PROJECT REPORT

(Submitted for the degree of B.com Honors in Accounting and Finance under

the University of Calcutta)

“BLACK MONEY AND TAX EVASION”

SUBMITTED BY:

NAME OF THE CANDIDATE: P. BIRUPAKHYA

CU REGISTRATION NUMBER: 017-1111-1312-20

CU ROLL NUMBER: 201017-21-0461

NAME OF THE COLLEGE: THE BHAWANIPUR EDUCATION SOCIETY

COLLEGE

COLLEGE UID: 0101201230

SUPERVISED BY

NAME OF THE SUPERVISOR: PROF. IPSITA CHATTERJEE

NAME OF THE COLLEGE: THE BHAWANIPUR EDUCATION

SOCIETY COLLEGE

MONTH & YEAR OF SUBMISSION

JUNE 2023

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 SUPERVISOR'S CERTIFICATE

This is to certify that Mr. P.BIRUPAKHYA, a student of B.Com Honors in Accounting &
Finance of THE BHAWANIPUR EDUCATION SOCIETY COLLEGE under the University
of Calcutta has worked under my supervision and guidance for his Project Work and prepared
a Project Report with the title “Black money and tax evasion” which he is submitting, is his
genuine and original work to thebest of my knowledge.

PLACE: Kolkata Signature:

DATE: 28 June 2023 Name: Prof. Ipsita Chatterjee

Designation: Lecturer

Name of the College: The Bhawanipur

Education Society

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 STUDENT’S DECLARATION

I hereby declare that the Project Work with the title “Black money and tax evasion”
submitted by me for the partial fulfillment of the degree of B.Com. Honors in Accounting &
Finance under the University of Calcutta is my original work and has not been submitted
earlier to any other University/Institution for the fulfillment of the requirement for any course
of study.

I also declare that no chapter of this manuscript in whole or in part has been incorporated in
this report from any earlier work done by others or by me. However, extracts of any literature
which has been used for this report have been duly acknowledged providing details of such
literature in the references.

PLACE: Kolkata Signature:

DATE: 28 June 2023 Name: P Birupakhya

CU Registration No: 017-1111-1312-20

CU Roll No: 201017-21-0461

UID: 0101201230

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 ACKNOWLEDGEMENT

It gives me immense pleasure to present this project on “Black money and tax evasion”
carried out in partial fulfilment of requirement of B.com Semester – VI(Honors) study.

No work can be carried out without the help and guidance of various persons. I’m happy to
take this opportunity to express my gratitude to those who have been helpful to me in
completing this project report. At the outset, I would like to thank our Prof. IPSITA
CHATTERJEE for the valuable advices and guidance during my project completion, also
for timely help concerning various aspect of project.

I would be failing in my duty if I do not express my deep sense of gratitude to my parents

without whom I cannot complete my project work.

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 CONTENT

Introduction

1.1 Background of the study

7-8
1.2 Literature Review
9
1.3 Objectives of the topic
CHAPTER 1 10
1.4 Needs
10
1.5 Limitations
11
1.6 Research Methodology
11

Conceptual Framework

2.1 Topic in Depth 12

2.2 How Black money is generated 13-14

CHAPTER 2 15
2.3 Impact of Black Money
16-17
2.4 Tax Evasion Meaning
2.5 Common Methods of Tax Evasion and
18
Penalties in India

2.6 Measures Taken by Government to Fight 19

against Tax Evasion

2.7 Difference between Tax Planning, Tax 20

Avoidance and Tax Evasion
21
2.8 Tech Power to track Tax Evasion

Presentation, analysis, and findings

CHAPTER 3 3.1 Case study of Bobili Jagadeeswara Rao Vs
24-25-26
Central Board of Direct Taxes
3.2 12-08-2021 Tax Fraud 27-18

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 3.3 Demonetisations and its impact on Tax
29-30
Collections and formalisation of the
economy- Arun Jaitley
3.4 Evasion attempts after Demonetisation 31
3.5 GDP growth rate in Pre, During and Post
32
Demonetisation Periods
3.6 Estimates of Black Money 33

3.7 Black Money and Tax Heavens 35

3.8 Amnesty Schemes of the Government of
36
India since Independence
3.9 Black Money Chase : Measures taken by the 37-38

Government
3.10 Tax evasion: India losing over $10.3
38
billion every year
3.11 An Estimate of Evasion of Personal 39
Income Tax in India, 2011–12 to 2017–18
3.12 Collection of Direct Taxes 40-41
3.13 Contribution of Direct Tax in Total Taxes 42-43

Conclusion & recommendation

CHAPTER 4 4.1 Conclusion 44
4.2 Recommendation 45
4.3 Bibliography
46

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 CHAPTER 1 – INTRODUCTION

1.1 BACKGROUND OF STUDY

Tax evasion is the illegal practice of not paying taxes, by not reporting income, reporting
expenses not legally allowed, or by not paying taxes owed.

It is the deliberate, misrepresentation or concealment of the true state of their affairs to the tax
authorities to reduce their tax liability or to avoid the tax liability by declaring less incomes,
profits or gains than actually what they earned or overstating their expenses. Thus, the amount
which would have been used for economic and social development is used for anti-social
activities.

The level of Evasion Tax also depends on the chartered accountants and tax lawyers who help
companies, firms, and individuals evade paying taxes. Thus, tax evasion is not a problem in
development of country but also harmful for the country because it reduces government’s revenue
and income flow of the country. The people think that their tax money is not properly utilized by
the government or the tax rates are high.

Tax evasion is a illegal method which creates black money and parallel economy whereas Tax
avoidance is the legitimate minimizing of taxes, using methods included in the taxcode.
Businesses avoid taxes by taking all legitimate deductions and by sheltering income from taxes
by setting up employee retirement plans and other means, all legal and under the Internal
Revenue Code or state tax. The money earned by the illegal activity controlled by the country is
known as black money. Black money proceeds are usually received in cash from underground
economic activity that are not taxed, the assets or resources that have neither been reported to the
public authorities at the time of their generation nor disclosed at any point of time during their
possession.

Tax evasion has been causing reduction in the country’s economic growth. It brings
disequilibrium in the economic condition of the country resulting in the rich becoming richer and
the poor becoming poorer. Its most important adverse affect is perhaps on equity. A wage-earning
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factory worker pays tax. A restaurant worker whose income is the same but who receives part of
his income in tips does not reveal it for tax purposes. Thus, one blue collar worker gains at the
expense of the other. This is horizontal inequity. A salaried employee in the organised corporate
sector earns the same reported as their incomes appear to be the same for tax purposes. As
inequity and inefficiency lead to lower revenue intake for government, its functional capacity,
efficiency and effectiveness suffer because of tax evasion. Capacity suffers due to lower
availability of resources. The result could very well be an increase in tax rates, or the imposition
of distortive taxes, thereby initiating a vicious cycle of inequity and inefficiency. The most
common source of black money is illegal means through the black market or underground
economy, such as drug trafficking; weapons trading; terrorism; prostitution; selling counterfeit or
stolen goods, such as credit cards, or selling pirated versions of copyrighted items, such as
software and musical recordings. The portion of country’s income that is tied to black economy
affects the growth of country’s economy. The black economy constitutes a financial leakage, as
tax income from unreported earnings is not received by the government, thereby constituting a
loss of revenue. In addition, as these funds rarely enter the banking system, economies are stifled
because money remains hidden that otherwise could be used by banks to stimulate the economy
by funding small business owners and entrepreneurs. Furthermore, black money causes the
financial health of a nation to be underestimated.

