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HindustanTimes Sat,30 Aug 2014

A dark, bustling business: How India's black money racket runs

Gaurav Choudhury, Hindustan Times  New Delhi, June 30, 2014
First Published: 14:39 IST(30/6/2014) | Last Updated: 19:42 IST(30/6/2014)
Prime Minister Narendra Modi is moving fast to repatriate hundreds of billions of dollars in slush funds or black money stashed abroad, as part of a wider clampdown on corruption that he promised during his election campaign.

The Indian government has written to Switzerland seeking details of Indians who have stashed away unaccounted money in the country. (Photo representative/Thinkstock)
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The government is building pressure particularly on Switzerland, seeking details of Indians who have parked unaccounted for money in the Alpine country's highly secretive banks. It has quickly implemented a Supreme Court directive to set up a high-powered special investigation team, headed by retired judge MB Shah, to look into the issue of black money that is said to run a parallel economy in India.
 
The efforts to rid India of corruption comes at a time when public patience with graft has run thin, underlined by massive street protests across the country three years ago that forced political parties to start addressing the scourge.

Read | Easier said than done: Busting India's black money racket
 
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. http://www.hindustantimes.com/Images/popup/2014/6/gx-prominenttax.jpg
 
Read | India writes to Switzerland seeking black money info
 
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
 
Read | Data shows increase in Swiss bank stash of Indians

3. Property deals http://www.hindustantimes.com/Images/popup/2014/6/gfx-fivecountries1.jpg

 
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 


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