Black Moneys in India and Global Efforts to Combat

Black money in India is a significant problem, with estimates suggesting it adds up to a staggering 3.2 trillion rupees, or about 20% of the country's GDP. This is a massive amount, equivalent to the annual budget of many developing countries.

The Indian government has been trying to combat black money through various measures, including demonetization, which was implemented in 2016. This move led to the withdrawal of 500 and 1000 rupee notes from circulation, resulting in a significant reduction in cash transactions.

The global community is also taking steps to combat black money, with the OECD (Organisation for Economic Co-operation and Development) playing a key role. The OECD has developed a framework for automatic exchange of information, which aims to prevent tax evasion and money laundering. This framework has been adopted by over 100 countries, including India.

Black money is often created through various means, and it's essential to understand these sources to tackle the issue effectively. Sellers or traders who don't provide bills or receipts are a significant source of black money.

Many people invest in bullion or jewelry to hide their actual income from the authorities, which is a common practice in India. This practice is often used to evade taxes and is a major contributor to the country's black money problem.

In the real estate sector, people often undervalue their properties to avoid paying the correct amount of property tax. This is a clever way to cheat the government out of rightful taxes, but it's also a form of black money creation.

Some Self-Help Groups (SHGs) and trusts don't provide proper sources for their funds and donations received, which can be a source of black money. This lack of transparency makes it difficult to track the flow of money and can lead to tax evasion.

Tax havens are small countries with liberal regulatory frameworks that allow big corporations to set up shell companies and reduce their tax liabilities. India's share in tax havens globally is estimated to be $152-181 billion or Rs. 10 lakh crore.

Hawala is an informal method of money transfer that uses codes, contacts, and trust to move money without any paperwork. This method is often used to hide black money and is a significant challenge for tax authorities.

Investments through participatory notes are another means of hiding black money. These derivative instruments allow individuals to invest in assets without revealing their identities or sources of funds.

Here are some key statistics that highlight the scope of black money in India:

The Indian government has taken several steps to reduce black money, including demonetization in 2016, the Black Money Act of 2015, changes to the Benami Property Act, and more strict tax rules under the Income Tax Act.

Tax reforms have been initiated to resist black money, with an increased tax base and reduced rates. The government has also allowed the reporting of black money generated through tax evasion in a given time frame through the Black Money Bill.

The government is encouraging cashless/digital transactions to make things more transparent. This has helped lower the use of cash, which is often not reported. UPI (Unified Payments Interface) has been a key player in this shift, making it harder for illegal money to move around.

Some key government initiatives to tackle black money include:

These efforts have had some success, but they have also faced strong criticism for only addressing the issue temporarily and not tackling the root causes of black money.

Swiss Bank Storage is a popular choice for individuals looking to stash their black money.

The Swiss Bank Secrecy Law, which was introduced in 1934, allows banks to keep client information confidential.

Swiss banks have been criticized for their lax regulations and lack of transparency, making it easy for individuals to hide their black money.

The Swiss government has implemented various measures to curb black money, including the introduction of Automatic Exchange of Information (AEOI) in 2017.

However, the Swiss Bank Secrecy Law still remains a major obstacle in the fight against black money.

The Indian government has taken several measures to curb black money, and it's worth exploring some of these initiatives.

Tax reforms have been initiated to resist black money, with the tax base being increased and rates being slashed.

The government has also introduced the Black Money Bill, which allows for the reporting of black money generated through tax evasion within a given time frame.

Demonetisation of Rs.500 and Rs.1000 currency notes was carried out in 2016 to make black money useless.

The government is encouraging cashless/digital transactions to make things more transparent.

To tackle black money, the government has also introduced the Income Disclosure Scheme (IDS), which allows people to report previously unreported income and pay a penalty on the disclosed amount.

The Income Tax Department has been actively involved in detecting and seizing un-disclosed income and cash.

Some of the key actions taken by the government include:

The government has also taken steps to improve tax compliance, such as increasing the number of income tax returns filed and collecting more advance tax.

The Reserve Bank of India (RBI) collected excess demonetized currency notes worth over INR 2 trillions.

The government has also introduced digital payment systems, such as UPI and GST, to reduce the use of cash and prevent tax evasion.