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1.2 LITERATURE REVIEW

• Vijay Kumar Singh (2009) in his study on “Controlling money laundering in India-
Problems & Perspectives” showed that controlling black money in India is a complicated
task only due to poor implementation of laws enhancing the sophisticated crime in the
economy and thus creating black money.

• Sukanta Sarkar (2010) conducted a study on “The Parallel Economy in India: Causes,
Impacts & Government Initiatives”. He opines that the main reason behind the generation
of black money and tax evasion in India is the political system. The Government here has
more focused on making committees rather than implementing it.

• CA Lalit Mohan Agarwal (2012) edited the “White Paper on Black Money” and
observed that violation of laws made by the Central and State Governments beget criminal
activities which, in turn, lead to a generation of black money in Indian economy.

• Mr. Nishant Ravindra Ghuge and Dr. Vivek Vasantrao Katfare (2016) in his study
“A Comparative Study of the Taxstructure of India concerning other countries” observed
that the taxstructure of India lags behind mostly every indicator. Detailed reviews and
actions from the government can help simplify the tax structure.

• Dr. Devarajappa S. (2017) in his study on “Tax Reforms in India: A Study of its Impact
on the Revenue of the Government” suggested the necessity of consciousness of the
Indian about the taxation rules and laws that will create such an atmosphere in which they
will pay their due taxes and will not evade it and thereby feeling proud in discharging
their duty to pay the same.

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 1.3 OBJECTIVES OF THE STUDY

• To study the various aspects of black money and tax evasion.

• To study the main reason behind the tax evasion and generation of black money.
• To study the effectiveness of tax laws for the prevention of black money and tax evasion.
• To find out remedial measures to curtail the black money and tax evasion.
• To study the current status of black money and tax evasion in India.

1.4 NEED OF THE STUDY

The Income Tax Act, 1961 is too complicated. The provisions of the Tax System sometimes
overlap and even contradict it replete with administrative discretion that invariably leads to
inconsistent application and opportunities for corruption; provisions are often inconsistent with
basic tax principles, it has not adopted international best practices it fails to deal with many
commercial transactions. The Act therefore amply provides for tax planning and avoidance
opportunities which result in serious revenue repercussions. Similarly complex tax legislations
increases the cost of compliance, as also of administration. Since the cost of compliance is
essentially regressive in nature, this undermines the equity of the Tax System. As a result of these
unfavourable situations there prevails a need of a simplified Tax system and Scheme which will
be provided by the direct Tax Code.

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 1.5 LIMITATIONS OF STUDY

The project work, analysis and report on the health insurance companies have certain limitations.
The same have been listed below:-
• Lack of relevance
Secondary research rarely provides all the answers you need. The objectives and methodology
used to collect the secondary data may not be appropriate for the problem at hand.
• Lack of Accuracy
Secondary data may be incomplete and lack accuracy depending on The research design,
Sampling design and sources, Data collection method, Analysis point of view, Reporting stages,
Rate of change in the studied topic and Lack of agreement between data sources.

1.6 RESEARCH METHODOLOGY

The secondary data is collected from various websites, news articles, and research work. The
data was collected through different articles and it was designed to gain information pertaining
to the perception of taxpayers and their perception on the tax system, tax burden. The
questionnaire also assessed the ethical issues in order to understand the tax evasion concepts.
The other part of the questionnaire attempted to highlight the morale of the respondents. The
research questionnaires were distributed to the individual salaried taxpayers. The data obtained
were analyzed through path analysis.

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 CHAPTER 2 - CONCEPTUAL FRAMEWORK

2.1 TOPIC IN DEPTH

Practically all countries depend on taxation as their main sources of revenue. However, the tax
evasion issue has been around ever since the tax has been introduced. There are many definitions
of tax evasion. Richardson (2008) defines that tax evasion as an intentional behavior to evade the
payment of tax. Since there is much confusion on tax evasion and tax avoidance, Kim (2008)
indicated that tax evasion is illegal while tax avoidance is due to gaps in the laws where the
taxpayers can find ways to reduce the amount of tax payable.

The Government data on income tax reveals that there is painfully less number of taxpayers in
India. In other words, tax evaders are so huge that it can bring a major slow down in the economy
of a country. The amount of taxpayers has been considerably reduced from 4.85% in the previous
year to 3% in the current year. This brings a great concern that the domestic tax evasion is of a
huge concern than chasing the black money through demonetisation. Even though the country is
marching towards the completion of 20years in Economic liberalisation, it still did not show light
on the massive income tax evasion. It is evident from the recent survey that the salaried class in
India constitutes the main source of Income taxpayers, which was roughly around 15%. This
statistics is larger than the professionals and corporates who generate higher income than the
salaried class people in India. It is also revealed through statistics that the burden falls on the
chosen individuals. This is a huge failure of the Government, as the government increased the tax
rate every year making the burden to be borne by the few taxpayers.

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 2.2 HOW BLACK MONEY IS GENERATED ?

The most common source of black money is illegal means through the black market or
underground economy, such as drug trafficking; weapons trading; terrorism; prostitution; selling
counterfeit or stolen goods, such as credit cards, or selling pirated versions of copyrighted items,
such as software and musical recordings. The portion of country’s income that is tied to black
economy affects the growth of country’s economy. The black economy constitutes a financial
leakage, as tax income from unreported earnings is not received by the government, thereby
constituting a loss of revenue. In addition, as these funds rarely enter the banking system,
economies are stifled because money remains hidden that otherwise could be used by banks to
stimulate the economy by funding small business owners and entrepreneurs. Furthermore, black
money causes the financial health of a nation to be underestimated. It is also generated by the
manipulation of accounts, there are different modes of manipulation.
The first is the crude approach of not declaring or reporting the whole of the income or the
activities leading to it. Different kinds of manipulations of financial statements resulting in tax
evasion and the generation of black money are:

• Out of Book Transactions: This is one of the simplest and most widely adopted methods of
tax evasion and generation of black money. Transactions that may result in taxation of
receipts or income are not entered in the books of account by the taxpayer. The taxpayer
either does not maintain books of account or maintains two sets or records partial receipts
only. This mode is generally prevalent among the small grocery shops, unskilled or semi-
skilled service providers, etc.

• Manipulation of Books of Account: When books of accounts are required to be maintained by

taxpayers under different laws, like the Companies Act 1956, the Banking Regulation Act,
and the Income Tax Act, it may become difficult for these taxpayers to indulge in out of
books transactions or to maintain parallel books of accounts. Such parties may resort to
manipulation of the books of accounts to evade taxes.

• Manipulation of Sales/Receipts: A taxpayer is required to pay taxes on profit or income which

is the difference between sale proceeds or receipts and expenditure. Thus manipulation of
sales or receipts is the easiest method of tax evasion. Other innovative means may include
diversion of sales to associated enterprises, which may become more important if such

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 enterprises are located in different tax jurisdictions and thereby may also give rise to issues
related to international taxation and transfer pricing.

• Under-reporting of Production: Manipulation of production figure is another means of

artificially reducing tax liability. It may be resorted to for the purpose of evading central
excise, sales tax, or income tax.

• Other Manipulations of Accounts: Besides inflation of purchase / raw material cost, expenses
like labour charges, entertainment expenses, and commission can be inflated or falsely
booked to reduce profits. In these cases, bogus bills may be prepared to show inflated
expenses in the books.

