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Updated: Feb 20, 2022

All the illegal and unaccounted money is called black money. People tend to hide their money in order to pay less tax. Black money is a serious matter as it could adversely affect the Indian economy in many ways.

In 2012 it was found by the CBI that Indians had the most black money stashed in banks abroad (approximately 500 billion US Dollars) compared to the rest of the world.

Sources of black money

The main source of black money in India is from:

● The black market or the underground market is another source of black money. They usually conduct the smuggling of illegal goods like weapons, drugs, etc.

● Money laundering: it is a process through which illegal money is made to be seen as money from a legitimate source through many complex processes. In simple words, the dirty money is laundered into clean money.

● Tax havens: Tax havens are generally small countries where foreigners don’t have to pay taxes.

● Then the most common is hiding of income by an individual or an organization from the tax department.

Impacts of Black Money

Black money has been affecting the Indian Economy back from the 20th century itself. But as time passed it has only kept increasing from millions to billions of Dollars thus increasing the impact on the economy.

Some of the main impacts are:

● Black income has been causing the underestimation of GDP in India as an enormous volume of income is diverted to this unaccounted sector resulting in the growing continuation of the parallel economy of the country.

● Another main effect is the loss of revenue and thus causes higher taxation.

● Black money increases criminal activities(like terrorist activities, smuggling of drugs, bribery, etc.) as there is no record of the flow of this unaccounted money.

● The availability of black incomes with businessmen and capitalists and the consequent inequalities of income place a large amount of funds at their disposal.

● A portion of the black income is kept in cash and due to which there is an abundance of liquidity that will become available through the savings held in the form of cash, sovereign, etc.

And due to all this black money economy, the economy gets totally distorted.

Actions taken to reduce the flow and control black money in the economy

● Demonetization - In 2016 the Modi government took an initiative to ban the 500 and 1000 rupee notes and made people exchange them with the new notes of 500 rupees and 2000 rupees. This was mainly to bring out black money and also to reduce the crimes happening due to this flow.

● Income declaration scheme 2016- During the time of Demonetization, the government introduced this scheme so as to make people voluntarily come forward with the black money they had with them. This scheme ensured that the people who disclose their hidden money would not face any litigation provided that they pay 45% of the total undisclosed money as tax and penalty.

● Cashless and digital transactions- The government is encouraging cashless/digital transactions with a view to making things more transparent.

● Taxation Reforms - Changes in the tax system

Laws dealing with controlling of black money

The main laws dealing with the controlling of black money are:


● The Income Tax Act, 1961

● Foreign Exchange Management Act

● Prevention of Money Laundering Act

● Benami Transactions(Prohibition) Act, 1988 (the updated version of this law was passed in 2016)

These laws help to curb the flow of black money in the economy.

● As of now, under the black money (undisclosed foreign income and assets) and imposition of tax act , 2015, 475 notices were issued by the Income-tax department involving undisclosed assets/income of worth rupee 14,000 crores (approx.).

Authorities that deal with black money

  1. Enforcement Directorate

  2. Central Board of Direct Taxes

  3. Financial Intelligence Unit

  4. Central Board of Excise and Customs

  5. Directorate of Revenue Intelligence

  6. Central Economic Intelligence Bureau

  7. National investigation agency

  8. Central Bureau of Investigation


Thus we know that there are many ways through which black money flow happens in our economy and the way through which it is made and the illegal activities that happen due to this. Also, the impacts caused by this is on the country and its citizens is really a matter of grave concern. But the citizens have hope to live a peaceful life due to the various law and law enforcement and regulatory bodies that ensure that such things don't happen.


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1 Comment

Glito Davis
Glito Davis
Apr 27, 2021

Great work 🤝👏👏

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