Himachal Pradesh National Law University, Shimla

Subject:
Economics
Assignment I

Submitted to: Mr. Digvijay Singh Katoch

Submitted by: Chakshu Purohit

Roll no. 03
B.B.A. LL.B. (HONS.) - First semester

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 Acknowledgement

Every project big or small is successfull largely due to the efforts of a number of wonderful
people who have always given their valuable advice or lent a helping hand. I sincerly
appreciate the inspiration, support and guidance of all those people who have been
instrumental in making this project a success.

I, Chakshu Purohit, the student of Himachal Pradesh National Law University, B.B.A. LL.B.
first semester, am extremely grateful to HPNLU for the confidence bestowed in me and
entrusting my assignment of Economics.

At this juncture, I feel deeply honoured in expressing my sincere thanks to Honourable Vice
Chancellor, Prof. (Dr.) S.C. Raina, for making the resources available at the right time.

I also extend my gratitude to my project guide Mr. Digvijay Singh Katoch who assisted me in
compiling the project. I would also like to thank all the faculty members of HPNLU for their
critical advice and guidance without which this project would not have been possible.

Last but not the least, I place a deep sense of gratitude to my family members and my friends
who have been constant source of inspiration during the preparation of this project.

Date- 29 November, 2017 Name- Chakshu Purohit

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 Table of contents

1. Introduction
2. Concept and definition of black money
3. Black economy
4. Actions and policies taken by government
5. Conclusion

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 BLACK MONEY PROBLEM IN INDIA

INTRODUCTION

The issue of black money has always been discussed in India since a long time now. The
ruling parties have changed but no one government has been completely successful in
eliminating the black money problem from our country, a country of black economy. There
have been many political debates in parliament and outside, media news and campaigns,
public demonstrations etc. aiming towards the issue of black money problem in India.

Opinion of the Supreme Court’s and its observations, and the general public
discourse, has been focused on these issues for a long time now but it came more into light
after the demonetization policy of the present NDA government. More about the black
money, black economy, the policies and actions taken by the present and past governments
are been talked about and the everyone has a say in analysing the results of every step taken
by the government to curb the problem of black money from India.

CONCEPT AND DEFENITION OF BLACK MONEY

There is no constant or recognised definition of ‘black’ money. Numerous terms are in use –
such as ‘black money’, ‘black income’, ‘dirty money’, ‘black wealth’, ‘underground wealth’,
‘black economy’, ‘parallel economy’, ‘shadow economy’, ‘underground’ or ‘unofficial’
economy. If money breaks laws in its origin, movement or use, and is not reported for tax
purposes, then it would fall inside the meaning of black money. The wider meaning would
encompass and comprise of money derived from corruption and other illegal ways – to
include drug trafficking, counterfeiting currency, smuggling, arms trafficking, etc. It would
also include all market based legal production of goods and services that are hidden from
public authorities for the following reasons –

(i) To evade payment of taxes

(ii) To evade payment of other statutory contributions
(iii) To evade minimum wages, working hours and safety standards, etc.

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 (iv) To evade complying with laws and administrative procedures1

Manifestly, there exist three sources of black money in India – crime, corruption and
business. The ‘criminal’ part of black money would usually comprise of proceeds from a
range of activities comprising of racketeering, trafficking in counterfeit and contraband
goods, embezzlement, forgery, securities fraud, sexual exploitation and prostitution, bank
frauds, drug money and illegal trade in arms. The ‘corrupt’ part of black money would come
out from graft and theft by those holding public offices – such as by grant of business, bribes
to alter the land use or to regularize unlawful construction, speed money to evade or fast-
track procedures, leakages from government social spending programmes, black marketing of
price controlled services etc.

WHAT IS BLACK ECONOMY?

Black economy is that segment of a country's economic activity that is derived from sources
that fall outside of the country's rules and regulations regarding commerce. The activities can
be either legal or illegal depending on what goods or/and services are involved.2

ACTIONS AND POLICIES TAKEN BY GOVERNMENT

Action against black money is a continuous process. These type of actions comprises
of policy-level initiatives, effective enforcement action on the ground, putting in place robust
legislative and administrative frameworks, systems and processes with due attention on
capacity building and integration and mining of information through growing use of
information technology. 