In the 2024 Union Budget, the government introduced tougher rules to catch and punish tax evasion, including more detailed reporting and higher fines.

Public awareness initiatives and whistleblower laws have also been suggested to encourage reporting and tax recovery.

Excessive tax rates can actually increase black money and tax evasion. This is because higher tax rates create a strong incentive for people to hide their income and assets.

Punitive taxes can make it pointless to produce, as tax revenues can approach zero when tax rates are too high. For example, when tax rates approach 100 percent, people are more likely to evade taxes and generate black money.

High transaction costs associated with compliance can also drive people to the underground economy and create black money. Opaque and complicated regulations can make it difficult to comply with the law, leading to a higher likelihood of tax evasion.

A simpler compliance process can help reduce black money, as suggested by a report. This can be achieved by reducing taxes and making it easier for people to comply with the law.

Here are some examples of how governments have reduced disincentives for voluntary compliance:

By reducing disincentives for voluntary compliance, governments can create an environment that encourages people to comply with the law and reduces the likelihood of black money.

Excessive tax rates can actually decrease tax revenues, because people are more likely to evade taxes when rates are high. Tax rates approaching 100% can even lead to zero tax revenues.

Punitive taxes create an environment where people have no incentive to produce. This is because they'd rather hide their income and avoid taxes altogether.

High transaction costs associated with compliance can also drive people to the underground economy and create black money. This includes complicated regulations that make it hard to comply with the law.

Lower taxes and a simpler compliance process can actually reduce black money. This is a more effective approach than trying to punish people for not following the rules.

The Indian government has taken several steps to tackle black money, including demonetization in 2016 and changes to the Benami Property Act. These measures aim to reduce the amount of black money in circulation.

Tougher rules to catch and punish tax evasion were introduced in the 2024 Union Budget. This includes more detailed reporting, higher fines for non-compliance, and better international cooperation to share information about offshore accounts.

Black money has a significant impact on India's economy, causing a range of problems that affect the country's financial system, credibility, and overall well-being.

Black money affects the financial system of the country, causing higher inflation and a fall in the value of the currency. This is because the central bank is unable to control money supply in the economy.

The government suffers a big loss in the form of taxes because of black money, which could be invested in public infrastructure, health, and education.

Black money creates a parallel economy in the country, which is completely underground and leads to governance problems. For example, in Mexico, there is a thriving parallel economy because of the illegal trafficking of drugs.

Here are some key impacts of black money on India:

The demonetization of old currency was meant to get rid of black money, but it had limited long-term impact as a lot of it had already been moved into other assets.

The Indian government has taken several measures to combat black money, including tax reforms, demonetization, and encouraging cashless transactions. The tax base has been increased, and rates have been slashed to resist black money.

The government has also implemented the Income Disclosure Scheme (IDS) and the Pradhan Mantri Garib Kalyan Yojana (PMGKY), which allow individuals to voluntarily report their previously undisclosed income and pay a penalty.

The Benami Transactions (Prohibition) Act was amended to crack down on property transactions done in fake or proxy names. The amendment introduces higher penalties and stricter punishment for individuals involved in holding benami properties.

Here are some key government measures to combat black money:

The demonetisation drive was a significant step taken by the Indian government to combat black money. This move involved the removal of old currency notes of ₹500 and ₹1000 from circulation.

In 2016, the government decided to ban old notes and replace them with new ₹500 and ₹2000 notes. This decision was taken to curb black money and corruption, which were affecting the lower classes of society.

The government's aim was to render the cash money held by hoarders useless, making it difficult for them to exchange it at banks or post offices. This move was intended to bring a large percentage of black money into the mainstream economy through banks.

The demonetisation drive resulted in a significant increase in income tax returns filed for 2016-17, growing by 25% to 2.82 crores. The advance tax collections during that period also rose by 41.8%.

The Income Tax department detected over ₹41.72 billion of un-disclosed income and seized new notes worth ₹1.05 billion as part of its country-wide operations. The department carried out a total of 983 search, survey, and enquiry operations and issued 5,027 notices to various entities on charges of tax evasion and hawala-like dealings.

Here's a breakdown of the key statistics from the demonetisation drive:

The demonetisation drive had a significant impact on the Indian economy, reducing corruption and bringing a large percentage of black money into the mainstream economy.

