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The fight against black money has been a long and difficult one for the Indian government. Despite various crackdowns and awareness campaigns, the problem persists. In this essay, we will explore the reasons why black money is such a curse to our nation and what needs to be done to tackle this issue effectively.
Black money refers to undeclared income or assets which are not subject to tax. This results in huge losses for the government in terms of revenue. It also creates an uneven playing field for law-abiding citizens who end up paying higher taxes.
Let us see the essay on black money under the following heads.
Table of contents
- What is black money in simple words?
- The history of black money in India
- Types of Black Money
- Causes of Black Money
- What are the effects of black money on the economy?
- The government’s efforts to tackle black money
- Government Laws to Curb Black Money:
- What is the role of the Reserve Bank of India in combating black money?
- Why is it difficult to eradicate black money?
What is black money in simple words?
In simple words, black money is unaccounted or illegal money earned by individuals and organizations. This money is not reported to the government for tax purposes. Black money is often used for illegal activities such as bribery, smuggling, and corruption. It is also used to finance terrorism and crime. Black money harms the economy by reducing tax revenue, distorting prices, and fueling inflation. It also undermines trust in government and the financial system.
The history of black money in India
Before we go ahead in the essay on black money, let us have a look at the history. The history of black money in India is a long and complicated one. Black money is defined as assets or income that have not been declared to the government for tax purposes.
The origins of black money in India can be traced back to the colonial era when the British government imposed a series of taxes on the Indian people. These taxes were often unfair and burdensome and led to many people hiding their income and assets from the authorities.
After independence, the issue of black money continued to be a problem in India. In response to this, the government has taken a number of steps over the years to try and combat the issue. For example, in 2016, the government demonetized high-value currency notes in an attempt to crack down on black money holdings.
Types of Black Money
In India, black money is referred to as unaccounted money or assets. It is not included in the GDP of the country and hence, leads to a loss in revenue for the government. There are various types of black money, which include: (this will help you to understand the essay on black money well)
Money earned through illegal activities:
Some people earn money through illegal activities like drug trafficking, and the money earned from such activities is used for personal consumption or to conduct other illegal acts.
Money earned through legal activities but not declared:
There are some other people who earn money through legal activities but they do not declare it as they fear that they may be taken to task by the tax department. So, it is a good idea to keep a record of all your income and expenses and then file your tax returns.
Money saved by under-invoicing:
Some businessmen save money by under-invoicing, as they get their goods at a low price. It is also possible that they have to face losses, but it is not always the case.
Money earned through bribery:
People like politicians, officials, etc. take bribes for doing their work. They do not declare it as it is illegal.
Money earned through smuggling:
Smuggling is illegal. People smuggle goods like gold, silver, diamonds and other precious stones, etc. They don’t declare it as they fear that they may be taken to task by the tax department.
Causes of Black Money
There are many reasons why people choose to keep their money off the books. Some do it to avoid paying taxes, while others may be involved in illegal activities such as drug trafficking or gambling. Whatever the reason, black money represents a loss of revenue for the government and can have a negative impact on the economy.
There are many causes of black money in India. Some of them are written below-
- Corruption in the government is one of the biggest causes of black money in India. A lot of government contracts are awarded to the people who can provide a kickback. This money does not get recorded in the government records and is thus black money. People make huge amounts of money by taking bribes for securing government jobs and licenses.
- The huge difference between the rich and the poor in India is another reason for black money in India. A lot of people get rich by exploiting poor people and they do not want to share their wealth with the government. This leads to black money in India. If a person buys some land from another person and pays cash for it, this is an example of black money.
- The high tax rates in India also encourage black money in India. The tax rates are so high that people hide their income from the government and do not show it. If a person earns Rs.10 lakhs for the year and is supposed to pay Rs. 1.5 lakhs as tax but the person can pay a bribe to get the amount reduced and only pay Rs.20,000. This is an example of black money in India.
- The illegal foreign exchange market in India is another cause of black money. People who have black money want to convert it into white money and they can do so by investing in the stock markets or in real estate. This is an example of black money.
- The Illegal activities of the people are also one of the causes of black money. People who are involved in illegal activities like smuggling, drug trafficking, and other criminal activities have to hide their incomes from the government. This is another cause of black money in India.
What are the effects of black money on the economy?
Let us see the effects through the different points of view in the essay on black money.
