What Is Black Money? Meaning, Definition, And Criticism

Black Money Meaning: You must have heard about people being abducted with a huge amount of black money. The amount is often so high that it becomes difficult to predict the exact amount. Black money is referred to as money collected by engaging in illegal and harmful activities. This huge wealth is off the official records and is not covered under taxes. Let us understand how it disturbs a country’s economy. Read the full post to grasp the meaning of black money.

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Black Money Definition

The money collected through illegal activities such as involving in crime, corruption, tax evasion, bribery, smuggling, etc, is known as Black Money. These activities are conducted off the records of the government without any count in the official records.

Black money can have a bad effect on a country’s economy. It leads to economic inequality, reduced tax revenue collection, and puts a question mark on the effectiveness of government services.

Income that is not counted under the official records and kept hidden by a person or group in a country is known as Black money.

The topic “Black Money” is a serious issue, and awareness among the general citizens of a country is required to avoid practicing it. But how is such a huge amount of black money collected under the hood & hidden from the government? Let us shed light on different possible sources of black money.

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Black Money: Sources of black money in a country

Some major sources of black money accumulation in a country are mentioned below.

- Tax evasion: It is a serious offence when people hide their income to avoid paying taxes to the government. They indulge in illegal activities to manipulate financial records.
- Corruption: It is the biggest reason for black money in a country where people having power and money are involved in bribery and fraud activites. It is the biggest curse to a country’s economy.
- Real estate transactions: Most of the real estate transactions are completed under the table to avoid paying taxes. Agents and companies hide the property’s actual value to minimize tax.

Indirect investment: People often invest in jewelleries and other costly items to hide their actual income or black money from authorities.

Hawala: It is an informal method of transferring money without involving banks or other government organizations. There are no records or tracking of the money as there is no physical movement of money.
Information hiding: Many organized groups or communities hide their income and expenditure from the official records, such as Self Help Groups (SHGs) hide sources of their funds, donations, and expenditures.
Smuggling: Various illegal trade of goods such as drugs and other illegal products often leads to the generation of a huge amount of black money.
Illegal activities: Many illegal activities such as paid crime, cybercrime, gambling, etc.

Black Money: What is Money Laundering?

Money laundering is the process of converting illegal black money into white or legal money. People who have a huge collection of black money cannot spend it openly. There is a high chance of coming into the sights of government agencies. However, they find a loophole by converting this black money into legal money (white money). That is interesting, though! How do they do it? A collection this size turned into legally recognized wealth. There are different, well-planned techniques that can be used to convert this black money.

Some of the most frequently reported methods are through cross cheques, through strong, influential people, through charities and trusts, etc. However, there are no definite rules governing these methods. People go to great lengths to find a feasible solution for tax evasion.

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Effects of Black Money on a Country

There are major consequences of black money accumulation on a country’s economy. Some of the serious effects are mentioned below.

The direct impact of black money is on tax revenue collection, severely impacting a country’s economy.
It leads to increased inequality as powerful and rich people accumulate wealth. The rich people keep on getting rich, and the poor stay poor. Due to black money, the prevalence of inequality spreads.
Incomplete and false information on the official record. As much wealth passes without coming to light, it leads to incomplete data and misguided decision-making.
Black money tarnishes the credibility of a country.
Increase in illegal activities such as drugs., terrorism, bribes, etc.
Small businesses and startups suffer a lot due to black money as they pay taxes, unlike people with power and strength.

Criticism of Black Money

Black money itself is a source of fatal criticism, as it can create major flaws in the system. Various illegal activities are promoted to escalate sources of underground money flow based on power. Human trafficking, drugs, and other inhuman activities escalate in search of power and money. Corruption occurs at various levels due to the flow of black money into the system, which fails our system and its working.

With the power of immense money, people can control and influence various strong people and buy their loyalty. It can lead to corrupt police forces making bad decisions and ignoring offences.

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Major Steps Taken by Government to Fight Black Money

Black money is a major challenge, especially when it comes to eradicating it. Let us know some major steps the government took to restore balance.

The government takes major steps to fight the spread of black money. Recently, many new black money cases were uncovered. With ‘The Black Money (Undisclosed Foreign Income and Assets) and competition’ black money accumulates as a serious offense and is punishable.
The government has implemented various tax reforms to cover black money offenses.
The government is encouraging people to carry out cashless transactions for their various day-to-day work. Cashless payments help keep a record of daily expenditures.
Demonetization of Rs. 500 and Rs.1000 notes in the year 2016 to make most of the black money to date useless.
Some major institutional methods include the Directorate of Revenue Intelligence (DRI), and the Central Board of Excise and Customs, CBT.
Electoral reforms are being planned to stop the accumulation of black money, especially for elections.
There are some major frameworks in legislation, such as the Prevention of Corruption Act, 1988. Prevention of Money Laundering Act, 2002, Lokpal and Lokayukta Act to keep black money in check.

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