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 2.3 IMPACT OF BLACK MONEY:

The flow of black money can seriously affect the entire economic system, some major impacts
are discussed below:

1. Dual economy- The increase in the amount of black money in India over a period of time
lead to the perpetual growth of economic dualism which consists of Parallel
economy(black money economy) operating side by side with the Official or Reported
economy on the country. The black economy represents not less than one fifth of the
aggregate economic transactions. There is also interaction between the reported and
unreported activities such that it is difficult to identify black money from the white money
economy. Such a Parallel Economy will ruin the entire economic development of the
country.

2. 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.

3. 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.

4. 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.
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5. Loss of Revenue to the Government- Black money is largely attributed to tax evasion. Its
direct impact is the loss of the Government revenue. Since the Government fails to get
sufficient tax revenue due to large- scale tax evasion, it is forced to resort to high taxation
and deficit financing which again carry their ill- economic effects. . As it is almost
impossible to estimate the amount of black money in any economy, unreported earnings
cannot be included in a country’s gross national product (GNP) or gross domestic product
(GDP).

6. 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.

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 2.4 Tax Evasion Meaning

Tax planning involves optimal utilisation of tax deductions, exemptions, or planning for income,
expenditures, allowances, and rebates to reduce tax liability in a financial year. Examples of
deductions are investments under Section 80C, such as Public Provident Fund (PPF), National
Pension Scheme (NPS), etc. Similarly, the Income-tax Act allows exemptions for certain
allowances such as house rent allowance (HRA) and leave travel allowance (LTA).
On the other hand, tax avoidance is the practice of taking advantage of the gaps and mismatches
in the tax rules to prevent or lower tax liability. It is not illegal as it is not well-defined in tax
laws. For example, many companies channel their funds through offshore branches to avoid
paying taxes in their home country.
Tax evasion, however, is illegal and Chapter XXII of the Income Tax Act, 1961, is clear about
penalties. A few examples of tax evasion are, an individual, a firm, or a company intentionally
avoiding payments of tax liability, misreporting of income, and wilful attempts to evade tax are
cases of tax evasion.
For instance, a company claims depreciation on a motor car, which is being used by a director for
personal purposes. This is not allowed under Section 32 of the Income-tax Act, 1961 and is a case
of tax evasion.
Similarly, a company installs an air-conditioner at the residence of a vice-president but treats it
as fitted in the quality control section. This is also a case of tax evasion as the air-conditioner at
the residence is furniture, depreciable at 10%, whereas the rate of depreciation applicable for
plant and machinery fitted in the quality control section is 15%. The wrong treatment raises the
amount of depreciation and reduces profit unlawfully.
In short, tax evasion is blatant fraud initiated after the tax liabilities arise.

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 2.5 Common Methods of Tax Evasion and Penalties in India

Here’s the lowdown on a few broad categories of tax evasion, which can invite penalties, as per
the Income Tax Act, 1961.
• Late filing of income tax return
In the condition of non-filing of the income tax return in full compliance with the relevant
provisions of the Income Tax Act, 1961, the assessing officer can penalise the taxpayer with a
penalty of up to Rs 5,000.
• Concealing income to evade tax
In cases wherein the taxpayer tries to conceal the original earnings or income, the penalty is
between 100% and 300% of the tax evaded, as per Section 271(C).
• Not getting accounts audited
Section 44AB mandates a taxpayer to get the account audited or furnish a report of audit. In case
of failure to do so, the penalty incurred will be 0.5% of total sales, turnover of the gross receipts,
or Rs 1,50,000, whichever is more. If the taxpayer fails to present a report from an accountant, as
required under Section 92E, the penalty imposed is Rs 1,00,000 or more.
• Non-compliance with TDS regulations
Any individual who deducts tax at source or collects tax at source is also required to collect the
tax deduction and collection account number (TAN). In case of failure to do so, a penalty of Rs
10,000 will be imposed.
If the company or organisation fails to file tax deducted at source (TDS) or tax collected at source
(TCS) within the deadlines, they have to bear a penalty of Rs 200 per day for the delay. Such a
penalty cannot exceed the TDS amount. In addition, the tax authorities may impose a penalty for
incorrect information or non-filing of TDS or TCS returns before the due dates. The penalty may
range between Rs 10,000 and Rs 1,00,000.
• Wilful attempt to evade tax
As per Section 276C, if a taxpayer willfully attempts to evade tax or under-report income with the
amount exceeding Rs 25 lakh, it invites imprisonment for a term of at least six months up to
seven years along with a fine.
• Providing incorrect PAN number or not furnishing PAN card number
It is punishable to provide inaccurate information, including PAN details, when filling an ITR.
All tax deductors, including employers, ask for PAN card numbers. This information is utilised
while deducting TDS from the payment. There are two types of penalties for two scenarios:
Providing an incorrect PAN: In this scenario, you will have to pay Rs.10,000 as a penalty amount.

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 2.6 MEASURES TAKEN BY THE GOVERNMENT TO FIGHT AGAINST
TAX EVASION.

The Government has taken several measures to effectively control and curb the prevalence of
parallel economy and unaccounted transactions. Major steps in this regard constitute:-

• Enactment of the Black Money (Undisclosed Foreign Income and Assets) and Imposition
of Tax Act, 2015 w.e.f. 01/07/2015 to more effectively tackle the cases involving black
money stashed abroad.
• Enactment of the Benami Transactions (Prohibition) Amendment Act, 2016 w.e.f.
01/11/2016 to effectively deal with domestic black money cases.
• Constitution of the Special Investigation Team (SIT) on Black Money in May, 2014 under
Chairmanship and Vice-Chairmanship of two former Judges of Hon'ble Supreme Court.
The SIT has so far submitted 6 reports to Hon'ble Supreme Court.
• Constitution of Multi-Agency Group (MAG) for coordinated and effective investigation in
'Panama paper leaks' cases and Paradise Leaks cases.
• Task Force (TF) on Shell Companies constituted under the joint chairmanship of Revenue
Secretary and Secretary (Ministry of Corporate Affairs) in February, 2017. The task force
has met 6 times so far.
• Linking of Aadhar with PAN has been made mandatory for filing Income Tax Returns
and for applying for new PAN from 1st July 2017.
• Restriction on cash transaction of Rs. 2 lakh or more (Section 269ST of I. T. Act), no
deduction under section 80G if cash donation exceeds Rs. 2000 w.e.f. 01.04.2018,
restriction on donations of
• Rs.2000/- or more to political parties otherwise than by a bank account or through
electoral bonds. Quoting of PAN made mandatory for all cash deposits above Rs.
50,000 and aggregating to more than Rs. 2.5 lakh.

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 2.7 Difference between Tax Planning, Tax Avoidance and Tax Evasion

Parameter Tax Planning Tax Avoidance Tax Evasion

Reducing tax liability
through various
Reducing tax liability
provisions in the tax The deliberate and
within the limits of the law
Definition laws, such as illegal method for
but in an unacceptable
deductions, credits, reducing taxes.
manner to the government,
rebates, and
exemptions.

