INTRODUCTION

INCOME TAX STRUCTURE IN INDIA

The Income Tax is the annual charge levied on the income viz. Salary, wage, commission,
dividend, bonus, etc. of an individual, company or a firm. For each assessment year, the rate
of tax levied on different income levels, as prescribed in the slab, is defined in the Union
Budget (Finance Act).

In India, the income tax is charged annually at the end of each financial year (April – March).
It is the main source of Income for the Government that is essential to maintain the deficits
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and the optimum cash flow in the money market. There are different tax rates for different
income levels on the basis of which the tax amount is computed.There is a minimum cap on
income beyond which the tax is calculated.

According to the Indian Income-tax Act, 1961, the following parties are liable to pay the
income tax, provided their annual income falls into one of the income slabs as prescribed in
the Act:

 Individuals

 Hindu Undivided Families (HUFs),

 Companies

 Firms

 Association of persons

 Body of individuals

 Local authority

Hence, every individual falling in any of the above-mentioned categories must pay income
tax which is used by the government for the betterment of the society.

There are some deductions under different sections of the Income Tax Act that gives
relaxation in the Tax Amount.

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Few Common Deductions are:

 Public Provident Fund (PPF)

 Life insurance premium

 MediClaim insurance

 Tuition fees for child education

 Contribution to NPS

 Tax Saver Fixed Deposit (FD)

 Health insurance premium

 Investments made under The Rajiv Gandhi Saving Scheme

 Home loan repayment, etc.

In india income tax is mainly imposed on three tier process/ system, it is by central
government, local government and local government. It has given seprate authority and
limitation for the collection of income tax.

Central Government levy tax on income, custom duty Centre exercise and service tax
according to the constitution of India Central Government can put tax on individuals and
organisations.And no one has right to impose tax on individual and organisation other than
authority of law and parliamen. Central bureau of direct taxes which is a part of development
of revenue under the Finance ministry of India is responsible for the tax rates after the
independence of India income tax on their income capacities.
Type of taxes ; 1. Direct tax. 2. Indirect tax
Direct taxes it is a charge input directly on individuals or organisation and it is paid directly
by them. This tax cannot be shifted to other individual or organisations .
following below are come under direct taxes that is Income Tax, corporate tax,Property tax
,inheritance tax, gift tax .
Indirect tax charged implied to individual from intermediary, for example retail store this
can be shifted by taxpayer to someone else ,
examples of indirect tax custom duty, central excise duty, service tax, sales tax.
Black money
Black money is that money which are not fully legitimate property of an individual. normally
it is received in cash. or black money is a type of income whose taxes are not paid .
according to National Institute of public finance and policy ‘’black money is the aggregate of
incomes which are taxable but not reported to authorities ‘’
generally it is done to evade payment of taxes which include Income Tax ,exercise duty,
sale tax, stamp duty and etcetera.
Black money generation
It is generally generated through main two means – Illegal means and Legal means. This can
be earned through Illegal means such as drug trafficking, weapons trading, terrorism, selling
counterfeit or stolen goods. Or By Corruption which includes bribe given to and by public
officers. Hiding income through Legal activities i.e. not reported to public authorities or we
say to the govt.for the purpose to evade taxes. Even commercial classes generate black
money through Trade. In election the politicians use their black money to politicise the voters
im their favour.

IMPACTS OF BLACK MONEY ON INDIAN ECONOMY

The flow of black money can seriously affect the entire economic system of India. Some
important impacts are discussed here: 1. Less Tax for the Government–Many times, the
Indian Government has failed to collect the estimated amount of tax from the people of our
country and for this, credit has to go to the black money driven underground economy.
Recently, a report was submitted to the Finance Ministry of India that divides the spread of
black money in different sectors like real estate, mining, telecom etc. The study, headed by
NIPFP chief P.Kavita Rao, explains how illicit wealth is likely to exceed 10% of GDP.

2. Uncontrollable Inflation-When black money is out in the market, the amount of money in
the system is higher than the Government expects. This causes the prices of commodities to
increase to a level beyond normal. This is a direct result of people having more money
offering more money on specific items. Even if the Government tries to control the credit
flow in the market by taking necessary measures, the amount of black money present upsets
the move, resulting in some sort of pressure on the economy.

