Black money is an important topic for UPSC mains, and can be placed under GS paper 3 , sub topic Money Laundering. This article is focused on key take away points, which you can use in mains Answer writing. We want to provide simple points which you can use in mains, not make you or us do Ph.D in one topic.
This is the source which you can mention in Introduction , White Paper on Black Money – Ministry of Finance . Via PRS
‘black money’ can be defined as assets or resources that have neither been reported to the public authorities at the time of their generation nor disclosed at any point of time during their possession.
This definition of black money is in consonance with the definition used by the National Institute of Public Finance and Policy (NIPFP). In its 1985 report on Aspects of Black Economy, the NIPFP defined ‘black income’ as ‘the aggregates of incomes which are taxable but not reported to the tax authorities’.
Further, black incomes or unaccounted incomes are ‘the extent to which estimates of national income and output are biased downwards because of deliberate, false reporting of incomes, output and transactions for reasons of tax evasion, flouting of other economic controls and relative motives’. Thus, in addition to wealth earned through illegal means, the term black money would also include legal income that is concealed from public authorities:
- to evade payment of taxes (income tax, excise duty, sales tax, stamp duty, etc);
- to evade payment of other statutory contributions;
There is no uniform definition of black money in the literature or economic theory. In fact, several terms with similar connotations have been in vogue, including ‘unaccounted income’, ‘black income’, ‘dirty money’, ‘black wealth’, ‘underground wealth’, ‘black economy’, ‘parallel economy’, ‘shadow economy’, and ‘underground’ or ‘unofficial’ economy. All these terms usually refer to any income on which the taxes imposed by government or public authorities have not been paid. Such wealth may consist of income generated from legitimate activities or activities which are illegitimate per se, like smuggling, illicit trade in banned substances, counterfeit currency, arms trafficking, terrorism, and corruption.
- Black money arising from illegal activities such as crime and corruption has an underlying anti social element. The ‘criminal’ component of black money may include proceeds from a range of activities.The ‘corrupt’ component of such money could stem from bribery and theft by those holding public office , All these activities are illegal per se and a result of human greed combined with declining societal values and inability of the state to prevent them. Factors leading to their generation are both social and administrative.
- Significant amount of black money, however, is generated through legally permissible economic activities, which are not accounted for and disclosed or reported to the public authorities as per the law or regulations, thereby converting such income into black money.
- It may also be the result of non-compliance with some other law.For example, a factory owner may under-report production on account of theft of electricity which in turn leads to evasion of taxes.
- Culture and social practices may also play a vital role in deciding the preferences of citizens between tax compliance and black money generation
In particular following are some of the mechanisms through which black money is circulated, utilized and the profits earned are further invested in other sectors to generate further money.
- Land and Real Estate Transactions
- the Real Estate (Regulation & Development) Act, 2016, and the Benami Transactions (Prohibition) Amendment Bill, 2015 — to clean things up in real estate and allied sectors.
- Bullion and Jewellery Transactions:
- making a PAN-card number mandatory for purchase of goods/services whose value exceeds Rs 2,00,000
- financial markets,
- public procurement,
- non-profit organizations,
- Informal Sector and Cash Economy:
- external trade,
- international transactions involving tax havens,
- and the informal service sector.
Will keep updating with relevant facts and reforms.
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