Legality Legal and Ethical Legal but unethical Illegal and unethical
Criminal prosecution,
Consequence No penalties or fines No penalties or fines fines, and/or
imprisonment
Investing in tax-saving Not declaring all
instruments, such as a Transferring income to a income,
Example tax-saving mutual fund lower tax jurisdiction falsifying tax returns or
or a fixed deposit, Delaying tax payments. hiding relevant
Claiming HRA, LTA documents or assets.
Minimizing tax liability
Minimizing tax liability Avoiding payment of
Purpose within the bounds of
within the bounds of the law taxes altogether
the law

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 2.8 Tech Power to Track Tax Evasion

The Transparent Taxation Platform deploys data analytics, artificial intelligence (AI) and
machine learning (ML) to track tax fraudsters and evaders.
With big data analysis and tracking a person’s social media activity, tax officials mine data to
pinpoint which taxpayers have been unscrupulous in revealing information about their profits or
have been fraudulent in claiming the input tax credit.
The Central Bureau of Direct Taxation (CBDT) and the Central Board of Indirect Taxes and
Customs (CBIC) will share data, making it easier for tax officials to aggregate data of all Goods
and Services Tax (GST) assessees on a single platform.

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2.9 Estimates of Black Money Generated in India
There are no reliable estimates of black money generation or accumulation, neither is there an
accurate well-accepted methodology for making such estimation. By its very definition, black
money is not accounted for, thus all attempts at its estimation depend upon the underlying
assumptions made and the sophistication of adjustments incorporated. Among the estimates made
so far, there is no uniformity, unanimity, or consensus about the best methodology or approach to
be used for this purpose. There have also been wide variations in the figures reported, which
further serves to highlight the limitations of the different methods adopted.

Analysis of individual methods used for estimation further exposes their limitations. One such
method is the input / output method. It consists of using the input/output ratio along with the input
to calculate the true output. It estimates black money as the difference between the declared
output and the output expected on the basis of the input/output ratio. This method is deceptively
simple and, though it may have some utility if applied to a uniform industry or a specific sector of
the economy, it is unlikely to be of much help if applied to economy as a whole. It also ignores
structural changes in the economy including those related to technology.

Another approach, adopted by the monetarists, is based on the fact that money is needed to
circulate incomes in both the ‘black’ and accounted for economies. As the official economy is
known, the difference between that amount and the money in circulation could be assumed to be
the circulating ‘black’ component. An estimate of the velocity of money (that is to say the
average number of times currency changes hand in a year) enables an estimation of income
circulated annually. A comparison of that with the income captured in the National Accounting
System (NAS) gives the income which could be estimated as the black money in the economy.
However, the assumption that the NAS represents accounted incomes accurately is not always
true. Large proportions of income, such as those falling in the unorganized sector, are not
accurately captured in NAS, thus there may be upward bias in the estimate of black money so
derived.

Yet another method of estimation of black money is the survey approach wherein sample surveys
are carried out. They may be on the consumption pattern of a representative population sample,
which is then compared to the total consumption of the country. In this method, the problems
consist in getting a truly representative sample, unambiguous set of questions, and the willingness
of persons in the sample size to reveal true facts. Often the comfort level with the interviewers is
limited as people are unwilling to admit any illegality before strangers.

There is also the ‘fiscal approach’ method for estimating black income. The underlying basis of
this approach is to view the economy as comprising several sectors, each having its own sets of
practices. The contribution of these sectors to black money generation is separately worked out,
which when added would give the size of the ‘black’ economy. However, the manner of
identifying the ‘black component’ in these sectors and the assumptions suffer from inherent
subjectivity of the researcher and lack of uniform standards.

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2.10 Estimates of Black Money Stashed Abroad

A chain Email, which first started circulating on the Internet in early 2009, states that Indians
have more money in the Swiss banks than all other countries combined. It claims that as per a
Swiss Banking Association report in 2006, bank deposits in the territory of Switzerland by
nationals of a few countries are as under: India, US$1456 billion, Russia, US $470 billion, UK,
US$390 billion, Ukraine, US$100 billion, China, US$96 billion.

It is now evident that there is no organization by the name of Swiss Banking Association,7
although there is a Swiss Bankers Association (SBA). On 13 September 2009 Zeenews.com
reported a statement from James Nason, Head of International Communications of the SBA, in
which, referring to figures being quoted based on the alleged SBA report, he asserted that the
SBA had never published any such report and that the story about Indian deposits was a complete
fabrication. Thus these figures appear to be a figment of the imagination and the email circulating
them baseless and mischievous in intent.

Another report which was circulated in the media stating that Indian nationals held around US$
1.4 trillion abroad in illicit external assets was based on the 2008 report of Global Financial
Integrity (GFI), ‘Illicit Financial Flows from Developing Countries: 2002-2006’. In its November
2010 report, ‘The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008’,
however, it accepted on page 9 that the back-of-the-envelope method used to derive the figure
was flawed – the figure was based on GFI’s estimated average illicit outflows of US$ 22.7 billion
per annum (over the period 2002-06) multiplied by the 61 years since independence and it is
erroneous to apply annual averages to a long time series when illicit flows are fluctuating sharply
from one year to the next. 8

It is however useful to mention here one estimate of the amount of Indian deposits in Swiss banks
(located in Switzerland) which has been made by the Swiss National Bank. Its spokesperson
stated that at the end of 2010, the total liabilities of Swiss Banks towards Indians were 1.945
billion Swiss Francs (about ` 9,295 crore). The Swiss Ministry of External Affairs confirmed
these figures when a reference was made by the Indian Ministry of External Affairs to them.
Since the information was publicly available on the website of the Swiss National Bank, the
figures of earlier years were also taken and are tabulated in Annexure Table 1. From this Table, it
can be seen that bank deposits of Indians in Swiss banks have decreased from ` 23,373 crore in
year 2006 to ` 9,295 crore in year 2010.

In Annexure Table 2 the liabilities of Swiss banks towards nationals of various countries have
been listed. It can be seen that the deposits of Indians in Swiss banks 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.

These figures are the only authentic information available at this stage about Indian money lying
in foreign banks. From these figures, it can be safely concluded that the common belief that
Indians hold the maximum deposits in Swiss banks is not correct.

23 | P a g e
CHAPTER 3 - PRESENTATION, ANALYSIS, AND FINDINGS

3.1 CASE STUDY OF BOBBILI JAGADEESWARA RAO VS CENTRAL

BOARD OF DIRECT TAXES ON 26 JULY, 2021

Showing The Contexts in Which Tax Evasion Cases Appears in The Document:

1. The OA is filed in regard to simultaneous disciplinary proceedings initiated against the

applicant, when a criminal case is being adjudicated in the competent criminal Court.

2. Brief facts are that the applicant while working as Senior Tax Assistant in the
respondent’s organization, an FIR bearing the number RC No. 15 (A)/2017 was registered
on 27.9.2017 by CBI against the applicant, based on a complaint made by Sri P.Krishna
Murthy, complaining about demand of illegal gratification of Rs.30,000, to close a Tax
Evasion case. Criminal Case no 3 of 2018 has been filed in the CBI Court Visakhapatnam.
Based on the very same facts and circumstances, respondents have issued charge memo
dated 27.2.2020. Aggrieved over the same, OA is filed.

3. The contentions of the applicant are that the charges in the criminal case and the
departmental proceedings are one and the same. Applicant is from the lower rung of the
respondents‟ organization and has no authority to close a tax evasion case. Complicated
questions of facts and law are involved and defence revealed in the departmental case will
adversely affect the outcome of the criminal case. Therefore, as per law, disciplinary
proceedings have to be stalled till the criminal case is finalized. The constitutional
protection available to the applicant has been violated by the impugned disciplinary
proceedings. On submitting a reply to the charge OA No.683/2020 sheet, respondents
have appointed an inquiry officer and the applicant requested the disciplinary authority for
stay of the departmental proceedings vide his letter 7.10.2020, which was not conceded to
on 15.10.2020 and directed to appear before the inquiry officer. Prosecution sanction was
issued on 19.12.2017 whereas the charge memo was issued in Feb. 2020 after a lapse of
nearly 2 ½ years, implying that there was no urgency to proceed with the disciplinary
case. Taking support of the DOPT and CVC memos, cited by the respondents, is wrong.

