Black Money, Baba Ramdev, Chidambaram & Manmohan Singh

"We have taken a number steps on black money. These have been outlined by the Finance Minister. Only in the last two years, in Income Tax searches we unearthed over 18,000 crore rupees. In Income Tax surveys we have unearthed 12,000 crore rupees. In mis-pricing we have unearthed nearly 36,000 crore rupees. We have entered into double taxation agreements with number of countries. We have entered into tax information exchange agreements with number of countries. With Mauritius I started the process as Finance Minister. Mauritius has finally agreed to renegotiate the DTAA. We have ratified the UN convention against corruption. We have deposited the instruments with Secretary General. We are bringing a law
in the next session of Parliament against bribing foreign public officials. We will introduce legislation to strengthen the Prevention of Corruption act."

Transcription of exclusive interview with Union Home Minister P. Chidambaram on DD News
8th June 2011

"Let’s remember that the foundation of this country is Parliamentary democracy. That is what Mahatma Gandhi fought for. That is the Independence we have won in 1947 and that is what is said in the constitution that we gave to ourselves in 1950. Elected representatives of all levels, Parliament, Legislature, Municipalities, Panchayats, for a term, renewable in a free & fair election. Government can be voted out of power, government can be voted back to power."

Transcription of exclusive interview with Union Home Minister P. Chidambaram on DD News
8th June 2011

"Government is considering all measures, including legislative and administrative, to tackle corruption and improve transparency. Comprehensive measures have been launched to strengthen institutions to combat the menace of black money and corruption."

Action Taken by Government on Demands Raised by Baba Ramdev
Recovery of Black Money

Cabinet Secretariat
03-June, 2011 10:16 IST

There is a legal framework regulated by the Reserve Bank of India for the opening of bank accounts overseas by Indian residents and for outward or inward remission of funds through authorized channels.

The existing legal framework for dealing with illicitly generated funds transferred overseas and measures for the attachment and repatriation of such illegal assets to India and provision for penalties for offenders are:

A. Under the Prevention of Money Laundering Act, 2002 (PMLA), money laundered out of predicate scheduled offences can be attached and seized and individuals and other legal entities found to have indulged in money laundering can be prosecuted. PMLA provides for imprisonment of minimum of 3 years (which can be extended up to 7 years) and a fine of up to Rs.5 lakh and the tainted proceeds parked overseas can be recovered through Mutual Legal Assistance Treaties. India has such treaties with 26 countries.

B. Under the Foreign Exchange Management Act, 1999 (FEMA), cases relating to contravention in foreign exchange transactions by Indian residents can be adjudicated with penalty up to a maximum of 3 times the amount involved. Further, FEMA empowers the confiscation of the amounts lying abroad and directing their repatriation.

C. Under both statutes (FEMA and PMLA), investigation is taken up against specific persons, both natural and legal, and on the basis of specific information.

D. Section 105A of the Cr. PC provides for reciprocal arrangement and procedure for attachment and forfeiture of properties generated from the commission of an offence. Where such properties are situated overseas and treaty arrangements exist between Government of India and the other country, Letter Rogatories can be issued to a court / authority of the other country for execution of such an order.

E. Under the Income Tax Act also, income earned and not disclosed is taxable and also subject to penalty and interest, as well as prosecution. The amount recovered may even exceed the entire undisclosed income. This is in effect confiscation of such income / property.

Actions at hand

I. India has negotiated / renegotiated Double Tax Avoidance Agreements and finalized Tax Information Exchange Agreements with 44 countries so as to strengthen the exchange of information relating to tax evasion, money laundering and other criminal / illicit activities.

II. Agencies enforcing these laws have been strengthened and action is being taken in all cases where credible information is available. In the last two years, over Rs 33,000 crore of mispricing has been detected in international trade and over Rs 30,000 crore of tax evasion detected domestically.

III. Government has commissioned a study, to be completed within 18 months, by three national-level institutes to assess the extent of black money inside and outside the country and its impact on national security. The study will also indicate the sectors and mode of generation of black money and recommend measures for its prevention and control.

