2.    "Black Money” and Its Causes under Income Tax Provisions

The presence of black money in the economy constitutes black economy, which is also referred to as the parallel economy. A number of definitions have been attempted to describe the nature of black economy. It is said to represent transactions that create value but are intended to escape something, which could be taxes, revelations of bribes, exchange controls, prosecution, etc. Black economy generally comprises of transactions entered into in order to circumvent laws and checks and balances imposed by the Government, and to avoid taxation. Examples include trading in narcotics, black marketing, taking or giving bribes, selling goods without bills, charging capitation fees for admission, over-invoicing or under- invoicing, under-reporting of income and wealth, etc.

Now the questions that arise are — what is the extent of black money transactions in India’s economy, and what is the scale and size of the black economy? By its very nature, it is difficult to make such an estimate; officially no figures are available with regard to the extent of black money in the Indian economy. Way back in 1983, the National Institute of Public Finance and Policy had conducted a study in which it had then put the size of India’s black economy at between 31,584 crore and 36,786 crore, which was about 20% of the then GDP of the country. In their report titled “Aspects of the Black Economy in India”, the authors of the report had admitted that their results were based on numerous assumptions and approximations, each of which could be challenged.


A number of other attempts have been made to gauge the size of the black economy in the country by some eminent personalities, and a very alarming situation has been portrayed by them. A well-known economist, Professor Arun Kumar of Jawaharlal Nehru University, has estimated generation of black money in India to be about 50% of the GDP or half the size of the official economy. Clearly, we have a gigantic black economy.


Presently, India is witnessing an unprecedented economic growth and development in almost all regions of the country. The Indian economy is the second fastest growing economy in the world. In this context, the malady of black economy assumes much greater importance and there is far greater need to curb it.


In November 2010, the Finance Ministry initiated the process for studying the causes and estimating the quantum of black money in the economy and, for this purpose, a multi-disciplinary committee involving National Institute of Public Finance and Policy, National Institute of Financial Management and National Council for Applied Economic Research was constituted. The sectors in which unaccounted money is generated were also to be identified.


Tax laws are not the basic reason, and tax evasion is not the only objective for black money transactions. The following are believed to be the major causes:


• Government controls over economic activities;
• Increase in government spending and lack of accountability;
• Political funding;
• Structure of India’s taxation;
• Weak deterrence against tax evasion;
• Low moral standards;

• Inflation; and
• Respectability for black money in society.


From the above, it may be seen that there are various reasons for the generation of black money and the consequential existence of black economy. The causes are complex and are deeply embedded in our moral and social fibre, and also in the administrative and political system of the country. It is outside the scope of this book to address the issues relating to all the causes of black economy. The objective of this publication is to make people aware about the core issue of tax evasion and how the Income Tax Department has geared itself to tackle this menace.
 
Sec. 143(3) : Scrutiny Assessments by Income Tax Department
“Penalties” Under Income Tax Act. 1956
How is a Search Operation Conducted by Income Tax Department ?
Surveys for Checking Ostentatious Expenditure
Surveys for Enforcing Compliance with Provisions of TDS
“Summon” U/s 131 of Income Tax Act.
Investigation by Income Tax Department:
Appellate Authorities of Income Tax Department
Power to Call for Information U/s Sec. 133(6) of Income Tax Act.
Specific Surveys U/s 133A(1) of Income Tax Act.
Types Of Income Subject To TDS [Deduction Of Tax At Source]
Pre-Requisite For Claiming Income Tax Refund
Benefits of Filing Income Tax Returnsn
Section-139(9): Defective Tax Return
 
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