24 | P a g e
 CVC memo cited is defacto in favour of the applicant. Criminal case is not progressing
due to ongoing corona pandemic. Applicant relied on the judgment of the Hon’ble High
Court of Telangana in WP Nos. 10451 & 10471 of 2020 to further his cause. Articles 14,
16 & 21 of the Constitution have been violated.

4. The contentions of the applicant are that the charges in the criminal case and the
departmental proceedings are one and the same. Applicant is from the lower rung of the
respondents‟ organization and has no authority to close a tax evasion case. Complicated
questions of facts and law are involved and defence revealed in the departmental case will
adversely affect the outcome of the criminal case. Therefore, as per law, disciplinary
proceedings have to be stalled till the criminal case is finalized. The constitutional
protection available to the applicant has been violated by the impugned disciplinary
proceedings. On submitting a reply to the charge OA No.683/2020 sheet, respondents
have appointed an inquiry officer and the applicant requested the disciplinary authority for
stay of the departmental proceedings vide his letter 7.10.2020, which was not conceded to
on 15.10.2020 and directed to appear before the inquiry officer. Prosecution sanction was
issued on 19.12.2017 whereas the charge memo was issued in Feb. 2020 after a lapse of
nearly 2 ½ years, implying that there was no urgency to proceed with the disciplinary
case. Taking support of the DOPT and CVC memos, cited by the respondents, is wrong.
CVC memo cited is defacto in favour of the applicant. Criminal case is not progressing
due to ongoing corona pandemic. Applicant relied on the judgment of the Hon’ble High
Court of Telangana in WP Nos. 10451 & 10471 of 2020 to further his cause. Articles 14,
16 & 21 of the Constitution have been violated.

5. Respondents while confirming facts in regard to filing of the Criminal Case 3/2018 in the
CBI Court for demanding illegal gratification of Rs.30,000/- in a tax evasion case, submit
that the disciplinary proceedings issued on 27.2.2020 and the criminal case referred to are
different. There is no bar to conduct disciplinary case when criminal case is pending.
Action was taken in consonance with the instructions contained in DOPT memos dated
1.8.2007, 21.7.2016 and CVC circular dated 31.7.2018. When it is a case of illegal
gratification, the facts and circumstances are bound to be the same. The claim of the
applicant that his defence is at risk in the criminal trial because of the disciplinary
proceedings has no merit. There was delay in initiating the disciplinary proceedings as the
applicant was transferred and, it took some time to appoint the I.O. and P.O. The delay per

25 | P a g e
se cannot be the reason to ward off OA No.683/2020 the proceedings. There are no
complex questions of facts and law involved. Applicant is given all opportunities to
defend himself in the disciplinary proceedings wherein, Inquiry officer/ Presenting Officer
was appointed on 22.7.2020 and hence, there is no violation of the constitutional
protections available to him. Therefore, Articles 14, 16 & 21 of the Constitution have not
been violated. In the case decided by the Hon’ble High Court of Telangana in WP
Nos.10451 & 10471 of 2020, complicated questions of facts and law are involved and not
in the instant case. Respondents cited the judgment of the Hon’ble Supreme Court in B.K.
Meena case in support of their contentions.

26 | P a g e
3.2 12-08-2021 TAX FRAUD

IN PARLIAMENT, neighboring states of

CHANDIGARH, AUGUST Haryana are
far behind in ITC frauds.
Second highest fake Input Punjab
witnessed fake ITC Tax Credit (ITC)
fraud in worth Rs 64.39 crore in 2019-
2020 involving an amount FRAUD
CLAIMS 20 and Rs 153.17 crore in of Rs
474215 crore. Only GST Intelligence and
this financial
Maharashtra is ahead of the 30 cases in
year till June, it is Rs 235.81state with
fake ITC claims of Haryana in 2019-20
crore but only Rs 22.75 crore Rs 5,303.80
crore. involving an amount of was
recovered in 2019-20.
At the time of paying tax ¥66.98 cr fake ITC 3.93 crore in 2020-21, and Rs
on its output, a firm can reduce the tax it has already 2020-21 and the amount paid on inputs but
fraud involved was T4,742.05cr fake ITC claims of Rs claim higher ITC based 6.69 crore in
2019-20, Rs 36.20 fake invoices. crore in 2020-21. As per the information pro crore was
recovered in 2019-20 crore financial year.
vided by the Finance Ministry ~ and 10 people arrested while ~However, Rs 2.03 crore was in
Rajya Sabha in reply to a in 2020-21, Rs 33.56 crore was recovered in 2019-20, Rs 5.20 question
on Tuesday, the Directed recovered and 26 people crore in 2020-21, and Rs 1.80 General of GST
Intelli- arrested. This financial year ~crore in 2021-22 registered 30 cases in till June, Rs 2.69
crore was ‘The Finance Ministry says Haryana in 2019-20 involving recovered but with no arrest.
several steps have been taken an amount of Rs 66.98 crore ‘Maharashtra witnessed 160 to check
the misuse of ITC fake ITC. It jumped to 118 cases in 2019-20, where fake including integration
of es in 2020-21 and the amount ITC involved was Rs 1,84581 FAST ag with e-way bill, Aad
involved was Rs 4,742.15 crore. It jumped based authentication for which is 71 times what was
202021 while the amount new applicants, e-invoices recorded in 2019-20. Involved was
27 | P a g e
Rs5,303.80crore being made mandatory for all. Till June, six cases were ‘This financial year, 87
cases B2B transactions with registered involving fake ITC were registered involving fake
turnover above Rs 50 crore of Rs 155.15 crore but only an ITC of Rs 984.48 crore. However,
generation of e-way bill by fraction could be recovered. er, Rs 269.52 crore was recovered to
those taxpayers. As per the information in 201920, Rs 34342 furnished return for a consecmitted
in Rajya Sabha, Rs9.86 crore in 2020-21 and Rs 25.44 period of two months.

28 | P a g e
3.3 DEMONETISATION AND ITS IMPACT ON TAX COLLECTION AND
FORMALISATION OF THE ECONOMY - ARUN JAITLEY

The Reserve Bank has twice released its reports stating that the demonetised Notes of `500 and
`1000 have been substantially deposited in the Banks. A widely stated comment has been that just
because most of the currency came back into the Banks, the object of Demonetisation has not
succeeded. Was the invalidation of the Non-deposited currency the only object of
demonetisation? Certainly Not. The larger purpose of demonetisation was to move INDIA from a
Tax Non- compliant society to a compliant society. This necessarily involved the formalisation of
the Economy and a blow to the black money. How has this been achieved?

• WHEN cash is deposited in the Banks, the anonymity about the owner of the cash
disappears. The deposited cash is now identified with its owner giving rise to an inquiry,
whether the amount deposited is in consonance with the depositor’s income. Accordingly,
post demonetisation about 1.8 million depositors have been identified for this enquiry.
Many of them are being fastened with Tax and Penalties. Mere deposit of cash in a bank
does not lead to a presumption that it is Tax paid Money.
• In March 2014, the number of Income Tax returns filed was 3.8 crores. In 2017-18, this
figure has grown to 6.86 crores. In the last two years, when the impact of demonetisation
and other steps is analysed, the Income Tax returns have increased by 19% and 25%. This
is a phenomenal increase. The number of New Returns filed post demonetisation
increased in the past two years by 85.51 Lakhs and 1.07 crores.
• For 2018-19, advance Tax in the first quarter has increased for personal Income Tax
Assesses by 44.1% and in the Corporate Tax category by 17.4%.
• The Income Tax collections have increased from the 2013-14 figure of `6.38 Lakh crores
to the 2017-18 figure of `10.02 Lakh crores.