Here are some of the major initiatives taken by the government:

1) The Union Cabinet on May 2014 approved the constitution of a Special Investigating
Team (SIT) to implement the decision of the Honourable Supreme Court on large amounts of

1
Measures to Tackle Black Money in India and Abroad, Government of India Ministry of Finance(2012),
http://dor.gov.in/sites/default/files/Measures_Tackle_BlackMoney.pdf
2
Black economy, Investopedia, https://www.investopedia.com/terms/b/black-economy.asp

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money stashed abroad by evading taxes or generated through unlawful activities. 3 The SIT
was headed by retired Supreme Court judge MB Shah. Its other members included Secretary
Revenue, deputy governor of the Reserve Bank of India, director of the Intelligence Bureau,
director of the Enforcement Directorate, director of the Central Bureau of Investigation
(CBI), etc.

2) The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act,
2015’ came into effect on July 1, 2015, to precisely and more effectively deal with
undisclosed income.

3) For the examination of Panama Paper leaks, the government brought in Constitution of
Multi-Agency Group (MAG) with officers of the Central Board of Direct Taxes (CBDT),
Reserve Bank of India (RBI), Enforcement Directorate (ED) and Financial Intelligence Unit
(FIU). Mossack Fonseca

4) India has been collaborating with foreign governments to facilitate and expand the
interchange of information. For this, the Double Taxation Avoidance Agreements (DTAAs)
have been signed with tax havens like Mauritius and Cyprus. Double Taxation Avoidance
Agreement (DTAA) also referred as Tax Treaty is a bilateral economic agreement between
two nations that aims to avoid or eliminate double taxation of the same income in two
countries.

5) Global efforts to combat tax evasion and black money were taken by amalgamation of the
Multilateral Competent Authority Agreement in respect of Automatic Exchange of
Information (AEOI) and having an information sharing arrangement with the US under its
Foreign Account Tax Compliance Act (FATCA). India joined the Multilateral Competent
Authority Agreement on Automatic Exchange of Financial Account Information on 3rd June,
2015, in Paris, France, along with Australia, Canada, Costa Rica, Indonesia and New
Zealand. On our behalf, the Declaration to comply with the provisions of the MCAA was
signed by H.E. Mr. Mohan Kumar, Ambassador of the Republic of India to France, in a
signing ceremony held in Paris.

3
Press Information Bureau, Government of India Cabinet (27 May, 2014 08:08 PM),
http://pib.nic.in/newsite/PrintRelease.aspx?relid=105219

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Ninety-four countries have committed to exchange information on an automatic basis from
2017 onwards as per the new global standards on automatic exchange of information, known
as Common Reporting Standards (CRS) on Automatic Exchange of Information (AEOI).
The new global standards are very wide in scope and oblige the treaty partners to exchange
wide range of financial information after collecting the same from financial institutions in
their country/jurisdictions including information about the ultimate controlling persons and
beneficiaries.
For implementation of these standards in India and with a view to provide information to
other countries, necessary legislative changes have been made through Finance (No. 2) Act,
2014, by amending section 285BA of the Income-tax Act, 1961. Necessary rules and
guidelines are being formulated in consultation with financial institutions.
AEOI based on CRS, when fully implemented, would enable India to receive information
from almost every country in the world including offshore financial centres and would be the
key to prevent international tax evasion and avoidance and would be instrumental in getting
information about assets of Indians held abroad including through entities in which Indians
are beneficial owners. This will help the Government to curb tax evasion and deal with the
problem of black money.4

6) The government is also trying to automate information exchange with several countries,

including Switzerland, to clamp down on black money. For this, so far, both India and
Switzerland have agreed to speed up work on the Automatic Exchange of Information
(AEOI) and make it possible by 2018.

7) The Lok Sabha on July 20, passed the Benami Transaction Bill 2015 which was
predominately an anti-black money measure with the purpose to seize unknown property and
prosecute those indulging in such activities, according to a PTI report. The Act defines
benami transactions and also provides imprisonment upto seven years and fine for violation
of the Act. The official notification says, ‘The PBPT Act prohibits recovery of the property
held benami from benamidar by the real owner. Properties held benami are liable for
confiscation by the government without payment of compensation.’ The new law also
provides for an appellate mechanism in the form of an adjudicating authority and appellate
tribunal.