3. Leads to Mass Poverty–The distribution of wealth and income in our country has been
severely affected by the growth of underground economy. The common people get affected
indirectly in so many ways. The tax evaders are keeping the money away from the deserved.
If all the black money in the tax havens is recovered and used by the Indian government, all
the outstanding liabilities of the country could be paid off and money would still be left for
spending.

4. Lack of Technology–Due to the existence of black money, India is facing the problem of
shortage of capital. This has the direct impact on the up gradation of technology in all sectors.
The major reason behind such backwardness is the parallel economy.

5. Impact on Growth by moving investments on Gold, Stones and Jewellery–People who are
looking to turn black money into white money are largely investing in precious metals like
Gold and other jewelry. There are people who believe that almost 70% of the total gold
investment in our country is black money. One reason for people to invest in gold is that it is
hard to trace. People in black market may buy gold bars, coins, jewelries etc. because one can
buy gold easily and can be converted back to money anytime. This flow of underground
money has caused Indian economy to stall on its growth. It is estimated that if all the money
in the underground economy could be diverted to our main economy, our economy would
grow by more than thrice in no time.

6. Corruption-While corruption creates black money in the economy, it can also be a result
of the growing underground market. People with black money are able to bribe the
administrators and politicians to get what they want. By doing this, they are able to get what
they want and others are pushed down the stack.

7. Inflated Real Estate –When people with deep pockets are ready to pay more for a piece of
land, the price of surrounding land also tends to increase; thus artificially inflating the prices
of an entire area. Generally, people involved in black money market are always ready to pay
more for a piece of land as this helps in converting their colored money to legal money.

8. Transfer of Indian Funds Abroad to Safe Heavens–The black money generated in India is
kept in foreign tax havens. For this, money has to be transferred from India to other countries
through secret channels. Under-invoicing of exports and over-invoicing of imports are two of
the main methods used by black money holders for transferring money overseas.

9. Encourages Anti-Social Activity–It is no doubt that black money is a curse to any country.
Black money is always promoting anti-social activities in the society. Bribery, mentioned
earlier, is only one example. The anti-social effects of black money include activities like
terrorism, a huge threat already to our country.

EXISTING LEGAL PROVISIONS AND ADMINISTRATIVE

MACHINERY TO DEAL WITH BLACK MONEY
The importance of dealing with the problem of black money has been visible in the
Government's agenda, with the issue being mentioned during the presentation of the Union
Budget too.
A two-pronged approach to curb black money is on the cards-the first deals with black money
stashed overseas. While some ground work has already been executed in this regard, there are
promises of more to follow. The second is on tackling domestic black money.
Comprehensive laws are expected to emerge in the near future based on press statements
made recently by senior personnel in the Ministry of Finance.
COMPREHENSIVE BILL TO BRING BACK BLACK MONEY STASHED ABROAD
The Foreign Exchange Management Act (FEMA) regulations allow Indian residents to invest
overseas. Further, investments made overseas while an individual was a non-resident Indian
can also be held overseas after repatriation. However, the source of these investments should
have been taxed as prescribed by the Indian tax laws.
Moreover, the income generated from such investments must also be taxed in the hands of
residents. In order to have a sight on such assets overseas, suitable disclosure needs to be
made in tax returns filed by residents. The Government had introduced reporting of foreign
assets by resident and ordinarily residents in The Finance Bill, 2012. The reporting
requirements were comprehensive and included financial interest in any entity or signing
authority in any account outside India.
However, investigations carried out by the tax authorities revealed lax compliance with the
law and it was perceived that harsher measures were required.
A comprehensive Bill, introduced in the Budget session of the Parliament, takes steps in this
regard by including a slew of measures to rein in black money.
The Bill aims to make concealment of income and assets and evasion of tax in relation to
foreign assets prosecutable with rigorous imprisonment up to 10 years. Further, the offence
will be made non-compoundable and the offenders will not be permitted to approach the
Settlement Commission.
A penalty of 300% of the tax shall be levied for such concealment of income and assets.
Also, non-filing of return or filing of return with inadequate disclosure of foreign assets will
be liable for prosecution with punishment of rigorous imprisonment up to seven years.
Income in relation to any undisclosed foreign asset or undisclosed income from any foreign
asset will be taxable at the maximum marginal rate with no exemptions or deductions.
AMENDMENT TO EXISTING LAWS
The concealment of income or evasion of tax in relation to a foreign assets would be made a
predicate offence under the Prevention of Money-laundering Act. This would enable the
enforcement agencies to attach and confiscate unaccounted assets held abroad and launch
prosecution against the defaulters. Further, the definition of 'proceeds of crime' would be
amended to enable the confiscation of equivalent asset in India where the asset located abroad
cannot be forfeited.
CURBING DOMESTIC BLACK MONEY
The Finance Minister proposes to introduce a new and comprehensive Benami Transactions
(Prohibition) Bill in the Budget session of the Parliament. This will enable confiscation of
Benami property and block a major avenue for generation and holding of black money,
especially in real estate.
With a view to curb the generation of black money in real estate, the Budget proposes to
amend the provisions of Section 269SS and 269T of the Income-tax Act so as to prohibit
acceptance or re-payment of advance in cash of Rs 20,000 or more for any transaction in
immovable property. It is also proposed to provide a penalty of an equal amount in case of
contravention of such provisions. To discourage cash transactions, quoting of PAN will be
made mandatory for any purchase or sale exceeding the value of Rs 1 lakh.

