The Black & White of Money

-CA Sahil K. Khatri

(The author is Finance Assistant at World Bank)

India is in a phase where its economy is booming, but not at the level that it can. This is because of large amounts of unaccounted money which still prevails in the market, commonly known as BLACK MONEY. In the Indian economy today, it is said that unaccounted money is more in demand than accounted money!!! Why is it so?? The political and administrative machinery has not been able to prevent the rampant spread of black money; one guesstimate of this hidden wealth is Rs 70,000 crore!!!!!

Much of the black money is hidden in the real-estate transactions with a boom in the housing sector and banks only too willing to offer loan at low rates. The sale price declared is mostly lower than that actually paid for. It should not be difficult for the tax authorities to scrutinize the source of funds and the bank accounts in every deal. One of the main reasons of this is a high level of stamp duty, 9% (varies place to place). Therefore people prefer registering their properties at a low value thus they end up paying a low level of stamp duty, resulting in tax evasion. The other reason why black money is thriving in real estate transactions is the high level of capital gains tax. For a person selling the property the tax on the profit he makes is pinching and thus he prefers taking a huge amount of money as unaccounted. Nevertheless, the government should get tough on tax cheats and the thriving property market should be its main target.

Another sector where black money is thriving is in the medical field. Doctors are major generators of black money in the country. None can ever determine the number of consultations a doctor does in a day therefore it becomes difficult to calculate the money earned by a doctor. In a recent study of the tax collections it was found out that doctors are not among the top 5 tax payers in India even when the health expenses are rising by the minute. The service tax imposed on doctors is not being paid in accordance to the income generated too. This makes the medical field one of the biggest generators of unaccounted money.

The film industry, which accounts for a huge turnover, is an other sector without any control and lacks the practice of proper accounting and audit. Most of the transactions in this field are in cash and are, thus, a veritable source for tax evasion.

In small scale enterprises which are managed by a person or a group of persons generate a good amount of black money. They have a different modus operandi towards the generation of unaccounted wealth. These guys keep proper bill books and maintain proper accounts through out the year. But as the year ends and its time for them to calculate and pay their taxes they manipulate their accounts and pay the least possible tax.

This is mainly practiced in small hotels, restaurants, small shops, departmental stores etc where the customers are spread far and wide n thus restricts the government to cross check the accounts that they have filed. 

There are two ways of tackling the black money problem. One is to fight the menace without any compromise, in which case the success will be limited and the money could forever remain out of the government’s reach.

The other option is to flush out whatever is possible by way of amnesty schemes such as the Voluntary Disclosure Of Income Scheme (VDIS). This scheme involves disclosure of the concealed amounts by investing in zero-interest government bonds for five-six years with payment of 30 per cent tax on such amounts. However, for the scheme to succeed, there should be a clear waiver of penalty and interest in full.

The income tax authorities are fed with all the information about the black money racquet but they lack the will power to catch the criminals. The government must ensure that more and more young income tax officers should be involved in using the information available and ensuring that the tax evaders are taken to task.

(All views expressed above does not belong to the Pro Edge 111 team, & are solely the opinion of the author)

Posted in: Economy, Readers Pick