value also as
the INR gets devalued against US
currency. GoI should tighten the rules to
prevent acquiring/holding of the foreign
currency (FC) cash in huge quantities by
tracking cash transactions in US$ and
limiting FC availability in small value
through reputed banks / authorised firms
by cashless transaction only. Smuggling
of US$ into the country by NRIs, foreign
tourists shall be curbed at entry ports.
NRIs / foreign tourists shall conduct
cashless transactions for acquiring INR
currency, etc. All Indians who are going
abroad should use international credit /
debit cards instead of carrying US$ in
cash with them. This would also prevent
international trade in narcotics, terrorist
funding, etc.

Corruption in education

Many institutions that are meant to

provide education have been promoting
corruption, and education has been a
major contributor to domestic black
money in India. Single common entrance
exams for various professional courses
(medicine and allied, engineering and
allied, business management and
allied),[112] releasing the audited financial
statements of the trusts/not-for-profit
organizations that own these educational
institutions in the public domain (website,
a common e-repository), stoppage of
government funds from AICTE, DST etc.
to such institutions, are some of the
suggestions to reduce the generation of
black money in education.[113] As per a
report submitted by National Institute of
Public Finance and Policy (NIPFP) to the
Finance Ministry in December 2013, the
capitation fees collected by private
colleges, on management quota seats in
professional courses, the previous year
was around Rs 5,953 crores.[114]
Withdrawal of currency notes of
higher denomination

There have been suggestions to withdraw

currency notes of higher denominations,
such as the 2000 rupee notes.[115][116][117]
While this could lead to an increase in
printing costs for the RBI, these costs
should be weighed against the costs for
misuse of high-value notes.[118]

Books
Black money in India has been a popular
subject of discussion but not many
books have been authored on the
subject.
Books that have been authored on the
subject of black money in India include:

1. The Black White & Grey: Re-coloring

the Rupiah by Pragun Akhil
Jindal[119][120][121][122][123][124][125]
2. The Black Economy by Arun Kumar

The Black White & Grey

The book The Black White & Grey: Re-

Coloring The Rupiah, authored by Pragun
Jindal and published by Money Worries,
looks at the black money menace and
ways to curb it.

Senior Congress Leader Manish Tewari

and political commentator Paranjoy Guha
Thakurta on 13 December 2016 launched
the book, which attempts to debunk "a lot
of lies, unknown facts and baseless
rumours about Black Money".

"A delinquent like poverty only affects the

poor, unemployment affects those who
are unemployed, alcoholism and drug
abuse affect those who devour them,
black money is a hitch which does not
affect persons who amass 'black dough'
but it affects the common man in the
populace", said the author at the book's
launch event.[119][120][121][122][123][124][125]
Estimates of Black Money in
India by various
organizations
Organization Estimation of Black money in India

Int ernat ional Monet ary Fund 50% of gross domest ic product

Cent ral Bureau of Invest igat ion (India) ₹25 lakh crores

World Bank 20% of gross domest ic product

In India, there is a lack of deterrent

punishment for holding black money. As
per one survey Between 2008 and 2012,
more than 20,000 cases of corruption
were filed and only 20 percent of cases
reached final conclusion.

Indian economy is also called parallel

economy or shadow economy because it
is very difficult to distinguish between
black money and white money of the
total money circulated in the economy.

It is important to mention that Black

money is generated by one person but its
effect is felt by another person. For
Instance, the government is not able to
form and implement apt social welfare
policies for poor and disadvantaged
people of society due to low level of tax
revenue as people holding black money
do not pay taxes

It is also important to mention that black

money can also be generated by legal
sources also. For Instance, those
government doctors and teachers who
do private practice at home violate laws
as they are not allowed to do private
practice and consequently do tax evasion
by not disclosing taxable income. This
results in the generation of black money
as it affects the tax revenue of the
government.

Moreover, some forms of betting are

legal (not counted in black money) in
India like winning money from horse
races.

See also
India
portal
Money
portal
 Black Money (Undisclosed Foreign
Income and Assets) and Imposition of
Tax Act, 2015
Corruption in India
Debt bondage in India
Gold import policy of India
Nagarwala case
List of scandals in India
2012 Indian anti-corruption movement
2011 Indian anti-corruption movement
International asset recovery
United Nations Convention against
Corruption

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External links
Dharma Shastras on Black Money,
Corruption and paying Interest (https://
hinduism.stackexchange.com/q/1578
4/18848)

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"https://en.wikipedia.org/w/index.php?
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