IV. The Direct Taxes Code Bill, as introduced in Parliament, contains provisions for mandatory declaration of assets held abroad by taxpayers in India. It also contains provisions such as General Anti Avoidance and Thin Capitalization Rules to combat illicit transfer of money and assets abroad through complex financial arrangements and instruments.

V. A Directorate of Criminal Investigation has been created in the Central Board of Direct Taxes as a dedicated unit to track financial transactions relating to illegal / criminal activities and bring such activities to justice.

VI. A High Level Committee has been constituted under the Revenue Secretary for effective sharing of information among Law Enforcement Agencies for coordinated investigation / prosecution of economic offences.
Mauritius Treaty

1. A Joint Working Group (JWG) was constituted in 2006 for the purpose of renegotiating the Direct Taxation Avoidance Convention with Mauritius and its last meeting was held in 2008. Thereafter, India has successfully used the mechanism of the Peer Review Group (PRG) of the Global Forum for Transparency and Exchange of Information for Tax Purposes – of which India is Vice Chair – to leverage arguments with the Mauritian side to be more open in furnishing tax related information to India.

2. Recently, during the visit of President of Mauritius in end-April, an indication was received that Mauritius would resume the Joint Working Group dialogue on the DTAC. Further, Foreign Minister of Mauritius has conveyed that his government will give a fresh mandate for the resumed negotiations to their experts. This position has been further confirmed by the Prime Minister of Mauritius to the Indian Minister of State for External Affairs on 16th May 2011 during her visit to Mauritius.

3. Hon’ble Supreme Court in the case of Azadi Bachao Andolan Vs Union of India (2003) endorsed the Mauritius route for investments into India for availing of the capital gains tax exemption. Hence, any change in the law relating to Mauritius can only have prospective application and can be in respect of future holdings/accounts/entities in Mauritius.

Proposed Action

In order to strengthen existing laws relating to black money, the government has constituted a Committee to consult all stakeholders and submit its report within a period of six months. The Committee will examine the measures to strengthen the existing legal and administrative framework to deal with the menace of generation of black money through illegal means including, inter alia,

a) Declaring wealth generated illegally as national asset;
b) Enacting / amending laws to confiscate and recover such assets; and
c) Providing for exemplary punishment against its perpetrators.

Any further suggestions in this regard will be duly considered.

Collection of details regarding people who go frequently to ‘tax havens’.

Government proposes to expand its Immigration/Emigration databases and build a database of Indians going frequently to foreign countries considered to be tax havens and returning to India.

Lok Pal Bill

A Joint Drafting Committee, consisting of Government and civil society representatives is already looking into the provisions of the Bill. Government is committed to the widest possible consultation on the Lok Pal Bill before its introduction in Parliament and subsequently until the passage of the Bill. As a first step, State Governments and political parties are being consulted. Further consultations with the public will follow.

Stronger punishment for the corrupt

This is also under consideration of the Joint Drafting Committee. The maximum punishment for cases of corruption would be increased substantially. It may be noted that money secured through corrupt modes can now be confiscated under the Prevention of Money Laundering Act and some cases have already been taken up under these provisions. Besides, the Department of Personnel is also considering the inclusion of a chapter in the Prevention of Corruption Act to provide for confiscation of ill-gotten wealth.

Special Courts for dealing with corruption cases

Government has already decided to set up 71 new special courts for trial of CBI cases. The number of public prosecutors, inspectors, head constables and stenographers for additional special courts has been increased. Government is open to the idea of more special courts to speed up trial of corruption cases.

Public Services Delivery Act

Various initiatives have already been taken by Government, including Citizens’ Charters, Sevottam and the recently introduced performance management & evaluation system. The Central Government is prepared to introduce a Public Services Delivery Bill in Parliament at the earliest and to prepare a Model Bill for adoption by State Governments. The Central Government will encourage State Governments to adopt the Model Bill to improve the quality and timeliness of public service delivery.