Tax Info Exchange Agreements are a crucial step in combating black money. India has signed TIEAs with 13 countries, including Gibraltar, Bahamas, and Bermuda, where money is believed to have been stashed away.

These agreements allow India to obtain banking information about Indians with unaccounted money in these countries. For example, India and Switzerland have agreed to share banking details and names of Indians with unaccounted money in Swiss banks.

India is also part of the OECD's BEPS project, which aims to stop tax avoidance. This project helps countries like India to share information and work together to combat black money.

India's TIEAs with 13 countries are a significant step towards curbing black money. By sharing information and working together, countries can make it harder for people to hide their illicit wealth.

Here are some of the countries with which India has signed TIEAs:

These agreements are an important part of India's efforts to combat black money. By working together with other countries, India can make it harder for people to hide their illicit wealth.

India is taking a collaborative approach to combat black money by working with other countries through various treaties and agreements. This includes sharing information about taxpayers with countries like the U.S. through the Foreign Account Tax Compliance Act (FATCA).

The Common Reporting Standard (CRS) is another initiative that helps countries exchange financial details about people with accounts in other countries. This standard is part of the global effort to combat tax evasion and money laundering.

India is also part of the Base Erosion and Profit Shifting (BEPS) project, which aims to stop tax avoidance and ensure that profits are taxed where economic activities take place. This project is a collaborative effort between countries to prevent tax avoidance and promote fair taxation.

Here are some examples of global cooperation to combat black money:

The Indian government has taken several steps to penalize those holding black money, making it harder for them to get away with it. One of the key changes is the introduction of stricter penalties under the Income Tax Act.

The penalties for tax evaders can be as high as 200% of the evaded tax. This is a significant increase from previous penalties, making it more costly for individuals to hold black money.

The Black Money Act also introduces imprisonment for up to 10 years for very serious cases. This shows that the government is taking a tough stance on tax evasion and black money.

The government has also made it easier to confiscate benami properties, including real estate and luxury goods. This means that individuals who hold properties in fake or proxy names can have them seized.

Here are the penalties and punishments for black money holders:

The Indian government has taken several steps to reduce black money, a significant problem that affects the economy and society. One of the notable measures is demonetization, which was implemented in 2016 to render large denomination currency notes useless. This move aimed to bring black money into the mainstream economy and curb corruption.

The government has also introduced tax reforms, including the Black Money Act of 2015, to prevent tax evasion and money laundering. The tax base has been increased, and rates have been slashed to encourage compliance. The Income Declaration Scheme (IDS) and Pradhan Mantri Garib Kalyan Yojana (PMGKY) are examples of tax amnesty schemes that allow individuals to voluntarily report hidden income and assets.

To make transactions more transparent, the government has encouraged cashless/digital transactions. The Income Tax Department has also been made more accountable for distortions and lapses, and whistleblower laws have been strengthened to encourage reporting and tax recovery.

The government has also taken steps to prevent corruption, including the Prevention of Corruption Act, 1988, and the Lokpal and Lokayukta Act. The Enforcement Directorate (ED), Central Board of Direct Taxes (CBDT), and other institutions have been established to deal with black money.

Here are some of the key government actions to reduce black money:

Digital payments have played a significant role in curbing black money in India. The removal of high-value currency notes led to a surge in digital payments, making it harder for illegal money to move around.

UPI (Unified Payments Interface) has been a game-changer in this regard, as more people use it for their payments, reducing the need for cash. This, in turn, has helped to decrease the circulation of black money.

The introduction of GST (Goods and Services Tax) and e-invoicing has also made a significant impact. With more transactions being recorded, it has become more difficult for people to avoid taxes.

Digital payments provide a transparent option to cash transactions, making it more difficult for individuals to hide income or evade taxes. With the growth of systems like UPI and mobile wallets, digital payments have helped reduce the use of cash.

Here are some key measures taken by the government to encourage digital payments:

These measures have helped to increase transparency in financial transactions, making it harder for black money to circulate.

Amnesty programmes have been proposed to encourage voluntary disclosure by tax evaders, but they've been criticized for providing a premium on dishonesty and failing to achieve their objective.

These voluntary schemes can't be an effective and lasting solution, nor one that's routine. They're often seen as unfair to honest taxpayers who play by the rules.