4
Press Information Bureau Government of India Ministry of Finance ( June 03, 2015 06:02 PM),
http://pib.nic.in/newsite/PrintRelease.aspx?relid=122256

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For the purpose, the adjudicating authority referred to in section 6(1) and appellate tribunal
referred to in section 25 of the Prevention of Money Laundering Act, 2002 (PMLA), have
been assigned the task under PBPT Act as well. Under the Act, in each of the
principal CCIT regions, a joint/additional commissioner of income-tax, an assistant / deputy
commissioner of income-tax and a tax recovery official have been notified to perform the
functions and exercise the powers of the approving authority, initiating official and
administrator, respectively.5

8) An information technology based ‘Project Insight’ was introduced by the Income Tax

Department to strengthen the non-intrusive information-driven approach for improving tax
compliance and effective utilization of available information.

9) The Income Declaration Scheme, 2016 was announced recently, which is like a one-time

amnesty-like compliance window for citizens to declare their undisclosed income. Under the
scheme, persons can declare their undisclosed income and pay tax, surcharge and penalty
amounting to 45% of the total undisclosed income. Here, the income declared will be taxed at
30% plus a 'Krishi Kalyan Cess' of 25% on the taxes payable and a penalty at the rate of 25%
of the taxes payable, amounting to 45% of the income declared under the scheme,
a DNA report said.6

10) The demonetization plan, when the currency in denomination of 500 and 1000 were
rendered invalid, as announced by the government on 8th November, 2016 was also one of the
major step taken by the government to eradicate the black money problem from India

11) Launching of ‘Operation Clean Money’ on 31st January 2017 for collection, collation and
analysis of information on cash transactions, extensive use of information technology and
data analytics tools for identification of high risk cases, expeditious e-verification of suspect
cases and enforcement actions in appropriate cases, which include searches, surveys,
enquiries, assessment of income, levy of taxes, penalties, etc. and filing of prosecution
complaints in criminal courts, wherever applicable. 

5
Vidushi Sahani, Benami Transactions (Prohibition) Amendment Act, 2016 To Come In To Effect From
Tomorrow, Live Law (October 31, 2016), http://www.livelaw.in/benami-transactions-prohibition-amendment-
act-2016-come-effect-tomorrow-read-bill/
6
Santosh Kumar Gangwar. Nine measures taken by government to curb black money, Zee Business,
http://www.zeebiz.com/india/news-govts-initiatives-to-curb-black-money-4340

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This was stated by Shri Santosh Kumar Gangwar, Minister of State in the Ministry of Finance
in written reply to a question in Lok Sabha. 7

Conclusion

The results have been highly mixed. Every law has its loop holes in some or the other way
and black money might still be flourishing in some other identical way. This could be studied
with the help of the current demonetization policy that had claimed to curb the problem of
black money in India but has failed in doing so.

As we know, in the recent times the issue of black money and corruption has come into being
with participation of our civil society and parliament institutions. In this context two main
issues have come into being-

 Firstly, without any adequate factual basis, a large magnitude /amount of black money and
unaccounted wealth is still stashed abroad every year.

 Secondly, Govt. Response to address this issue has been inadequate or we say considerably
negligible.

An article in the reputed newspaper “The Hindu” in 2010 revealed that unofficial estimates
indicate that Indians had over US$1456 billion in black money stored in Swiss banks
(approximately USD 1.4 trillion). While some news reports claimed that data provided by the
Swiss Banking Association Report (2006) showed India has more black money than the rest
of the world combined.8 This reflects the stringency of the laws that is required.

The Panama papers leak and other such that come into surface also narrate the same stories of
current situation. The unreported income is huge enough for India to escape easily yet the
efforts done by the government help in some way or the other to contribute to bring into
surface such defaulters and are expected to be caught and the black money problem is
expected to be resolved some day or the other in the future. What important is that hopes are

7
Arun Jaitley, Government of India Ministry of Finance, Lok Sabha (March 31, 2017)
http://164.100.47.194/Loksabha/Questions/QResult15.aspx?qref=51272&lsno=16
8
Manpreet Kaur & Akriti, Black money in Indai: current status and impact on economy (April, 2015),
file:///C:/Users/admin/Downloads/635-1557-2-PB%20(5).pdf

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high and it is checked that the current policies as set by the government are properly
implemented.

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