• The growth of Income Tax collections in the Pre-demonetisation two years was 6.6% and
9%. Post-demonetisation,
• The collections increased by 15% and 18% in the next two years. The same trend is
visible in the third year.
• The GST was implemented from 1st July, 2017 i.e. Post demonetisation. In the very first
year, the number of registered assesses has increased by 72.5%. The original 66.17 Lakh
assesses has increased to 114.17 Lakhs.

29 | P a g e
 This is the positive impact of the Demonetisation. More formalisation of the Economy, More
Money in the System, Higher Tax Revenue, Higher Expenditure, Higher Growth after the first
two quarters.

3.4 EVASION ATTEMPTS AFTER DEMONETIZATION

• Converting black money into gold

• Donations in temples and other
• Multiple bank transactions
• Booking large number of tickets in railways and airways
• Depositing money in the accounts of their parents, relatives and friends
• Enticing people with some percentage of money for exchange

30 | P a g e
3.5 GDP GROWTH RATE IN PRE, DURING AND

POST DEMONETIZATION PERIODS

Figure : 3.5.1

By collecting the growth rates of the countries, which has done the demonetization, at the time of
demonetization show that most of the countries lost growth due to that.

31 | P a g e
3.6 ESTIMATES OF BLACK MONEY

Black money in India is as much a reality as it is in any other developed or developing country.
There is no official estimation regarding the amount of Black Money generated in the country.
Various non-governmental organization and economist in the past have indicated widely varying
estimations regarding illicit financial flows out of the country. Such estimations appeared to be
based upon different sets of facts, assumptions, presumptions, etc. leading to widely varying
inferences.

The last official study was done at the behest of the Ministry of Finance by NIPFP in 1985. NIPF
study concluded that total black money income generation of ` 36,784 crore on in round number `
37,000 crore out of a total GDP at factor cost of Rs. 1,73,420 crore.

While the NIPFP Report estimates the extent of ‘black’ economy (not counting smuggling and
illegal activities) at about 20% of the GDP for the year 1980-81, Shri Suraj B Gupta, a noted
economist, has pointed out some erroneous assumptions in NIPFP study. He estimated ‘black’
income as 42% of GDP for the year 1980-81 and 51% for the year 1987-88.

Shri Arun Kumar in his book has pointed out certain defects in NIPFP study and Gupta’s method.
He estimated the extent of ‘black’ income to be about 35% for the year 1990-91 & 40% for the
year 1995-96.

Thus, it can be said that though ‘black’ money exists to a substantial extent in our economy, its
quantum cannot be determined exactly.

In 2011, the Government had commissioned a study, inter alia, on estimation of unaccounted
income and wealth inside and outside the country which was conducted by National Institute of
Public Finance and Policy (NIPFP), National Council of Applied Economic Research (NCAER)
and National Institute of Financial Management (NIFM). Reports received from these institutes
are under examination of the Government6. Once the Reports are published there might be
additional clarity on the scale of this problem in the country.

Though no official studies have been carried out in recent years on the illicit financial flows from
India, Dev Kar of the Global Financial Integrity Centre for International Policy, Washington
estimates that since independence, a total of US $ 213.2 billion was shifted out of India between

32 | P a g e
1948 and 2008, which constituted 16.6% of India’s GDP at the end of 2008. In his analysis, the
researcher on the basis of data, confirmed that economic reforms since 1991 had led to faster
growth, though such rapid economic growth in the post reform period led to more skewed income
distribution. In the post reform period, the paper also indicates that faster economic growth
appears to go hand in hand with larger illicit flows and worsening of income distribution.

As regards black money stashed abroad, the White Paper on track Money observed, "It is
however useful to mention here one estimate of the amount of Indian deposits in Swiss banks
(located in Switzerland) which has been made by the Swiss National Bank. Its spokesperson
stated that at the end of 2010, the total liabilities of Swiss Banks towards Indians were 1.945
billion Swiss Francs (about ` 9,295 crore). The Swiss Ministry of External Affairs confirmed
these figures when a reference was made by the Indian Ministry of External Affairs to them". The
White Paper further noted, "The illicit money transferred outside India may come back to India
through various methods such as hawala, mis-pricing, foreign direct investment (FDI) through
beneficial tax jurisdictions, raising of capital by Indian companies through global depository
receipts (GDRs), and investment in Indian stock markets through participatory notes. It is
possible that a large amount of money transferred outside India might actually have returned
through these means".

33 | P a g e
3.7 Black Money and Tax Heavens

'Black money' and 'tax havens' are historically perceived as Siamese twins. They are the two sides
of the same coin. Since high tax rates were the common feature of tax regimes across the world.
In the past century, it obviously led to poor compliance and large-scale evasion. This is where
some of the small island countries spotted an opportunity to make a kill of foreign funds by
offering low tax rates and attractive bank secrecy laws. When some of early birds were seen
attracting mountains of tainted or tax evaded funds from different parts of the world, a few more
organised economics joined the race to graduate to a more attractive tax haven. And such a race
took the tally of tax havens to as many as 90 in less than a century. In fact, to outsmart and to lure
depositors from other, a few tax havens began to bundle more attractive services such as no
inquiry about the beneficial owners of deposits; no tax information exchange agreements with
any country and minimal capital gains tax rate. Some of the key tax havens popular in India are
Cyprus, Singapore, Switzerland, Cayman Islands, Liechtenstein, Monaco and Andorra.
Adding to the complexity of this outflow of unaccounted money is that this wealth is not simply
lying in foreign bank accounts to be recovered or brought back to the country. In reality, a large
portion of this money comes back into India by a process known as ‘round tripping’ i.e. the
money that left the country and ended up in a tax haven is invested back into the country as
‘white’ money. But there is no data or analysis on how much of the black money is round tripped
and comes back into the country. In addition to being low or nil tax jurisdictions, tax havens offer
strong secrecy with respect to hiding wealth making them attractive locations for confidentially
routing money through them. This makes the issue of recovering Black Money extremely
difficult.

Voluntary Disclosure Schemes

Voluntary disclosure scheme have been announced from time to time. These schemes give
amnesty to those who have generated black incomes in the past. The last of these was the highly
publicized voluntary disclosure scheme (VDIS) of 1997. `10,000 crore of taxes were collected
through it.