Technical Education in Indian Languages

The Commission for Scientific and Technical Terminology has been set up with a mandate of providing more regional language material in technical subjects. The Commission’s work will be strengthened and speeded up. The National Translation Mission under the Central Institute of Indian Languages, Mysore will also be strengthened. It may be noted that the Civil Services Examination is now held in Hindi as well as in regional languages. Similarly, Hindi is a medium for writing the IIT-JEE examination. The All India Engineering Entrance Examination, in which more than 11 lakh students appear each year, also offers Hindi as a medium. NCERT provides text books in Hindi and Urdu. In Tamil Nadu, Tamil is a medium of instructional examination for degree courses for technical education. Similarly, in the States of Rajasthan, Uttar Pradesh, Haryana, Bihar and Madhya Pradesh, the regional language is a medium of instruction and for examination in diploma level courses in technical education.

In addition to all these initiatives, the Ministry of Human Resource Development has asked AICTE, which is charged with the duty of determining and maintaining standards of technical education in the country to constitute a Committee of Experts to draw up a concrete plan for measures to be taken to increase the use of Indian languages in technical education. This Committee will submit its report in 3 months.

Land Acquisition Act

The Act is in the process of amendment and any suggestions regarding its provisions can be considered for inclusion. Government is committed to wide public consultation on the amendments to the Land Acquisition Act.


Government has already initiated several projects for promotion of organic farming and the use of bio-pesticides and bio-fertilizers. This includes the National Project on Organic Farming, National Horticulture Mission and the Rashtriya Krishi Vikas Yojana. As a result, organic farming which only covered 42000 hectares in 2004-05, now covers 10.8 lakh hectares. Nine States have drafted organic farming policies. There has been substantial increase in production of compost, bio-fertilizers and development of vermiculture. To sustain agricultural productivity in the long run and to address soil health issues, Government is giving special thrust to organic farming under the National Mission on Sustainable Agriculture and is promoting farming practices like green manuring, biological pest control and so on. These measures will be further strengthened and outlays increased.

Minimum support prices are even now based on cost calculations. Elaborate studies are conducted by the Commission on Agricultural Costs & Prices each year before Government finalizes the minimum support prices. These cost studies form the basis of the minimum support prices that are announced. The labour put in by the farmers is also part of the costs. Government will facilitate explanation of the methodology followed by the Commission at the technical level.
RT/PT (Release ID :72516)

Ministry of Finance

Committee constituted under chairman, CBDT to examine ways to strengthen laws to curb the generation of black money in the country, its illegal transfer abroad and its recovery.

The Government has constituted a Committee under the Chairmanship of Chairman, Central Board of Direct Taxes (CBDT) to examine ways to strengthen laws to curb the generation of black money in the country, its illegal transfer abroad and its recovery.

May 28, 2011

Government Commissions Fresh Study Through Top National Level Institutions for Estimation of Unaccounted Income/Wealth both Inside and Outside the Country.

Ministry of Finance, Government of India has commissioned an in-depth and fresh study, engaging three top national level institutions for estimation of unaccounted income and wealth held within and outside India. This study will bring out the nature of activities that encourage money laundering and its ramifications on national security. The study has already commenced in March, 2011 and is expected to be completed within a period of 18 months.

The study is being undertaken by the following national institutes:-

a) National Institute of Public Finance and Policy (NIPFP);
b) National Institute of Financial Management (NIFM) ; and
c) National Council of Applied Economic Research (NCAER).

The terms of reference of the study are as follows:-

(i) To assess/survey unaccounted income and wealth both inside and outside the country.
(ii) To profile the nature of activities engendering money laundering both inside and outside the country with its ramifications on national security.
(iii) To identify important sectors of economy in which unaccounted money is generated and examine causes and conditions that result in generation of unaccounted money.
(iv) To examine the methods employed in generation of unaccounted money and conversion of the same into accounted money.
(v) To suggest ways and means for detection and prevention of unaccounted money and bringing the same into the mainstream of economy.
(vi) To suggest methods to be employed for bringing to tax unaccounted money kept outside India. (vii) To estimate the quantum of non-payment of tax due to evasion by registered corporate bodies.

The issue of black money has attracted a lot of public and media attention in the recent past. So far there are no reliable estimates of black money generated and held within and outside the country. The different estimates on quantum of black money range between USD 500 billion to USD 1,400 billion. A recent study by Global Financial Integrity has estimated the illicit money outflow to be USD 462 billion. These estimates are based on various unverifiable assumptions and approximations. Government has been seized of the matter and has, therefore, commissioned these institutions to get an estimation and sense of the quantum of illicit fund generated and held within and outside the country.