From the economic point of view:
Loss to the exchequer, unfair competition, fake products, terrorism and other crimes, the black money of the people has a bad effect on the economy. The black money created by the people is not taxed by the government. The government gets less money for its development. With black money, people can get a lot of money and spend it in their personal lives. This is another bad effect of black money on the economy.
From the social point of view:
It widens socio-economic inequality and social injustice. The black money created by the rich people is distributed among them. On the other hand, poor people who do not have black money are left behind. Due to this, there is a lot of gap between the rich and poor people.
From the political point of view:
It brings corruption and a lack of transparency and accountability. Politicians use the money to buy the votes of the people and to hold their power. The government is not able to provide good public services due to this. Corruption is one of the main problems with black money.
From the environmental point of view:
Black money has a great impact on our environment. The money is kept in foreign banks, which means that the money is not used to invest in India. This leads to an unbalanced economy and a lack of development in India.
The government’s efforts to tackle black money
The government has been making efforts to tackle black money for many years now. The most recent and noteworthy effort is the establishment of the Supreme Court-monitored SIT on Black Money. This is a welcome step, as black money is a grave menace to our economy.
Here are some major steps that are taken by the government to tackle black money:
- The Demonetisation of 500 and 1000 rupee notes was announced by Prime Minister Narendra Modi on November 8, 2016. This came as a major shock to the people of India.
- The Government has also made PAN cards mandatory for transactions above Rs 2 lakhs. PAN card has been made mandatory for any financial transaction above Rs 2 lakhs. This is a big blow to black money holders.
- Banks have started disclosing the list of their wilful defaulters. This list is prepared by the banks themselves. This will give a clear picture of the amount of money that has been lent to black money holders.
- The Government has also made it mandatory for all companies to disclose their directors, shareholders, and beneficial owners. This will make it easier for the Government to track down black money holders.
Government Laws to Curb Black Money:
In the essay on black money here are some laws which the government has passed to curb the menace of black money.
- The Benami Transactions (Prohibition) Amendment Act, 2016. Under this law, the Government will confiscate Benami properties.
- The second law is the Prevention of Money Laundering Act, 2002 which makes it compulsory for all banks to report any suspicious transaction to the Financial Intelligence Unit (FIU).
- The third law is the Foreign Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Under this law, any undisclosed foreign income and assets will be taxed at 60% plus a penalty of 30%.
The Government has also taken several steps to curb black money. The Prime Minister himself put an end to the culture of paying bribes by announcing a scheme called ‘Clean Money Campaign’ under which people can voluntarily disclose their hitherto undisclosed income and assets without fear of any punitive action by the Income Tax Department.
What is the role of the Reserve Bank of India in combating black money?
The Reserve Bank of India has issued several norms and rules to regulate the flow of funds for purposes of combating money laundering and black money. In this regard, the RBI has issued:
- The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000.
- The Foreign Exchange Management (Acquisition and Transfer of immovable property in India by a person resident outside India) Regulations, 2000.
- The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident in India) Regulations, 2000.
- The Foreign Exchange Management (Acquisition and Transfer of Immovable property in India by a Person Resident in India) Regulations, 2000.
- The Prevention of Money Laundering Act, 2002.
- The Prevention of Money Laundering (Maintenance of Records) Rules, 2005.
- The Foreign Exchange Management (Borrowing and lending in foreign currency) Regulations, 2000.
- The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident in India) Regulations, 2000.
- The Foreign Exchange Management (Acquisition and Transfer of Immovable property in India by a Person Resident outside India) Regulations, 2000.
- The Foreign Exchange Management (Importation and Exportation of Currency) Regulations, 2000.
- The Foreign Exchange Management (Prescribed Depositories — Creation and Maintenance of Records) Regulations, 2000.
Why is it difficult to eradicate black money?
It is difficult to eradicate black money for a number of reasons. Firstly, people often hide the black money in assets such as property or gold, which can be difficult to track down and seize. Secondly, even if the government is able to track down and seize black money, there is no guarantee that they will return the money to the rightful owners. thirdly, many people are reluctant to report their income or assets for fear of tax and punishment. This creates a culture of silence and makes it difficult for the government to get an accurate picture of the true extent of black money in circulation. Finally, even if the government does manage to successfully eradicate black money, there is always the possibility that new black money will enter the economy through illegal activities such as smuggling or corruption.
In conclusion, black money is a huge problem in our society. It undermines the economy and creates unfairness and inequality. We need to do something about it. We need to raise awareness, increase transparency, and take action against those who engage in illegal activities. Let us work together to fight this problem. Together, we can make a difference.
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