34 | P a g e
 3.8 Amnesty Schemes of the Government of India since Independence
Table 3.8.1
YEAR NO. OF INCOME TAX
CASES DECLARED COLLECTED

1 Income Tax Investigation 1946-47 48 30

Commission

2 Detected by the 1963-64 to 81 31

Department 1966-67

3 VDS I Mar-May 1965 2001 52.18 30.8

4 VDS II Aug. 1965 – 114226 145 19.45

Mar. 1966

5 Under Section 271(4A) 1965-68 22 NA

of Income Tax Act of
1961
6 VD of Income and Oct - 1975 (W)245570 (W) 746.08 (W) 249
Wealth Act 1976 (I)13422 (I) 841.72 (I) 7.7

7 Special Bearer Bond 1980 400 160

Scheme (1981)

8 Voluntary Deposits 1991 NA NA 984

(immunities and
exemptions)
9 Finance Act (1985) 1985-86 1,53,990 2940.37 388.03

10 VDIS 1997 4,70,000 33,000 10,100

11 VDS May-Oct1951 20912 70.2 10.89

Note:
1. (W) Wealth, (I) Income
2. There were four amnesty schemes in 1991 three for domestic evaders (under Voluntary
Deposits (Immunities and exemptions)), (Gold Bond, Deposits with National Housing Bank
and Amended Section 273 A of the Income Tax Act) and remittances of FOREX and
investment in FOREX bond.
3. Resurgent India Bond in 1998 collected approx. 4 billion. It should not list in the table
because it was only partly like an amnesty scheme.
35 | P a g e
3.9 Black Money Chase : Measures taken by the Government

Searches and Surveys: Appropriate action under relevant laws in respect of cases involving black
money stashed abroad is an on-going process. Such action under direct tax laws includes
searches, surveys, enquiries, assessment of income, levy of tax, interest, penalties, etc. and filing
of prosecution complaints in criminal courts, wherever applicable. The tax, interest and penalties,
forming part of the total liability of each asessee, are enforced as per law

Statistics on searches and surveys conducted by the ITD and prosecutions under direct taxes laws
in the last six financial years and current financial year are as under :

Table 3.9.1

FINANCIAL YEAR NO. OF SURVEYS UNDISCLOSED INCOME

CONDUCTED DETECTED
2009-10 4680 4857.1

2010-11 3911 5894.44

2011-12 3706 6572.75

2012-13 4630 19337.46

2013-14 5327 90390.71

2014-15 5035 12820.33

2015-16( till May 2015) 107 97.94

UNDISCLOSED INCOME DETECTED

100000

80000

60000

40000

20000

0
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

undisclosed income No. of surveys conducted

Figure : 3.9.1
36 | P a g e
 Table 3.9.2

FINANCIAL YEAR TOTAL UNDISCLOSED INCOME

ADMITTED
2009-10 963.5 8101.35

2010-11 774.98 10,649.16

2011-12 905.6 14017

2012-13 575.08 10291.61

2013-14 807.84 10791.63

2014-15 761.70 10288.05

2015-16 4175.37 1761.09

UNDISCLOSED INCOME ADMITTED

11%

9%

47% 10%
0%
6%

9%
0% 8%

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Figure : 3.9.2

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’:
In order to fulfill the commitment made by the Government to the people of India through the
Parliament, a comprehensive new law titled ‘The Black Money (Undisclosed Foreign Income and
Assets) and Imposition of Tax Act, 2015’ has been enacted which, inter-alia, provides for
separate taxation of undisclosed income in relation to foreign income and assets. Among other
things, the Act seeks to enhance the punishment for wilful attempt to evade tax, etc. in relation to
foreign assets/income up-to 10 years of rigorous imprisonment and fine.
The avenues of compounding of offences and Income-tax Settlement Commission are not

37 | P a g e
available under the new law. The Act also provides to include the offence of wilful attempt to
evade tax, etc. in relation to foreign income/assets as a scheduled offence under the Prevention of
Money Laundering Act (PMLA), 20021.

3.10 Tax evasion: India losing over $10.3 billion every year

A report by the State of Tax Justice stated that $10.3 billion, or 0.41 per cent of the $3 trillion
GDP, is lost in taxes every year to global tax abuse
India is losing more than $10.3 billion (around Rs 75,000 crore) in taxes every year due to
international corporate tax abuse and private tax evasion, according to a report by the State of
Tax Justice.
The report further added that the aggregate global tax loss count amounts to over $427 billion
every year owing to global tax abuse by MNCs and evasion by private individuals. This is
putting a total cost burden on countries equalling around 34 million nurses' annual salaries
every year, or one nurse's yearly pay every second. With respect to India, the report stated
that $10.3 billion, or 0.41 per cent of the $3 trillion GDP, is lost in taxes every year to global
tax abuse.
Of this, over $10 billion is lost to tax abuse by multinational corporations (MNCs) and $200
million to tax evasion committed by private individuals.
The social impact of the lost tax is equivalent to 44.70 per cent of the health budget and 10.68 per
cent of education spending. It also equals paying yearly salaries of over 4.23 million nurses.
It further said India is most vulnerable to illicit financial flows in the form of outward FDI and
listed Mauritius, Singapore, and the Netherlands as the trading partners which are most
responsible for this vulnerability.
The State of Tax Justice report has been published by the Tax Justice Network, together with
global union federation Public Services International and the Global Alliance for Tax Justice.
The report highlights the state of global tax abuse and governments' efforts to tackle the menace.

38 | P a g e
3.11 An Estimate of Evasion of Personal Income Tax in India, 2011–12 to
2017–18

An estimate of the personal income tax evasion is attempted by considering total personal
income, gross income of return filers, mixed incomes of agricultural landowners, income of
below the poverty line population and income of above the poverty line population but below
minimum tax exempt income. Tax evasion most conservatively is around 40% of personal
income by about 16% of population in 2017–18.
Personal income tax (PIT) is widely considered as fairer, just, efficient, and more equitable
compared to any indirect tax. This is convincingly demonstrated with the help of indifference
curves in all standard textbooks in the first course of microeconomics. These textbooks tacitly
assume that both PIT and indirect taxes are fully complied with by everybody without any
evasion. It is often considered a superfluous assumption that does not require explicit mention
because its violation may not change the argument or the conclusion. This is an acceptable
argument only if the extent of tax evasion is small in reality or negligible. However, if the tax
evasion is substantial, it can change the above conclusion of comparison of PIT with indirect
taxes. It is, therefore, extremely important to get at least a dimensional idea about the extent
of PIT evasion in order to reform and modify the tax system on the principles of equity,
efficiency, and justice. This article tries to provide an estimate of the evasion of PIT in India for
the financial years 2011–12 to 2017–18 based on official statistics.
The next part of the article considers estimates of personal income at current prices as the base
of PIT and the number of PIT return filers and their gross income in different years. Later, the
article considers estimates of agricultural landowners and their income since such income is
exempt for PIT by the union government. Further, an effort is made to put together an estimate of
a poverty line based on multidimensional poverty and total income of the population living below
such a poverty line because they should justifiably not be paying PIT. It then estimates the extent
of evasion. Then comes the concluding remarks with some suggestions to reduce the extent
of PIT evasion.