The Pradhan Mantri Garib Kalyan Yojana (PMGKY) was a tax amnesty scheme introduced in 2016 after India's currency change. It required people to pay a 30% tax, a 10% penalty, and a 33% extra charge on their hidden money.

They also had to put 25% of their hidden money into a special account without interest for four years to support government projects. This scheme was designed to bring black money into the economy.

The Income Declaration Scheme (IDS) allowed individuals to voluntarily report their previously undisclosed income in 2016. They had to pay a combined 45% of the reported income, which covered taxes, a surcharge, and a penalty.

This program provided participants with legal protection from prosecution under various laws and helped uncover hidden assets and funds. It was a significant move towards bringing undeclared wealth into the formal economy.

Black money is income not fully reported to avoid paying taxes, often originating from illegal activities like corruption and secret deals, or from legal businesses adjusting their accounts to conceal real income. It's estimated that black money creates unbalanced conditions in the economy, causes inflation, and minimizes investments in public infrastructure.

Some major sources of black money include tax evasion, bribery and corruption, illegal enterprises, and real estate transactions. These sources can be broken down into:

These sources can have significant effects on the economy, making it essential to address and prevent black money generation.

Black money is money that has been acquired through illegitimate means or money that is unaccounted for, for which tax is not paid to the government.

Spurious notes or counterfeit money is generally not counted as black money. Counterfeit notes are currency notes that are illegally printed by unauthorized agents.

Black money is hidden from government authorities and is not reflected in the GDP of India, national income, etc.

In an ideal economy, all money that is transacted should be accounted for. This would help the government to collect taxes.

Cash transactions without proper accounting are known as black money.

Here's a quick summary of what black money is not:

Black money is often converted into white money through a process called money laundering. This is done to mask the source of illegally earned wealth.

Money laundering involves hiding or spending black money on the underground economy. It's a way for people to separate their illegal earnings from their legitimate income.

The goal of money laundering is to make black money appear legitimate, allowing it to be used openly. This is done by mixing it with white money and funneling it back into the economy.

In some cases, people use a technique called round-tripping to launder money. They send money to a tax haven, such as Mauritius or the Cayman Islands, to avoid paying taxes, and then invest it in India as foreign investment.

Black money is money on which tax is not paid to the government, making it a significant problem for economic growth and financial health of a nation.

The most common source of black money is the black market or underground economy, where activities like selling prohibited drugs, gunrunning, and human trafficking take place.

Black market activities also involve less severe offenses, such as the sale of counterfeit goods, stolen credit cards, or pirated versions of copyrighted material.

People who possess black money cannot spend it publicly, so they either hide it or spend it on the underground economy, making it difficult to estimate the amount of black money in any economy.

To motivate people to voluntarily reveal hidden money, the government occasionally introduces special tax programs, like the Pradhan Mantri Garib Kalyan Yojana (PMGKY) and the Income Declaration Scheme (IDS).

Through money laundering, people convert black money into white money by separating the money earned (illegally) from its source, mixing it with white money, and then funneling it back into the source.

Black money causes financial leakage, as unreported income that is not taxed causes the government to lose revenue, making it difficult for legitimate small businesses and entrepreneurs to obtain loans.

In addition to losing revenue, black money also causes the financial health of a nation to be underestimated, as it is extremely difficult to estimate the amount of black money in any economy.

Black money is income not fully reported to avoid paying taxes, often originating from illegal activities or legal businesses adjusting accounts to conceal real income. Tax evasion, bribery, and corruption are major sources of black money.

Major sources of black money include tax evasion, bribery, and corruption. These activities not only harm the economy but also cause inflation and minimize investments in public infrastructure.

Black money creates unbalanced conditions in the economy, causing inflation and minimizing investments in public infrastructure. It also causes financial leakage, as unreported income that is not taxed causes the government to lose revenue.

Black money proceeds are usually received in cash from underground economic activity and 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.

Some common sources of black money include:

Black money causes the financial health of a nation to be underestimated, making it difficult to estimate the amount of black money in any economy.

Money is a medium of exchange that facilitates the buying and selling of goods and services. It's a widely accepted form of payment that can be used to acquire anything from a loaf of bread to a luxury car.

The value of money is determined by its purchasing power, which is the ability to buy goods and services. In other words, the more goods and services you can buy with a certain amount of money, the higher its value.

