Black Money and Money Laundering- A Comprehensive Study

What is Black Money?

Black Money is the  money earned by an individual or a firm through any illegal activity or by evading tax that he has to pay. In other words, it the unaccounted money an individual or firm holds.

How is black money generated in India?

There are many ways through which black money could be generated in an economy. Following are some of the ways through which black money is generated in India

• Out of book transactions [ A person who has to pay tax either intentionally does not maintain book of records or reports partial transactions, thus evading tax amount  to be paid to the government]
• Parallel Book of Accounts [ The taxpayer keeps two separate books of accounts, one for his personal purpose that contains original record of his transactions and the other for the purpose of producing before tax authorities that contains selected transactions]
• Under reporting of Production/Sales to evade taxes.
• Manipulation of expenses -Since tax payable is on income after expenses incurred in the business, expenses are shown inflated in the book of accounts.
• By way of International transactions in Tax Havens- Using associated shell companies. ( round tripping of black money)
• Land and Real Estate Transactions
• Cash sales in the gold and jewellery trade
• Participatory Notes in Financial Porfolio Investments
• Informal Jobs
• Off shore financial centres
• Disguising the proceeds of crime and moving value through the use of trade transactions
• Hawala transactions
• Last but not the least, CORRUPTION