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Here is More Evidence on India's Love for Black Money

Apr 7, 2016


In the budget speech made on February 28, 2013, the then finance minister P Chidambaram had said: "There are 42,800 persons - let me repeat, only 42,800 persons - who admitted to a taxable income exceeding Rs 1 crore per year."

This statement caused a lot of hungama at that point of time. Recently, the revenue secretary Hasmukh Adhia made a similar sort of statement. "There are only 1.5 lakh individuals whose total income would be above Rs 50 lakh," Adhia recently remarked.

This statement by Adhia has been largely ignored. It essentially implies two things: a) India is a poor country where very few people actually earn more than Rs 50 lakh. b) Very few Indians actually pay income tax and black money forms a major part of the Indian economy. Black money is money which has been earned, but on which tax has not been paid. While, there is no denying that India is a poor country, in this context the second option makes more sense.

In a country of close to 125 crore people, only 1.5 lakh individuals, or 0.012% of the population has an income of over Rs 50 lakh. This is a tad difficult to believe. The consumption patterns clearly prove otherwise.

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One argument that can be made here is that many people earning over Rs 50 lakh are making money in forms that are tax-free, like capital gains and dividends from stocks. Dividend earned from stocks has been tax-free for a while now. In the budget presented in February earlier this year, the finance minister Arun Jaitley introduced a "tax at the rate of 10% of gross amount of dividend...payable by the recipients, that is, individuals, HUFs and firms receiving dividend in excess of Rs 10 lakh per annum." (HUFs = Hindu Undivided Families).

While Chidambaram had used the phrase "taxable income", Adhia just used the term "income". So in Chidambaram's case it is clear he meant that only 42,800 Indians had a taxable income of more than Rs 1 crore. Hence, there are more than 42,800 Indians making more than Rs 1 crore per year. This would include those who make money through capital gains and dividends from stocks, on which taxes need not be paid.

In Adhia's case, he has just used the term "income". Hence, the 1.5 lakh individuals who make more than Rs 50 lakh per year, would also include those who make money in forms, on which income tax does not have to be paid. It also includes those who make more than Rs 50 lakh per year, but whose taxable income is less than Rs 50 lakh, given that they make use of various deductions that are available.

Adhia's statement was made in a certain context. In a notification put out on April 1, 2016, the ministry of finance had said: "With Assessment Year 2016-17, individuals and HUFs filing their returns of income in ITR-1, ITR-2, ITR-2A and ITR-4S, having income exceeding Rs.50 lakh will now be required to furnish information regarding assets and liabilities in Schedule-AL of the relevant ITR form."

Basically those earning more than Rs 50 lakh would now have to declare their assets (cars, investments, property etc.) as well as liabilities (like loans being re-paid) while filing their income tax returns.

There were some protests against this move, which led Adhia to state that: "There are only 1.5 lakh individuals whose total income would be above Rs 50 lakh. This schedule in ITR only applies to ultra rich and will not affect the common man... 99.5 per cent taxpayers are not affected by this requirement. Only the ultra rich will have to give this information in their I-T Returns."

On the face of it, this seems like another move on the part of the Narendra Modi government to crackdown on black money. While this might look like another move to tackle black money, to me it seems more like a classic bureaucratic exercise to harass those who are already paying income tax and following the law of the land.

The number 1.5 lakh is anyway so small that this lot of people is probably not in a position to hide its income given that most of it is tax deducted at source (TDS). Chances are that these individuals are either salaried and/or honest.

Hence, what is the point in making their income tax filings more complicated than it currently is? Is the chartered accountant (CA) lobby at work? Is it trying to ensure that filing income tax returns gets more complicated by the year, leading to more CAs being able to charge more?

I really don't have answers for that. But in a country where conspiracy theories thrive, this one makes immense sense.

Also, from April 1, 2016, onwards, many high value transactions are to be reported to the income tax department.

These include: a) buying or selling of immovable property worth more than Rs 30 lakh. b) purchase of shares worth more than Rs 1 lakh or mutual funds worth more than Rs 2 lakh. c) payment of credit card bills more than Rs 2 lakh. d) investment of more than Rs 1 lakh in gold ETFs. e) investment of Rs 5 lakh or more in debentures or bonds of a company. f) cash deposit of more than Rs 10 lakh made into a savings bank account.

Hence, the government will have access to most of the information that it now wants from those earning more than Rs 50 lakh to declare in their income tax returns. Why is it still asking for this information? One possible explanation is that given the slow pace at which our bureaucracy works, the expectation is that this information will not be shared with the income tax department at a fast pace or on a regular basis. Hence, the department now wants the information coming to it directly. Again, I don't have any evidence for this, but it makes for a good conspiracy theory.

Also, the moot question is what is the government doing to expand the tax base? Is it looking at the right places for people and institutions which are avoiding to pay income tax? Take the recent data on money supply released by the Reserve Bank of India.

