Black Money

Jaiprakash
 What Is Black Money?

• Black money includes all funds earned through illegal

activity and otherwise legal income that is not
recorded for tax purposes. Black money proceeds are
usually received in cash from underground economic
activity and, as such, are not taxed. Recipients of black
money must hide it, spend it only in the underground
economy, or attempt to give it the appearance of
legitimacy through money laundering.
 How does Black Money Works?

• In its simplest form, black money is money on which tax is

not paid to the government. Suppose a store accepts cash for
its merchandise and does not issue receipts to its customers.
That store is transacting in black money, as it would not pay
tax on the unrecorded sales. As another example, consider a
property buyer who purchases land valued at Rs20,00,000. If
the buyer only reports Rs 50,000 on the books and pays
Rs1,50,000 under the table, then there is a black money
transaction worth Rs1,50,000. The sellers in both examples
have earned money from legal sources but evaded taxes.
• The most common source of black money is the black
market or underground economy. Activities in the
black market may include selling prohibited drugs,
gunrunning, terrorism, and human trafficking. Black
market activities also involve less severe offenses,
such as the sale of counterfeit goods, stolen credit
cards, or pirated versions of copyrighted material.
• The portion of a country's income tied to black money
affects the economic growth of the country. Black
money causes financial leakage, as unreported
income that is not taxed causes the government to
lose revenue. In addition, these funds rarely enter the
banking system. As a result, it can be more difficult for
legitimate small businesses and entrepreneurs to
obtain loans.
• Furthermore, black money causes the financial health of a
nation to be underestimated. It is extremely difficult to
estimate the amount of black money in any economy. That
is not surprising, given that participants in the underground
economy have strong incentives to conceal their activities.
These unreported earnings cannot be included in a
country’s gross national product (GNP) or gross domestic
product (GDP). Thus, a nation's estimates of savings,
consumption, and other macroeconomic variables would be
misleading. These inaccuracies adversely affect planning and
policymaking.