39 | P a g e
3.12 Collection of Direct Taxes
Table 3.12.1

Financial Year Corporate Tax Personal Other Direct Total

Income Tax@ Taxes

2000-01 35,696 31,764 845 68,305

2001-02 36,609 32,004 585 69,198

2002-03 46,172 36,866 50 83,088

2003-04 63,562 41,386 140 1,05,088

2004-05 82,680 49,268 823 1,32,771

2005-06 1,01,277 63,689 250 1,65,216

2006-07 1,44,318 85,623 240 2,30,181

2007-08 1,93,561 1,20,429 340 3,14,330

2008-09 2,13,395 1,20,034 389 3,33,818

2009-10 2,44,725 1,32,833 505 3,78,063

2010-11 2,98,688 1,46,258 1,049 4,45,995

2011-12 3,22,816 1,70,181 990 4,93,987

2012-13 3,56,326 2,01,840 823 5,58,989

2013-14 3,94,678 2,42,888 1,030 6,38,596

2014-15 4,28,925 2,65,772 1,095 6,95,792

2015-16 4,53,228 2,87,637 1,079 7,41,945

2016-17 4,84,924 3,49,503 15,286 8,49,713

2017-18* 5,71,202 4,20,084 11,452 10,02,738

2018-19* 6,63,572 4,73,179 967 11,37,718

2019-20* 5,56,876 4,92,717 1,088 10,50,681

2020-21* 4,57,719 4,87,560 1,897 9,47,176

2021-22* 7,12,037 6,96,604 3,781 14,12,422

40 | P a g e
 Figure: 3.12.1

Direct Tax Collection FY 2001-2010

25,00,000

20,00,000
6,63,572
5,56,876
5,71,202
15,00,000 4,84,924
4,53,228
4,28,925
3,94,678 11,37,718 10,50,681
10,00,000
3,56,326 10,02,738
3,22,816 8,49,713
2,98,688
7,41,945
5,00,000 6,38,596 6,95,792
5,58,989 967 1,088
4,45,995 4,93,987 11,452
15,286
1,095 1,079
823 1,030 4,20,084 4,73,179 4,92,717
1,049 990 2,87,637 3,49,503
1,46,258 1,70,181 2,01,840 2,42,888 2,65,772
0
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

Personal Income Tax@ Other Direct Taxes Total Corporate Tax

Figure: 3.12.2

Direct Tax Collection FY 2010-2022

30,00,000

25,00,000 7,12,037

20,00,000 6,63,572
5,56,876
5,71,202 4,57,719
15,00,000 4,84,924 14,12,422
4,53,228
4,28,925
10,00,000 3,94,678 11,37,71810,50,681
3,56,326 10,02,738 9,47,176
3,22,816 8,49,713
2,98,688 3,781
7,41,945
5,00,000 6,38,596 6,95,792 1,088 1,897
4,45,995 4,93,987 5,58,989 11,452 967
1,030 1,095 1,079 15,286 4,73,179 4,92,717 4,87,560
6,96,604
823
990 2,01,840
1,049 1,70,181 2,87,637 3,49,503 4,20,084
2,42,888 2,65,772
0 1,46,258 Personal Income Tax@ Other Direct Taxes Total Corporate Tax
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22

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3.13 Contribution of Direct Tax in Total Tax Collection

Table 3.13.1

Financial Year Direct Taxes* Indirect Taxes** Total Taxes Direct Tax As
(Rs. crore) (Rs. crore) (Rs. crore) % Of Total
Taxes

2000-01 68,305 1,19,814 1,88,119 36.31%

2001-02 69,198 1,17,318 1,86,516 37.10%

2002-03 83,088 1,32,608 2,15,696 38.52%

2003-04 1,05,088 1,48,608 2,53,696 41.42%

2004-05 1,32,771 1,70,936 3,03,707 43.72%

2005-06 1,65,216 1,99,348 3,64,564 45.32%

2006-07 2,30,181 2,41,538 4,71,719 48.80%

2007-08 3,14,330 2,79,031 5,93,361 52.97%

2008-09 3,33,818 2,69,433 6,03,251 55.34%

2009-10 3,78,063 2,43,939 6,22,002 60.78%

2010-11 4,45,995 3,43,716 7,89,711 56.48%

2011-12 4,93,987 3,90,953 8,84,940 55.82%

2012-13 5,58,989 4,72,915 10,31,904 54.17%

2013-14 6,38,596 4,95,347 11,33,943 56.32%

2014-15 6,95,792 5,43,215 12,39,007 56.16%

2015-16 7,41,945 7,11,885 14,54,180 51.03%

2016-17 8,49,713 8,61,515 17,11,228 49.65%

2017-18 10,02,738 9,15,256 19,17,994 52.28%

2018-19 11,37,718 9,37,322 20,75,040 54.83%

2019-20 10,50,681 9,53,513 20,04,194 52.42%

2020-21 9,47,176 10,74,809 20,21,985 46.84%

2021-22 14,12,422 12,89,662 27,02,084 52.27%

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 Figure : 3.13.1

Contribution of Direct Taxes to Total Tax

Revenue FY 2001-2010

9% 12%

17%
7%
67% 18%
5%
4%
20%
4%
4%

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Figure: 3.13.2

Contribution of Direct Taxes to Total Tax

Revenue FY 2010-2022

11%
10%
9%
11%
7%
46%
7%
10%
6%
6%
5% 4% 14%

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

2016-17 2017-18 2018-19 2019-20 2020-21 2021-22

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 CHAPTER 4 - CONCLUSION & RECOMMENDATION

4.1 CONCLUSION

High tax rates, corruption in public sector units, multiple tax rates and inefficient
tax authorities are the main causes of tax evasion. It suggested that reduction in tax
rates, simplifications of tax laws, remove loopholes in the tax system and some
extent proper processing of information available the under the annual information
return can be best tool for improving Indian tax compliance. Therefore, there is a
need for creating transparent, friendlier and less discriminatory administrative
system. Further there is also a need to educate the people about Indian Tax law and
create such an environment in which they pay their due taxes, do not evade the tax
and feel proud in discharging their duty to pay.

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 4.2 RECOMMENDATION

The government has already taken various steps to finish the issue of black money. The biggest
and the most recent step taken by the Modi’s government was demonetization. Many people were
against this step especially the ones whom this step affected the most. Leaving all the complaints
behind demonetization has helped to eliminate black money but to only some extent. Though this
step was really difficult to impose still a lot more needs to be done in relation to this issue.
Billions and trillions go out of the country as a part of black money. The black money has caused
the Indian economy to lack behind in comparison to other countries in relation to the total GDP.
This is also called the opportunity cost of not having as a developed and among the largest
economies of the world but a developing economy. The money which has been sent out of the
country could have been used for various purposes in the country such as for providing enhanced
social infrastructure with technologically advanced health care services, more educational
facilities and employment opportunities. The country could have resources to feed almost 90-95%
of the poor and hungry beings. It implies each family could have had a home, and we most likely
wouldn’t need to witness the troubling sight of a half-dressed humans catching a cold in the rain
and winters.
According to my opinion, the problem of black money is now to be solved in a real sense and in a
very intelligent manner. Since this problem is hitting the poor’s of the country the following steps
are helpful. First of all the problem is to be dealt morally. The moral of the people in the society
must be raised. In the society senior civil servants, politicians can play a major role. They are role
models for the society so by paying proper taxes they can set an example to the society.
• The tax system should be realistic in nature. High rates of taxes will only force the people
to evade their income from taxes whether it is income tax, wealth tax, capital gains tax or
any other tax which will further lead to a generation of black money.
• The authority which is responsible for the collection of taxes should be honest, without
any corruption. All the officials should be more focused and more efficient in their work.
• Various different incentives should be given so that people voluntarily agree to disclose
their real income.
• Economic Intelligence unit must be maintained thoroughly and should be looked after.
Honest officials and staff must be rewarded to encourage honest staff in the department.
• Corruption in the administration at all levels must be stopped at any cost.

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4.3 BIBLIOGRAPHY

1. Attappady, Kerala. Clark University, 2017.

2. Chandrappa, M. "Tax evasion and black money in india: causes and

remedies." International Journal of Management Research and Reviews 6.10
(2016): 1376.

3. Sarkar, Sukanta. "The parallel economy in India: causes, impacts and

governement initiatives." Economic Journal of Development Issues (2010):
124-134.

4. Nirmal, Padini. Disembodiment and Deworlding: Taking Decolonial

Feminist Political Ecology to ground in parallel-economy-and-unaccounted-
transactions-117122000928_1.html

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