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Black Money

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In common parlance, Black money is a term used to refer to money that is not fully legitimate in the hands of the owner. The term "black money" is not defined per se in the tax laws. However, a definition of black money was adopted in the White Paper issued on Black Money by Government of India in May 2012.

As per the above report, ‘black money’ is defined as assets or resources that have neither been reported to the public authorities at the time of their generation nor disclosed at any point of time during their possession.

Black money could arise broadly due to two possible reasons. The first is that the money may have been generated through illegitimate activities not permissible under the law, like crime, drug trade, terrorism, and corruption, all of which are punishable under the legal framework of the state. Some of these offences are included in the schedule of the Prevention of Money Laundering Act, 2002. Money laundering, as defined by Financial Action Task Force (FATF), is the processing of these criminal proceeds to disguise their illegal origin.

The second and perhaps more likely reason is that the wealth may have been generated and accumulated by failing to pay the dues to the public exchequer in one form or other. In this case, the activities undertaken by the perpetrator could be legitimate and otherwise permissible under the law of the land but s/he has failed to report the income so generated, or comply with the tax requirements, or pay the dues to the public exchequer, thereby converting such income into black money.

Thus, in addition to wealth earned through illegal means, the term black money would also include legal income that is concealed from public authorities

The definition of black money used in the White Paper is in consonance with the definition used by the National Institute of Public Finance and Policy (NIPFP)in its 1985 report on Aspects of Black Economy, wherein it defined ‘black income’ as ‘the aggregates of incomes which are taxable but not reported to the tax authorities’.

Because of deliberate, false reporting of incomes/output/ transactions national income and output of the country gets underestimated and hence, decisions based on such calculations tend to be faulty.


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