Ministry of Finance
29-May, 2011
11:24 IST
(Release ID :72383)

Press Information Bureau
Government of India
Ministry of Finance
28-February-2011 14:6 IST

Five-Fold Strategy to Deal With Black Money

Presenting the General Budget 2011-12 here today, Shri Pranab Mukherjee, Finance Minister informed that to deal with the problem of generation and circulation of black money, the government has put into operation a five-fold strategy which consists of joining the global crusade against black money; creating an appropriate legislative framework; setting up institutions for dealing with illicit funds; developing systems for implementation and imparting skills to the manpower for effective action.

The Finance Minister Shri Mukherjee further informed that while the membership of the Financial Action Task Force (FATF) was secured in June last year, the government has also joined the Task Force on Financial Integrity and Economic Development, Eurasian Group (EAG) and Global Forum on Transparency and Exchange of Information for Tax Purposes. Discussions have also been concluded for 11 Tax Information Exchange Agreements (TIEAs) and 13 new Double Taxation Avoidance Agreements (DTAAs) along with revision of provisions of 10 existing DTAAs.

Shri Mukherjee apprised that the amendment in the Money Laundering Legislation in 2009 has significantly increased its scope and application. The number of cases registered under this Law has increased to over 1200 by January this year. The strength of the Enforcement Directorate has been increased three-fold to deal effectively with the increased workload.

He informed that the Ministry of Finance has also commissioned a study on unaccounted income and wealth held within and outside the country. It would suggest methods to tax and repatriate this illicit money.

To strengthen controls over prevention of trafficking and improve the management of narcotic drugs and psychotropic substances, it has been proposed to announce a comprehensive national policy in the near future, the Finance Minister said.


Dr Manmohan Singh, March 31, 2011, New Delhi
Chairing the meeting of the Council on Trade and Industry

Q. Black money – About corruption and black money – Any specific action that government can take to remove black money or parallel economy in the system.

PM: I think as far as black money in real estate is concerned, unfortunately, that is a reality and one way of this would be to lower the stamp duties. The stamp duties in our country are a big obstacle to cleaning the mess with regard to transactions in real estate, so that’s one way in which we can work towards a system whereby black money be less of its merits in transactions relating to real estate.

Press Information Bureau
Government of India
Ministry of Finance

01-March-2011 16:42 IST Assessment of Black Money in The Country
Study to be Conducted by 3 National Institutes
The Government has decided to get a fresh study conducted on unaccounted income/ wealth both inside and outside the country brining out the nature of activities engendering money laundering and its ramifications on national security. The proposal was approved by the Government in January, 2011. The study will be conducted by three national institutes with inputs from various ministries/ departments. The institutes have been finalized and the study will be assigned to them after making necessary provisions. The institutes will be given a time frame of eighteen months to complete the study.

This information was given by the Minister of State for Finance, Shri S.S. Palanimanickam in written reply to a question raised in Rajya Sabha today.


PM's Q&A session at the India Today Conclave with Arun Poori
March 18, 2011

Q. The expectation was that there would be some kind of amnesty scheme to try and bring in black money to invest in infrastructure. That has not happened. Was it at all a factor that the government considered?

PM: Well, amnesty schemes have been implemented in the past. I don’t think they have succeeded in providing a permanent cure for black money. We need to have a system's reform in a holistic manner to deal with this menace.

Transcript of PM's post budget interview 2011 with T.N.Ninan
February 28, 2011

Ministry of Finance
Press Statement

The issue of black money has attracted a lot of attention in the recent past. I will like to take this opportunity to share with you the proactive steps taken by our Government to combat the menace of illicit funds generated both as a result of tax evasion and corruption.

2. So far there are no reliable estimates of black money both inside and outside the country. The interim recommendations of BJP Task Force 2009 have estimated the amount of black money to be between USD 500 billion to USD 1,400 billion. A current study by Global Financial Integrity has estimated the present value of illicit money outflow to be USD 462 billion. All these estimates are based on various unverifiable assumptions and approximations. Government has been seized of the matter and has constituted a multidisciplinary committee to get studies conducted to estimate the quantum of illicit fund generated by Indian citizens.