IMPLEMENTATION IS THE KEY

The introduction of stringent laws against defaulters will help the Government widen the tax
base. Implementation of these proposals is the key as they may be rendered ineffective if not
supported by advanced information gathering systems. The increased compliance
requirements, however, can end up making individuals and investors anxious.
The Government's aim is to foster a stable taxation policy and non-adversarial tax
administration. This aspect will play a major role in the implementation of the proposed drive
against black money. But the new laws should not offer unrestrained powers to the tax
investigators as such a move may dampen the investment climate of the country. The
Government should ensure that an honest taxpayer is not caught in the web of these stringent
laws.

EXTENT OF BLACK MONEY

Almost every sector in our country generates and uses black money for its survival in the
market, society....etc. It includes Real estate, financial market, bullion & jewellery market,
non-profit organisations, external trade and so on. Apart from this, in India black money
persists due to the existence of Demonstration Effect i.e. the way to live a life in terms of
others point of view or we say live a life by looking at others livelihood. People of India are
very much affected by the lifestyles of other people of the society who are maintaining
considerable high status, and in turn want to be like them. For this, they want to generate
money by any means. Therefore to fulfil these desires or to maintain their status in society
they force themselves to generate and use black money. Corruption in India is a major issue
that adversely affects its economy. In 2014 India ranked 85th out of 175 countries in
Transparency International's Corruption Perceptions Index, compared to its neighbors Bhutan
(30th), Bangladesh (145th), Myanmar (156th), China (100th), Nepal (126th), Pakistan
(126th) and Sri Lanka (85th) Another reason for the existence of black money is the presence
of Corruption in every field of the economy. For example, 1. If any common man wants to
get a job in any public institution like in a bank, or any transport or educational institution
etc., then he will have to pay adequate consideration to the authority of that respective
institution i.e. Bribe have to be paid. For this, common man is forced to generate money by
illegal means. In this way, we can say that, both, the public authority and a common man
generate and use black money in a considerable manner. 2. Likewise, if a student wants to get
admission in any big and reputed institution, he will have to pay some extra money other than
fees in the form of Donations etc. 3. Also in some Educational institutions, more fees are
charged for examination forms or for practical which is considerably higher than the quoted
fees. In this way, black money is generated and used in big and reputed educational
institutions. Black Money of India in Swiss Accounts- India has slipped to 70th position in
terms of foreign money lying with Swiss banks and accounts for a meager 0.10 per cent of
total global wealth held in the country’s banking system. An article in the reputed newspaper
“The Hindu” in 2010 revealed that unofficial estimates indicate that Indians had over
US$1456 billion in black money stored in Swiss banks (approximately USD 1.4 trillion).
While some news reports claimed that data provided by the Swiss Banking Association
Report (2006) showed India has more black money than the rest of the world combined, a
more recent report quoted the SBA›s Head of International Communications as saying that no
such official Swiss Banking Association statistics exist. Another report said that Indianowned
Swiss bank account assets are worth 13 times the country national debt. These allegations
have been denied by the Swiss Bankers Association. James Nason of Swiss Bankers
Association in an interview about alleged black money from India holds that “The (black
money) figures were rapidly picked up in the Indian media and in Indian opposition circles,
and circulated as gospel truth. However, this story was a complete fabrication. The Swiss
Bankers Association never published such a report. Anyone claiming to have such figures
(for India) should be forced to identify their source and explain the methodology used to
produce them.” In a separate study by Global Financial Integrity concludes, “media reports
circulating in India that Indian nationals held around US$1.4 trillion in illicit external assets
are widely off the mark compared to the estimates found by their study.” The report claims
that the amounts are significantly smaller, only about 1.5% of India’s GDP on average per
annum basis, between 1948–2008. This includes corruption, criminal activities bribery and
kickbacks, trade mispricing and efforts to shelter wealth by Indians from India’s tax
authorities. According to a report, published in May 2012, Swiss National Bank estimates
that the total amount of deposits in all Swiss banks, at the end of 2010, by citizens of India
were CHF 1.95 billion (INR 92.95 billion, US$ 2.1 billion). The Swiss Ministry of External
Affairs has confirmed these figures upon request for information by the Indian Ministry of
External Affairs. This amount is about 700 fold less than the alleged $1.4 trillion in some
media reports. The report also provided a comparison of the deposits held by Indians and by
citizens of other nations in Swiss banks. Total deposits held by citizens of India constitute
only 0.13 per cent of the total bank deposits of citizens of all countries. Further, the share of
Indians in the total bank deposits of citizens of all countries in Swiss banks has reduced from
0.29 per cent in 2006 to 0.13 per cent in 2010. In 2011, according to the data provided by
Swiss Bank, India is topping the list almost $1500 billion of its black money deposited with
them, followed by Russia $470 billion. The amount of black money is increasing day by day
at very rapid speed. According to Report published by SWISS NATIONAL BANK estimates
total deposits as below: From this analysis it is clear that India has a Top Position in case of
black money deposits.
MEASURE TO TACKLE BLACK MONEY