Between March 2015 and March 2016, the currency with the public went up by 15% or Rs 2.08 lakh crore. Between March 2014 and March 2015, the jump had been 10.6% or Rs 1.33 lakh crore. So why this sudden jump?

The RBI governor Raghuram Rajan explained this in an interaction with the media after presenting the first monetary policy statement for this financial year on April 5. He explained that assembly elections are currently on in several states. Around this time, the cash in hands of the public increases.

As Rajan said: "you can guess as to reasons why...we also guess." This increase is not only in the states that go to elections but also in neighbouring states. Having said that, this explains only a part of the increase.

This money that has gone out of the banking system to finance elections, is very easy to track. The income tax department can easily check if tax has been paid on this income. Typically, black money finances elections. But given that this money is financing assembly elections, and politicians are involved, the chances of anything like this happening are remote.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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6 Responses to "Here is More Evidence on India's Love for Black Money"

praveen Bhargava

Apr 11, 2016

This article is based on "LOVE FOR BLACK MONEY IN INDIA".Black money is termed as Parallel economy and if it grows more than a certain point it creates havoc for the whole economy of the country.this is what is happening in India for the last so many years all together without any STOP.Many disclosure schemes had been come into action in the last 30 years or so to bring out the black money in white to use in productive use but all in vain.One more Disclosure scheme proposal is also there in this Modi Budget of 2016.To brought Black money from the grip of the Illegal ultra rich Citizen of India,Modi government with Modi vision has to take much drastic steps such as a small levy of 1% excise on gold and ornaments in the budget of 2016.Corruption and the lust for illegal money(BLACK MONEY) in INDIA is so great that it is next to impossible to control the generation of Black Money.The official statement of 1.5 lakh of persons are having income of Rs. 50 lakh and above in whole of INDIA looks a false one because I am very sure that even more than 1.5 lakh Persons are having the income of more than Rs. 50 Lakh in my home metro city where I am living for the last 55 years or so.



Apr 11, 2016

This is another useless idea of the government as amply illustrated by you. Unfortunately no one in the government will react to these facts. They are out to harass the poor tax payers more and more till they disappear. It is very evident that either the income tax department does not get any of this information or they don't act on it when they get it. Is it difficult to ask the credit card companies to provide the data of high value transactions? Is it difficult for the exchanges to report high value purchase of shares, is it difficult for the Asset Management companies of MFs to report high value purchases of MFs? Is it difficult to get the list of PANs and account numbers from banks where more than 10 lakhs are deposited in cash? Who will actually deposit such large cash amounts in the banks knowingly? The people who don't file their income tax returns at all any way, why would they report this information? It is such a futile exercise of our esteemed bureaucrats!!



Apr 11, 2016

The more things seem to change, the more they are the same. Everyone knows, that there is tremendous amounts of black money generated by all businesses starting from the pan wallah upwards. Logically they simply have to tackle that source and bring in accountability. But then that will affect the main source of funds for all political parties. Further, how will politicians of all hues gain wealth, if such taxes are brought forth.Also Income tax officers have to work harder--businesses are not going to be easy push overs like salaried class.So they bring in the illusion of change...New tinkering, all adding to the harassment of the hapless salaried class.
An ever worse situation is when the collected taxes are poorly administered through various schemes which once again provide opportunity for the rulers and their cronies to steal and revel.
Nothing has changed over the millenia. The King has been replaced by the Prime Minister. Courtiers and Noble men have been replaced by our present day politicians. The easily taxable farmers, tradesmen and others of the past have been replaced by the present day salaried class.




Apr 8, 2016

The only reason behind such acts increasing complexities is that Modi government failed badly in keeping its promise of bringing back black money that is parked outside India. The jumla of 15 lakh in each account has given a very bad reputation. So, now Modi is trying to divert the attention by trying to prove that there is a lot of black money in India. So, all such mindless rules are being made just to show that they are doing something serious about black money. In fact Vivek's statement is absolutely right, the taxation base should be expanded, instead of taxing the people who are already paying fair amount of tax. The only way to do it is to make the tax compliance easy. After all just 3 or 4% of Indians actually pay income tax.



Apr 7, 2016

Contrary to asking people with Rs 50 lakh+ to declare assets, a better option would be to ask people who don't pay taxes and own a car, business or house to file an Assets return.

Like (2)

manmohan khetan

Apr 7, 2016

I fully agree with Vivek. Harass those whose income is subjected to TDS and allow others to enjoy who are not coming under TDS net. I really wonder why so much hype and energy getting wasted on tracking income of people who are subjected to TDS. Feel pity for them. They behave wiser for pennies and foolish for pounds. No cost benefit analysis.

Vivek has answered very clearly the nexus leading to such rules

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