CA Umesh Sharma

CA Umesh SharmaArjuna (Fictional Character): Krishna, why is there such a lot of confusion over on the colour of money? Supreme Court, Government and citizens are all busy in the discussion of the law pertaining to Black money. Let’s discuss its different aspects.

Krishna (Fictional Character): Arjuna, Money has no colour. But it gets its colour depending on whose hands it is in. It can be said that a person collecting money according to the law and legitimate means has white money and the person who doesn’t follow has black money. Black money has no definition in any Act. In India out of the 125 Crore people only approx. 3 to 4 crores of people are taxpayers. That’s why the matter of black money has become so complicated. But a person’s greed makes it never ending. There are many laws to deal with this but the important one is Income Tax. It is necessary to follow the provisions of Income tax to have control over black money. More information regarding this can be obtained from “White paper on Black Money” published in May 2012 by Government.  

Arjuna: Krishna, from where does this black money arise?

Krishna: Arjuna, Black Money can be generated by mainly two ways 1) Money earned through illegitimate activities i.e. by crime, drug trade, corruption, terrorism etc. 2) And by failing to pay the Income tax and other statutory dues e.g. Transaction kept out of the books of accounts, not maintaining books of accounts, manipulating the books which means to paying less taxes, sales being shown at less values, expenses being shown at higher values by creating bogus bills etc. creates black money. Black money can be generated simply by evading taxes. E.g. Foreign bank accounts in tax heaven countries, unexplained wealth, etc. Generally Black money is used in following ways: 1) Land and Real estate transaction 2) Bullion and jewelry transaction 3) Cash transaction. Presently many people are dependent on farming and at many places there are still no banks. This leads to increase in cash transactions and also ends up contributing to the generation of Black money. And also black money is being used in businesses by using a lot of tricks.

Arjuna: Krishna, What efforts does the government take to reduce this black money?

Krishna: Arjuna, Government is always taking efforts to reduce black money. Recently the government has acquired the information of Swiss bank Accounts, etc. Special Investigative Team has been incorporated on this matter. This is a very big step. And government is also taking efforts by amending the Income Tax, Excise, Banking, Companies Act, Double Tax Avoidance Agreement (DTAA). E.g. Income Tax department has increased enquires, checking, survey and raids. Limitations have been put together on cash transactions; restrictions are levied on foreign transaction and computerized reporting and compulsion of PAN Etc. has been made. Still lot needs to be done to reduce it; intention of officers and citizens of India is at stake.

Arjuna: Krishna, under which provision of income tax is Black money liable to taxation?

Krishna: Arjuna, in income tax, the unexplained income is taxable directly @ 30% in the following manner:

1) Where a sum is found credited in the books maintained by an assessee for any previous year and the assessee offers no explanation about the nature and source thereof, then the said amount is taxable in Income Tax under section 68.

2) If the assessee has made any investments which are not recorded in the books of accounts and the assessee offers no explanation about the nature and source thereof, then the said amount of Investment is taxable in Income tax under section 69.

3) When in any financial year assessee is found to be the owner of any money, bullion, jewellery, or any valuable articles which is not recorded in the books of accounts and the assessee offers no explanation about the nature and source thereof, then the said amount is taxable in Income tax under section 69A.

4) And according to section 69B if any investment made by assessee is recorded at value less than the amount expended over it then the excess may be deemed to be the income of the assessee for that financial year. If the assessee has made any expenditure and he offers no explanation about the expenditure made then the amount covered by such expenditure shall be deemed to be the income of the assessee.

Also there are other provisions according to which Income tax, Interest and penalty can be collected.

Arjuna: Krishna, who has black money?

Krishna: Arjuna, this is the most difficult question. Every person may have Black money; it may be more or less on a given time. E.g. if salaried people have paid tax on total income but invested the income in fixed deposit and hasn’t shown the interest on such fixed deposit it; similarly if funds are provided by company for travel and bills worth more the expenses are given then the remaining amount can be termed black money, it applies for all businessmen’s in case of business expenditures. Also the claim of medical allowance and house rent allowance, etc. In India 75% of the population is engaged in farming business which is tax free but what about the income generated through non agri business like dairy farming, poultry, bank interest on FDR made out of agricultural income? There are so many big and small examples. It is easy to blame big foreigners, politicians, businessmen’s but everyone should check their own pockets and ponder over what is the color of their money? In these transactions of black money, a person whose black money gets exposed becomes bad man whereas the person whose black money is still hidden is deemed to be good man. This is a very dangerous thing for the financial growth of the country.

Arjuna: Krishna, what should one learn from the colour of money?

Krishna: Arjuna, in this generation, a rich person rich is considered honorable. Earning money by any means possible has become the utmost intention. The nature of every person affects their deeds. Just like water has no colour, similarly money also has no colour. It gets its colour based on how you use it. If one behaves according to the law, you won’t be tarnished by any colour and live a spotless life. But in the hassles of earning money, lives of many people end up colourless!

Taxguru lovers your views on this topic is very important please share.

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  1. Rajesh,Mumbai says:

    Arjuna : Krishna, But what is your suggestion / Advise to eradicate generation of Black Money ? Please enlighten me and government because government may not be able to do it effectively due to various political constraints.

    Krishna : 1) As Author CA Umesh rightly said there is lot of Black Money in real estate transactions. I agree with this and like to address this issue.

    In today’s advanced Technological Era where our PM is also well equipped with Modern technology, following initiatives can be taken immediately.

    a) Create an Electronic Platform where all Property transactions should be informed before final execution. Suppose it is a residential Flat . The area of Flat, Locality with full address, sale consideration agreed upon seller and buyer etc.

    b) General public should have access to this information. An inspection of the Flat (Property) should be provided at fee.Only one week time can be given. After expiry of one week, the original parties are free to execute the deal.

    c) If any person interested in buying the said property, is willing to pay a consideration of 50% more than what was confirmed between seller and purchaser, the said person should be allowed to buy the property.

    d) A regulator like SEBI / MCA should be created to monitor this mechanism and effective enforcement.

    Note : In Mumbai south, a 1 BHK Flat is actually not available for a price less than 1.5/ 2 crore but agreement value is shown hardly 25-30% for old property and 50% for New property. Balance value is paid in cash (Black Money).

    Same Provisions can gradually be made applicable for all Imports.Import deals are billed hardly at 10 to 25% value to save on Customs/ Excise etc. This billed value is paid through legitimate route and balance through illegitimate route (Black Money).

    If This is implemented properly in honest and transparent manner without harassing genuine entities, Government revenue can increase multifold.

    Thank you Umeshji.

  2. Prabhakar says:

    Thanks for this Awasome information, via Geethai Upadesam. Similiar all the articles via conversation is more good and understading non professional also. Once again thank you very much

  3. kalpesh Veer says:

    Dear Umesh,
    Excellent article. I understand many thing from it but the important one is that not to blame only politicians for black money.
    Thanks and Keep it Up.

    Kalpesh Veer

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November 2020