Money can take many forms, including physical currency, digital payments, and even cryptocurrencies like Bitcoin. But regardless of its form, money's primary function remains the same: to facilitate transactions and enable economic activity.

The concept of money dates back thousands of years, with ancient civilizations using commodities like gold and silver as forms of exchange. Today, we have a complex global financial system that relies on money to function.

Governments have been slow to act on SIT, with some banks accused of acting like "hawala" operators. This informal system of money transfer is unregulated and allows for large sums to be moved without detection.

The HSBC Black money whistleblower Herve Falciani claims that there is "1000 times more information" available for investigators, but it's been largely ignored. He's offered to share this information with Indian authorities, but they haven't taken him up on it.

The Indian government has been criticized for not using the information they've been given to crack down on black money. Millions of crores are still flowing out of the country, and it's clear that more needs to be done to address this issue.

Governments have been criticized for stalling the implementation of the Special Investigation Team (SIT) to tackle black money.

A bank has been accused of acting like a "hawala" operator, a method of transferring money without actual movement or bank involvement. This highlights the need for greater scrutiny of financial institutions.

HSBC Black money whistleblower Herve Falciani has expressed frustration with the Indian administration's slow pace in using the available data to tackle black money. He claims that there is "1000 times more information" available for investigators.

Falciani's team is willing to provide more data, but the Indian administration needs to take the initiative to contact them. This suggests that the onus is on the government to take action.

India received only 2 MB of the 200 GB of data provided by Falciani's team, which is a small fraction of the available information. This limited access has hindered the investigation process.

Corruption in education is a major issue in India, and many institutions are promoting it. This has led to a significant contribution to domestic black money in the country.

Institutions that provide education have been found to be involved in corruption, with some even collecting capitation fees of around Rs 5,953 crores from management quota seats in professional courses the previous year.

A common entrance exam for various professional courses could help reduce corruption in education. This would make it easier for students to get into institutions based on merit rather than having to pay bribes.

Releasing audited financial statements of trusts and not-for-profit organizations that own educational institutions in the public domain could also help reduce corruption. This would make it easier for the government to track and monitor the finances of these institutions.

The history of tackling black money in India dates back to colonial times, with the British Crown government initiating efforts to increase tax collection and identify underground economy.

In 1936, the Ayers Committee investigated black money from the Indian colony and suggested major amendments to protect honest taxpayers and deal with fraudulent evasion.

The Ayers Committee's recommendations were aimed at encouraging honest taxpayers and effectively dealing with fraudulent evasion.

The committee's efforts may have been a step in the right direction, but the issue of black money persisted.

In recent times, India has made proposals to tackle its underground economy and black money, as outlined in its white paper on the subject.

The 2016 Panama Papers leak was a massive scandal that exposed the largest-ever leak of information on black money in history. It revealed over 11 million documents related to 214,000 offshore entities that spanned almost 40 years.

The leaked documents originated from Mossack Fonseca, a Panama-based law firm with offices in over 35 countries. This law firm played a central role in the scandal.

The scandal exposed 500 Indians who flouted rules and regulations, including famous names such as Amitabh Bachchan, Aishwarya Rai, and Niira Radia.

In colonial India, efforts to identify and stop the underground economy and black money date back to the past. The British Crown government aimed to increase tax collection, but it was a challenging task.

The Ayers Committee, established in 1936, investigated black money from the Indian colony and suggested major amendments to protect honest taxpayers and deal with fraudulent evasion. Its recommendations were a step towards a more transparent tax system.

In its effort to tackle the underground economy and black money, India has made some significant proposals.

One of the key proposals is to make the PAN (Permanent Account Number) card mandatory for all citizens. This is a crucial step in tracking financial transactions and identifying individuals who may be involved in illicit activities.

The government also plans to introduce a system of cashless transactions to reduce the use of cash, which is often used to launder money. This will make it easier to monitor transactions and detect any suspicious activity.

Another proposal is to introduce a new law that will allow the government to seize assets of individuals who are found to be involved in money laundering. This will serve as a deterrent to those who would otherwise engage in such activities.

The size of India's black money economy is estimated to be between 23 and 26% of the country's gross domestic product. This is based on a study that used the dynamic multiple-indicators multiple-causes method and the currency demand method.

