How corrupted people convert black money into white money?

First of all, I am stating that I am with our prime minister Narendra Modi, who have taken a major action against corruption and black money holders. Being said that, I will give a short explanation about the ways which are taken by people in order to convert the illegal or “black” money to legal or “white” money. 

First of all the question arises that “What is Black Money”?

1. Black money is the earned money which is done by evasion of tax

1. It can be earned through both legal and illegal means

      The majority of the black money is the income received in cash which is not accounted in legal books and not revealed to the government for tax purposes.

 

• Now the question arises that how does the black money get generated?
  
  
  
  
  1> Corruption– Mr. X, an officer in government service, demands Rs.1 lac from Mr.Y for doing a favour (eg. to approve the building sanction plan). Now  Mr. Y hands over Rs.1 Lac to the officer in cash as no one takes a bribe in cheque or demand draft. This money will not be accounted in the books of Mr X and he will not pay any tax on it.  Hence Rs.1,00,000 black money is generated.
  
  
  2>Property selling– Mr. A buys a property from Mr. B for a total sale value of Rs.25 Lacs. Mr B takes Rs.15 Lacs in cheque/DD and the rest 10 lacs in cash. He pays stamp duty on Rs.15 Lacs, and the seller pays income tax on  Rs.15 Lacs. Hence Rs.10,00,000 black money is generated.
  
  
  3>Selling of goods/services without invoice – Suppose Mrs A buys a dinner table along with sofa set from a furniture dealer. Now,  the shopkeeper  tells “the price is Rs.50000 plus taxes at 14.5%”. Mrs A asks for discount from the shopkeeper.  The shopkeeper tells her that he can offer it at Rs.38,000 without any bill and if Mrs X  wants, the former can write on a piece of paper . Hence Rs.38,000 black money is generated.
  
  
  4>Accounting for fictitious(false) expenses –  Mr X, a businessman, tells his chartered accountant that the former can’t pay so much tax and asks the chartered accountant to do something in order to reduce the taxes.  The accountant does the favour  by booking fictitious expenses. If the businessman declares a profit of Rs.5 Lacs against the actual profit of Rs.10 Lacs, black money of Rs.5 lacs is created. Hence Rs 5 Lacs black money is generated.
  
  
   Now the big question that how the illegal or black money converted into legal or white money? 
  
  
  The difficult part is converting the black money into white money without any taxes. In all the above examples, the people who have earned money in cash (black money) can’t deposit it in the bank.  So, they have to make a safe storage of  the cash somewhere else eg in a bank locker, suitcase, etc.  They can also spend this amount in cash by   purchasing of property, goods, etc. Let us see the ways of converting black money.
  
  
  1>By showing fictitious(false) sales – Few years ago, a movie got casted by the son of a powerful politician. The movie was a big flop. But, it ran ‘houseful’ (false) in Kalpana Theatre of K G Road for a year. During those days, people were talking that the black money earned by the father is converted into white by showing the income from the movie which got casted by his son. In this way the money earned by  illicit means is converted with the help of businessmen by booking fase sales in the books of his/her own company.
  
  
  2>Increase the sale price of an asset – Suppose a buyer wants to buy a property from a seller  for a price of Rs.40 Lakhs. But the seller wanted him to pay Rs.60 lakhs in cheque and in turn the seller wanted to return the difference amount of Rs.20 Lakhs and additional stamp duty/registration charges in cash to the buyer. Thereby the seller  converted Rs.20 Lakhs of black money to white without paying any taxes. The seller then reinvested the corrupted money in another property and got the long term tax exemption.
  
  
  3> Route through Hawala – we have often heard about hawala transactions. Now let us understand it in simple words. Let us assume Mr.A, a government officer or a politician in Kolkata has Rs.25 Lakhs in cash. Since it is black money, he can’t deposit the same in the bank. So,what he does is that, he identifies a hawala agent . The Hawala agent takes the cash in Kolkata and through his counterpart,he hands over Rs.25 Lakhs worth in dollars/pounds in a foreign country to his representative. Mr.A gets this money back to India as Foreign Direct Investment (FDI) or seed fund in a private company, etc. Also he may choose to invest abroad in properties / shares. Thus, he converts black money to white without paying any taxes.
  
  
  4>Depositing in banks an amount less than Rs.50000 – This route is taken by small time operators. They open  accounts in multiple banks and deposit cash upto Rs.50000 at a time. Now the rule says that if one has to deposit over Rs.50000, he/she has to give PAN details to the banker. Mostly, these kind of small transactions goes unnoticed by the income tax department and thus, black money is converted to white without paying any taxes.
  
  
  5>Income through agriculture – There is Income Tax on agricultural income. This means the money earned from the sale of paddy, rice or wheat is free from tax. So, the people who earn black money will obtain a false receipt from traders of agricultural commodities,as if they have sold the products. For the sake of records, these people will acquire or show the proof of ancestral property in villages!
   
  6>Gifts – Any amount of money which is received from relatives as gift is free from Income Tax. Hence it is an easy way to convert black money to white. What happens that the person shows that the cash received in his/her son’s or daughter’s birthday as gifts from relatives.
  
  
  Gifts from non-relatives and friends attract income tax. But those who have huge black money can show gift and pay taxes. Still the money earned through corrupt practices can be converted into white (after paying taxes). One of the classic examples is the amount of gift declared by a former Chief Minister who paid huge taxes during that year. She declared around Rs.200 Crores as gift received from her well-wishers and paid taxes on it!
  
  
  7>Selling of jewellery in fake – Suppose, Mr.X has Rs.5 Lacs cash and he hands this amount temporarily to a jewellery shop (that does not mean each and every jewellery shop). The jewellery shop will issue a receipt for having bought Gold/Diamond worth Rs.5 Lacs from Mr X and make payment in a cheque to Mr.X. For facilitating this transaction, the jewellery shop  will charge a minimal amount of fee. Thus Mr.X converts his black money into white, without paying any income tax.