Generation of black money, stashing it abroad in tax havens and recovering such illicit
wealth secreted in these accounts was one of the dominant issues in the run up to the 2014
General elections. In fact on assuming office one of the first decisions of Narendra Modi led
NDA Government was to constitute a Special Investigating Team [SIT] as mandated by the
Hon’ble Supreme Court to look into these matters. While the SIT was operating on a narrow
compass the fact remained – much was left to be done by the Government. It is in this
background that Budget 2015 has pronounced certain measures to deal with the “generation
of black money and its concealment effectively and forcefully.” This statement of intent has
been backed by providing highest priority to investigations into cases of undisclosed foreign
assets. This is over and above that investigation conducted by SIT. According to the Finance
Minister “major breakthrough” has been made with the Swiss Authorities and certain critical
and actionable information obtained from such Key features of the new law include:
Punishment of 10 years Rigorous Imprisonment in case of evasion of tax in relation to
foreign assets besides penalty of 300 percent with no recourse to Income-tax Settlement
Commission Non-filing of IT returns with inadequate disclosures to result in 10 years
Rigorous Imprisonment Concealment of income/evasion of income in relation to a foreign
asset to be made a predicate offence under the Prevention of Money Laundering Act [and that
can attract a separate prison term] Further, Foreign Exchange Management Act is be
amended to ensure punishment in such cases too. In short, illicit foreign asset would attract
imprisonment under the new black money law, get taxed at the maximum marginal rates,
invite 300 percent penalty besides being prosecuted under PMLA and possibility of assets of
equivalent value within India being attached with appropriate amendments to FEMA.
authorities New Legislation- Buoyed by success achieved thus far, Budget 2015 now
proposes a new legislation to deal with the black money parked abroad.

RECOMMENDATIONS AND SUGGESTIONS

After studying the concept of black money & its various sources of generation in our country,
it’s time for some Recommendations & Suggestions that may help to control black money in
India. These are as follows: Our Government should make its foremost objective to control
black money in our country. E-Governance should be started by the Government i.e. the
use of technology be made as far as possible like E-Registration with Revenue Authorities, E-
Filing of Returns, etc. because more The involvement of human beings more is
involvement of corruption, ultimately generating Black Money. Agriculture income should
be taxed for those who have both the agricultural as well as nonagricultural income. Black
money revolves around in cash only so the Government should put restriction on cash
transactions wherever possible and instead should increase the use of Plastic Money like
Debit Cards, Credit Cards, etc. and by other such means. The Government should not give
absolute power of work to any one person as it creates monopoly and instead should
segregate the work among many persons. The tax rates should be made helpful to some
extent in solving this problem. For this purpose tax rates should be lowered Tax evasion
should be checked by plugging loop-holes in tax system. All the aspects of its generation
should be looked into and stopped. Competitive bids should be motivated.