3. Government has formulated a five pronged strategy which consists of joining the global crusade against ‘black money’; Creating an appropriate legislative framework; Setting up institutions for dealing with Illicit Funds; Developing systems for implementation; and Imparting skills to the manpower for effective action.

4. We have made substantial progress:

• India has completed negotiations of ten new Tax Information Exchange Agreements with Bahamas, Bermuda, British Virgin Islands, Isle of Man, Cayman Islands, Jersey, Monaco, Saint Kitts & Nevis, Argentina and Marshall Islands out of 22 identified countries/jurisdictions.

• India has initiated process of negotiation with 65 countries to broaden the scope of Article concerning Exchange of Information to specifically allow for exchange of banking information and information regarding taxpayers not covered by DTAA. As on date, negotiations have been completed with 10 existing DTAA countries to update this Article. Agreed texts have been initialed. Thirteen new DTAAs have also been finalised where the Exchange of Information Article is in line with the international standards. In short negotiations/renegotiations of DTAAs with 23 countries have been completed.

• We are strengthening the administrative machinery by setting up eight more income tax overseas units. Two such units are operational in Singapore and Mauritius.

• Strength of foreign tax division has been doubled. As a part of capacity building exercise 36 officers were sent abroad for specialized training in transfer pricing and international taxation. • Government is setting up an Exchange of Information (EoI) Cell, which will help in effective exchange of information to curb tax evasion.

• Information regarding details of payments received by Indian citizens in several countries has started coming from treaty partners. This information is in different stages of processing and investigation.

• We have detected undisclosed income of about Rs.15,000 crores in last 18 months, due to focused search operations by the Income Tax Department.

• During the same period, Directorate of International Taxation has collected taxes of Rs 34,601 crore. The Directorate of Transfer Pricing has detected mispricing of Rs 33,784 crore, which has prevented shifting of an equivalent amount of money outside India.

• Necessary provisions have been made in the proposed Direct Tax Code to create legislative framework to check illicit outflows of funds.

• India’s Membership in FATF in June last year, is in recognition of the strength of our anti-money laundering and anti-tax evasion measures. India has also gained Membership of the Eurasian Group (EAG).

• India has joined the Task Force on Financial Integrity and Economic Development in order to bring greater transparency and accountability in the financial system.

• India has also played a very active role in G-20 by identifying issues and drafting communiqué. Due to active role in ‘The Global Forum on Transparency and Exchange of Information for Tax Purposes’, India has become Vice Chair of the peer review group.

• On 1st June 2009, the Prevention of Money Laundering Act (PMLA) has been amended whereby the predicate offences listed in the Schedule to the Act were substantially increased in terms of the Acts covered and sections covered under such Acts. This amendment has tremendously widened the scope of money laundering investigations by the Directorate. FIU-INDIA is fully functional now.

5. The early results of our initiatives are encouraging. These proactive steps led to additional collection of taxes of Rs. 34,601 crore and detection of additional income of Rs. 48,784 crore on which taxes are being collected. I am confident that the results will be quite satisfactory in the days to come.

Prime Minister's Office24-February, 2011 19:03 IST

PM’s Reply to the Lok Sabha Debate on the Motion of Thanks on the President’s Address

Madam, one issue which has been raised from time to time and it was also raised during the last elections was with regard to black money. We all want to clean our system of this menace. But we all know that black money accumulation is not a product of the last four or five years. It has been there for a long period and we have made attempts to deal with it. The economic reforms of 1991 were one such attempt to reduce the scope of discretionary powers of the Government at the Centre so that there would be less scope for arbitrary practices; less scope for collection of black money. The economic reforms process has helped to revive our growth impulses. At the margin, it has also helped to reduce the scope of black money. But I would be the last one to deny that we have a long way to go. We need more competition in our country to stimulate our economy to promote efficiency. But at the same time we need the regulatory system to ensure that there is fair competition, that the basic purposes of having an environment friendly policy are not ignored. There is a delicate trade off between environment and developments. We can neglect neither.

Therefore, we need a very sensitive regulatory system. But if we talk of a regulatory system we open up the scope of discretion as well. Therefore, we have to re-visit the regulatory framework in order to ensure that while we recognise the need for having a sound regulatory system, it must not degenerate once again to new one way of bringing back the licence, permit Raj. That is one dimension of controlling the generation of black money through economic activities.

The other source of generating black money is tax evasion and I venture to think that over the years particularly since 1991 our tax system, both direct and indirect, has moved in the right direction and that on balance there is less scope for tax evasion today than was the case and the evidence is quite clear from the handsome figures of the rate of growth of the Central Government’s tax revenue.

But there are new sources like criminal activities, human trafficking and narcotics. All these have also become more important. As our economy grows, these practices also have unfortunately tended to grow. Therefore, in order to deal with black money, we have to tighten that part of the regulatory framework and supervisory platform which can counter, control these tendencies and prevent wrong doing.

Action has been taken. Shri Pranab Mukherjee has held a Press Conference. We are approaching the relevant authorities. If this money is held abroad, we are approaching the relevant authorities. If there are legal restrictions, we are trying to negotiate new legal treaties which would provide smoother flow of information.
I also wish to assure the House that, on this question of black money, particularly black money held abroad, we are one with the Opposition in saying that everything should be done to bring back this money to India because it belongs to us. This is not the issue which should divide the House. We will sit together with all parties and seek their help inviting suggestions as to how far we can move and at what pace we can move. We are absolutely open when it comes to dealing with black money. All constructive suggestions will be welcome.

25-January, 2011 14:25 IST
DSM/BY (Release ID :69350)

Several Punitive and Deterrent Steps Taken to Unearth Black Money; Rs. 786.27 Crore Seized During Search and Seizure Operations in 2009-10

Government of India has taken several punitive and deterrent steps to unearth black money. These include scrutiny of returns, surveys, search and seizure action, imposition of penalty and launching of prosecution in appropriate cases. Among other efforts to unearth black money, Tax Information Network (TIN) has been set-up as depository of important tax related information which can be accessed by the Department. The information collected from various sources is also collated electronically to create a 360 degrees profile of the high net-worth assesses so as to detect tax evasion. A Computer Aided Investigation Tool (CAIT) has been developed to scrutinise computerized Books of digital evidence seized during search and Survey operations. Information as regards suspicious transactions and large cash transactions, as disseminated by the Financial Intelligence Unit, India (FIU-IND), is also investigated by the Income Tax Department. Appropriate action under the provisions of Direct Tax Laws is taken in cases where unaccounted income/ wealth is detected.

The amount of total assets seized by the Income Tax Department during Search and Seizure operations conducted in the last three financial year is as under:

Financial Year Total Seizure (Rs. In Crore)

2007-08 427.82

2008-09 550.23

2009-10 786.27

There are several underlying causes of generation and circulation of unaccounted money, including various socio-economic factors. However, generation and circulation of unaccounted money is found to be prevalent in Real Estate, Manufacturing Sector, Mining, Education, Healthcare and various other sectors.

There is no official estimate of the extent of unaccounted income/ wealth in the country as on date. At the instance of the Government, the National Institute of Public Finance and Policy (NIPFP) had in 1985 conducted a study” Aspects of black money in India” in which the amount of black of black money in the country in the year 1983-84 was estimated between Rs. 31,584 Crore and Rs. 36,786 Crore. The authors of the study had, however, admitted that their estimate was based on numerous assumptions and approximations, each of which could be challenged. Subsequently no fresh study has been conducted by the Government on the amount of black money.

At present, there is no proposal to make any fresh assessment of the extent of unaccounted income/ wealth in the country.

This information was given by the Minister of State for Finance Sh. S.S. Palanimanickam in a written reply to an Unstarred Question raised in Rajya Sabha today.

DSM/BY/S Ministry of Finance
17-August, 2010
(Release ID :64898)

Press Information Bureau
Government of India
July 19, 2005

Santanu Palodhi*

India registers a growth rate of about six percent in the economy. But unfortunately its underground economy or black economy also seems to be thriving. Almost everyone accepts that black money is one of the most menacing problems the country faces today. Politicians, bureaucrats, policy makers, tax administrators all agree that some concrete measures are required to contain the problem. One viewpoint is that until and unless we act with firm commitment, the goals of stable economic growth and distributive justice would continue to elude us.


There are various factors for generation of black money, including evasion of taxes levied by the government and misuse of various laws and regulations. Apart from tax evasion, many other activities like smuggling, drug trafficking and gambling, private tuition by salaried teachers, private practice by publicly employed doctors and private consultation by technocrats whose salary is paid by the government, generate black money.

Black money harms the society in more than one way. In the first place it leads to loss of revenue to the public exchequer. This results in reduction of budgetary allocation for social sectors like education, health, housing and other civil infrastructure, Secondly, wasteful expenditure coupled with sudden spurt of purchase by the people having black money develops an inflationary pressure and brings about some kinds of distortion in the economy. Thirdly, black money and the resultant inflation lead to inequitable distribution of income and national resources and give rise to other economic and social problems. Fourthly, purchasing behaviour due to black money leads us to a situation where the market driven allocation of resources is not the true reflection of the societal needs. Black income is mostly invested in activities, which tend to be less productive such as purchase of gold and property with the hopes of making capital gains. Lastly, the prevalence of black economy implies that some transactions such as those in the property and real estate market are made in black money. This leads to generation of more black money.

Concrete Steps

The government has taken a number of steps to curb black money. Searches, seizures, surveys, and scrutiny of income tax returns are being done by the Income Tax Department. Amendments have also been made to the Finance Act 2004 to intensify efforts to curb black money. These include prosecution for falsification of books of accounts and taxing of gifts worth more than Rs. 25, 000 to unrelated persons.

Schemes aimed at unearthing the ‘black money’ an euphemism for concealed and unaccounted for income and wealth on which taxes have been evaded, can take many forms. These include demonetization of high denomination currency notes and amnesty schemes.

There have been two editions of the Voluntary Disclosure of Income Scheme under which black incomes and assets could be declared, the tax paid at current rates and amnesty availed from penalty and prosecution. The tax amnesty schemes, however, have their ethical and egalitarian aspects, which have been hotly debated and even contested in the courts of law in the past.

As the National Common Minimum Programme requires the Government to introduce special schemes to unearth black money and assets, the Union Finance Minister, Shri P. Chidambaram in this year’s budget (2005-2006) came out with some concrete measures to deal with the problem. These include introduction of Cash Withdrawal Tax.

Cash Withdrawal Tax

The Cash Withdrawal Tax imposes some financial burden on the person who is withdrawing large amount in cash from the banks. The same tax is not payable by a person who is withdrawing the money in small instalments or making payment through cheque. One may provide an ethical angle to the issue by raising a few questions. Can such consideration be an argument for dispensing with a tax that could be a potent instrument to keep a tab on huge cash transactions involving black income or money? Given the ground reality in India is it justified to raise a hue and cry about the levy of the tax? The per capita income in India is around Rs.30, 000 only. How many people are really going to be affected by this nominal tax on a cash withdrawal of Rs. 25,000 a day by an individual? As the Finance Minister Mr. Chidambaram has pointed out that banking system too is a well-known system for laundering. There are in general several possible means of money laundering. Moreover, the Finance Minister has assured that the Tax department would keep a ‘trail’ of only withdrawal running into lakhs and crores of rupees.

In the case of real estate like land and buildings it is a common phenomenon that the vendor often insists that his consideration amount be paid in cash. He also resorts to lowering the value of the property transacted. Such practice deprives the Government of stamp duties and also converts a part of the black money of the purchaser to white money. At the same time the vendor gets a chance to hide, from the tax authorities, a sizable portion of his receipts. In order to make a dent in the problem, the Government has passed the Prevention of Money Laundering Act 2002, which seeks to prevent practices like falsification of books of accounts and claiming to make gifts to unrelated persons.

Transaction Through Cheques

We should keep in mind that encouraging people to make transactions through cheque will go a long way in plugging a potential source of black money. The Cash Withdrawal Tax is expected to dissuade people from going in for cash transaction not only due to the tax as such but also the ‘trails’ the tax authorities will keep on such cash transactions. As the Finance Minister has said “I must have a tax trail of suspicious transactions. We want to zero in on suspicious transactions.” Shri Chidambaram, while strongly defending the Banking Transaction Tax has made it clear that it was not something that was invented by him but was in vogue in many countries. For him the ultimate objective of this tax is to weed out black money by persuading people to make more transactions in cheque, as he put it in his own inimitable style, “We also want to push people into cheque economy and plastic card economy.”

The two measures proposed by the Finance Minister — the Cash Withdrawal Tax and the directive to the banks to report to the Government all deposits, which are exempt from TDS on interest — are expected to check the generation and growth of black money. But the Government is not going to stop at this only. If required, further measures will be taken to grapple with the problem, as our Finance Minister has assured in his budget speech, “I intend to observe the results of these steps before I propose any further measures.”

*Director (News), All India Radio, Kolkata


The Election and Other Related Laws (Amendment) Bill, 2001, as approved by the Union Cabinet on December 18, 2001, is intended to eliminate the influence of money power and black money support in elections to the Parliament and the State Assemblies. The salient features of the Bill are :

The Representation of the People Act, 1951 may be suitably amended to allow companies, other than Government companies, subject to the Companies Act, 1956 , to make donations to political parties. Similar donations could be made by the individuals and other juridical persons but no donation would be received from foreign source as defined in the Foreign Contribution Regulation Act, 1976. The public sector undertakings and other like bodies which are funded by the Government wholly or partly including local bodies will also not be eligible for donation.

As per Section 293 of the Companies Act, a company may donate, in any financial year, any amount not exceeding fifty thousand or 5 per cent of its average net profits during the three financial years immediately preceding.

The limit of income of a political party from voluntary contributions in cash may be raised from rupees ten thousand to rupees twenty thousand under Proviso (b) of Section 13A of the Income Tax Act, 1961.

In computing the amount of income tax on the total income of an Indian company with which it is chargeable for any assessment year, the amount contributed directly or indirectly to political party or for any political purpose may be allowed as deduction from the amount of income tax as computed. Similar tax relief may be allowed to individuals, Hindu Undivided Families (HUFs) and certain other entities or juridical persons.

The treasurer of a political party shall prepare a report of donations and submit the same to the Election Commission. If he fails to submit a report, the political party shall not be entitled to any tax relief which is allowed under the Income Tax Act, 1961.

The accounts in respect of donations shall be audited by an auditor approved by the Comptroller and Auditor General of India once in a financial year to determine admissible expenditure. The accounts together with the audited report shall be laid on the Table of the Houses of Parliament.

The Election Commission shall, on the basis of the past performance of the political party, during elections, allocate equitable sharing of time on cable television network and other electronic media in the manner prescribed. The allocation will be binding on all political parties.

The Election Commission may lay down a code of conduct for the cable operators and electronic media who shall abide by such code of conduct.

Provisions may be made for free supply of copies of electoral rolls and identity slips of electors to the candidates and such other material as may be prescribed.

Explanations 1 and 3 of Section 77 may be deleted and substituted by an Explanation indicating that the expenditure incurred on general party campaign by the leaders of political parties on account of travel by air or otherwise shall not be deemed to be expenditure in connection with elections incurred or authorized by a candidate of that political party or his election agent for the purposes of Sub-section (1) of Section 77.

Respective laws relating to cable operators and other service providers in the private sector may be amended so that code of conduct to be observed by them may become part of the licensing conditions, if any, any failure to observe which may render such lincences liable to cancellation. However, proposals in this regard will be separately moved by the concerned Ministries and Departments.

The issue of the State funding has been receiving attention of the Government for quite some time. The idea of State funding is to eliminate the influence of money power, black money support and raising of funds in the name of elections by the parties and their leaders.

Pursuant to a decision of the all-party meeting on May 22, 1998 to discuss the proposals on electoral reforms, the Government of India constituted a Committee under the Chairmanship of Late Shri Indrajit Gupta. The terms of reference of the Committee included (a) examination of the pattern of State funding in other countries, and (b) examination in detail of the related proposals such as maintenance of accounts by political parties and ban on donations. The Indrajit Gupta Committee submitted its report on January 1, 1999 which was laid on the Table of the Houses of Parliament. The Dinesh Goswami Committee also recommended State assistance in kind. The Law Commission in its 170th Report also recommended State funding of elections. The Commission also recommended amendment of Section 77 of the Representation of People Act, 1951.

December 20, 2001


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