A booming business: How black money racket runs in India

  • Gaurav Choudhury, Hindustan Times, New Delhi
  • Updated: Oct 28, 2014 08:55 IST

The Narendra Modi government on Monday filed an affidavit before the Supreme Court in the black money case, naming three prominent businessmen Pradip Burman, formerly of Dabur group, Goa-based miner Radha S Timblo and Bullion trader Pankaj Chimanlal Lodhya.

The Centre told the apex court that it had no intention to withhold names of persons who have stashed black money abroad and stated that information received from foreign countries will be disclosed in all cases where tax evasion is established.

The BJP had raised the issue of black money during the campaigning for the 2014 Lok Sabha and repeatedly questioned the stand of the former Congress-led UPA regime.

While there are no official estimates, Global Financial Integrity (GFI), a Washington-based think-tank, has estimated that Indians had parked $462 billion in overseas tax havens between 1948 and 2008.

Hindustan Times presents a lowdown on how deals thrive outside the financial system in a bustling cash economy, hoodwinking authorities by creating a web of transactions to obscure the source of slush funds.

What is black money

Black money arises mainly from incomes not disclosed to the government usually to avoid taxation, and, sometimes, because of its criminal links

In god we trust, rest only cash

About two-thirds of India’s GDP run on cash—about Rs. 62 lakh crore a year. For instance, grocery is bought and services are paid in cash.

Realty leads pervasive evasion

About a third of India’s black money transactions are believed to be in real estate, followed by manufacturing and shopping for gold and consumer goods.

How the dirt gets washed

1. Under invoicing

Supply: Firm Y supplies goods worth Rs. 1 lakh, but does not present the bill

Billing: Firm Y presents a bill of Rs. 60,000 to firm X for the goods it supplied

Cheque: X presents a cheque of Rs. 40,000 –after deducting Rs. 20,000 as tax—to Y

Due amount: A month later X pays Rs. 40,000 to Y in cash, which is not accounted

2. Investment in unlisted private companies

Borrow: X “lends” Rs. 10 crore in “cash” to Firm Y through a convertible debenture

Investment: Firm Y uses the “cash” lent by X to pay vendors in cash

Sell: Firm Y accepts payment from its final consumers only in cheque

Convert: X “converts” Rs. 10 crore he had lent into equity shares of Y

3. Property deals

Sell: X sells a plot of land to Y at Rs. 20 crore

Pay: Y pays 50% (Rs 10 crore ) in cash and the balance in cheque.

Deposit: X deposits the cheque of Rs. 10 crore and withdraws part in cash

Divert: X Places a request before bank to for a demand draft of a huge amount to purchase gold for business.

Read: How much black money do Indians have abroad?

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