India's black money economy is lower than the Asia-wide average, which is 28 to 30% of GDP. However, it's still a significant portion of the country's economy.

The average size of the shadow economy in 96 developing countries is 38.7% of "official" GDP, with India below average.

Estimates of black money in India vary widely, with some organizations putting it as high as 50% of GDP. The International Monetary Fund estimates that black money makes up 50% of India's GDP.

Other organizations have made different estimates, including the Central Bureau of Investigation, which puts the amount of black money in India at ₹28 lakh crores. The World Bank estimates that black money makes up 20% of India's GDP.

Here's a comparison of estimates from various organizations:

The Indian government has taken several steps to curb black money. Tax reforms have been initiated to increase the tax base and reduce rates, with tax deduction at the source being incorporated. The Black Money Bill has been passed to allow the reporting of black money generated through tax evasion.

The government has also demonetized Rs.500 and Rs.1000 currency notes in 2016 to make black money useless. Cashless/digital transactions are being encouraged to make things more transparent. Electoral reforms are also being implemented to curb black money used in elections.

Here are some key legislative frameworks to deal with black money:

In 2015, HSBC leaks revealed a list of Indian clients with balances totaling ₹25,420 crore (US$3.0 billion).

The list, obtained by French newspaper Le Monde, included 1195 names, roughly double the number of names provided to the Indian Government by French authorities in 2011.

HSBC admitted that its standards of due diligence were lower back then, allowing clients to potentially evade taxes.

Indian authorities argued that revealing the names would violate individual privacy, but BJP leader Dr. Subramanian Swamy questioned the validity of this reasoning, suggesting it was used to protect favored entities.

The government has been cracking down on high-profile cases of black money, and it's having a significant impact. They've been using new tools to detect hidden money and catch tax evaders.

In 2023, properties worth hundreds of millions were seized from individuals who didn't declare the true value of their assets. This was a major blow to those trying to hide their wealth.

The government has also been working with other countries to share information about foreign bank accounts. Under the FATCA agreement, they've been able to find out that many Indians had large sums of money stashed away in Swiss banks.

This crackdown has sent a strong message to those who thought they could hide their money. It's encouraging more people to follow the tax laws and be transparent about their income.

Here are some of the key cases that have been cracked down on:

The Indian government has been actively working to curb black money by reforming various sectors of the economy. One of the sectors that needs systematic reforms is the gold trading sector, which was a major source of black money generation prior to the reforms.

Gold inflows into India have remained high after reforms, but gold smuggling is no longer a significant issue. The government can learn from this example and apply similar reforms to other vulnerable sectors like real estate, which constitutes about 11 per cent of India's GDP.

High transaction taxes and complicated compliance processes in the real estate sector make it easier for people to deal with transactions and opaque paperwork by paying bribes and through cash payments. The government needs to simplify the real estate transaction process and tax structure to prevent black money.

The government has also identified other sectors that need reform, including the equity trading market, mining permits, bullion, and non-profit organizations. By reforming these sectors, the government can reduce the generation of black money and promote a more transparent and efficient economy.

The government has implemented various measures to curb black money, including tax reforms, the Black Money Bill, demonetization, and encouraging cashless/digital transactions. These measures have been effective in reducing black money, but more needs to be done to tackle the issue.

Here are some key legislative frameworks that deal with black money:

The 2024 Union Budget made significant changes to tackle black money and money laundering. Tougher rules were introduced to catch and punish tax evasion, including more detailed reporting and higher fines for non-compliance.

The government has been working to make financial transactions more transparent, encouraging cashless/digital transactions to reduce the use of black money. This effort aims to make things more transparent and reduce the generation of black money.

To combat money laundering, the government has been improving cooperation with international groups that monitor finances. This allows for the sharing of information about offshore accounts, making it harder for individuals to hide their ill-gotten gains.

The Prevention of Money Laundering Act, 2002, is a key legislation in this regard. It aims to prevent the use of the financial system for money laundering and terrorist financing.

The Black Money Act of 2015 focuses on foreign income and assets that haven't been reported. It increases penalties for those who break the law and ensures that tax evasion is prosecuted.

Here are some key changes made in the 2024 Union Budget to tackle black money and money laundering: