When we hear the term black money, the first thing that may come to mind is a pile of notes colored black. But the truth is that there is no such thing as a black-colored note in any country. The word itself is a metaphor that describes unaccounted wealth, money that is earned but not reported to the government, and therefore escapes the taxation system. For many of us, the concept of black money may have sounded vague when we first heard it in childhood. But as soon as one steps into the business world, the meaning of this term becomes crystal clear.
In this article, we will explore the true definition of black money, how it is created, why businessmen resort to hiding their earnings, the dangerous cycles it creates for the economy, and the never-ending battle between governments and individuals trying to play the so-called “game of black money.”
Understanding Black Money vs White Money:
In simple terms, white money is the income that is declared to the government and taxed accordingly. It includes both direct taxes, like income tax, and indirect taxes such as GST or VAT. Every time you file your income tax returns or pay GST while selling a product, that money goes into government accounts and is eventually used for building infrastructure, running hospitals, schools, or funding development projects.
On the other hand, black money refers to income that is not declared to the government. No tax is paid on it, and it never shows up in official records. It could be as small as a shopkeeper not issuing you a receipt for a cash payment, or as large as billions routed through shell companies across multiple countries.
So, in essence:
- White money = Taxed income
- Black money = Untaxed income
This is where the “game” begins.
Why Businessmen Hide Their Income:
One of the key reasons behind black money is the burden of taxation. For instance, in India, if an individual is running a business as a company, they may be subject to a corporate tax of 25%. If they operate as an individual, their tax liability could go as high as 30% depending on their income bracket. On top of this, they have to collect and pay Goods and Services Tax (GST), which ranges anywhere from 5% to 28% depending on the product or service.
Now imagine a businessman who works with a slim profit margin. If he makes 100 rupees in sales, adds 18% GST for the customer, and then pays 30% income tax on his profit, he feels as though nearly half of his earnings disappear in the name of taxes.
This high taxation pressure often pushes businessmen to say: “If taxes were only 10%, we would declare all our income. But with 30%+ taxes and additional GST, it’s impossible to survive.” That frustration leads to tax evasion, and thus, black money is born.
The Cash Culture and Receipts:
In many markets, especially in developing countries, you will often find businessmen asking for payment in cash rather than through bank transfers. They refuse to provide a receipt because the moment a receipt is generated, the transaction becomes official, and the income must be reported to the tax authorities.
But with cash payments, the transaction remains invisible to the government. As a result, no GST is paid, no income tax is filed, and the money simply becomes black income.
This practice is widespread in small shops, showrooms, real estate deals, and even in service industries. While the businessman thinks of it as a survival tactic, in reality, it deprives the government of the very resources needed to build infrastructure and improve public services.
Fake Billing – The Bigger Game:
Cash payments are just one part of the black money cycle. The bigger game is played at the corporate level through fake billing.
Here’s how it works:
Suppose a businessman, Mr. Lala, runs a company that sells products worth ₹100. He charges an additional 18% GST, collecting ₹118 from the customer. In theory, he should pay ₹18 as GST and also pay income tax on his profit. However, instead of doing so, he uses fake bills.
He shows that he has already paid GST on raw materials by presenting invoices from other companies. These companies, in turn, take bills from other firms, and so on, until eventually, one of the companies in this chain is fake, often registered under the name of a poor laborer or rickshaw puller who has no idea his name is being used.
Through this cycle, the businessman claims input tax credit on GST that was never paid, and in the end, the government loses billions.
The Hawala Network and Money Laundering:
Black money doesn’t always stay within the country. Businessmen and criminals often rely on the hawala system, an informal method of transferring money across borders without physical movement.
For example, a businessman may hand over ₹116 crore in India to a hawala agent, who then ensures that the equivalent amount is paid to his contact in Dubai. Since Dubai has no income tax, the money can then be routed through multiple shell companies across Europe or other tax havens, eventually coming back to India as legal investment or loans.
This process is known as money laundering, turning illegal black money into legal white money by passing it through multiple channels.
Government’s Fight Against Black Money:
Governments across the world recognize that black money is a huge threat to economic stability. To fight it, they take measures like:
- Demonetization: In India, the sudden withdrawal of ₹500 and ₹1000 notes in 2016 was a step to flush out unaccounted cash. Though it caused chaos, it forced people with black money to either deposit it in banks or destroy it.
- GST Implementation: The Goods and Services Tax was introduced to bring the unorganized sector under a unified tax system. By making transactions digital and standardized, it aimed to reduce loopholes.
- Tracking Cash Withdrawals: Today, large cash withdrawals from banks attract TDS (Tax Deducted at Source), which alerts authorities to monitor suspicious movements of funds.
- International Cooperation: Through treaties and financial intelligence sharing, governments are trying to crack down on offshore tax havens and hawala networks.
Despite these measures, the game continues. While 2–3 people may get caught, 97 others still manage to escape, keeping the cycle alive.
The Real Cost of Black Money:
At first glance, hiding income may seem like a way for businessmen to survive in a competitive market. But the real damage of black money is far-reaching:
- Loss of Government Revenue: With billions lost, the government has fewer funds for public infrastructure, schools, hospitals, and welfare programs.
- Inflation and Corruption: Black money fuels real estate bubbles, increases property prices, and creates a parallel economy where corruption thrives.
- Unfair Competition: Honest businessmen who pay taxes are unable to compete with those evading taxes, leading to unhealthy business practices.
- Weakening of Financial Institutions: As money flows through informal channels, banks and financial systems lose credibility and strength.
The Need for Financial Literacy:
At the end of the day, fighting black money is not just the government’s job. Citizens, businessmen, and individuals must understand the importance of financial discipline and compliance. Instead of merely chasing motivational ideas of success, people must develop financial literacy the ability to understand how money, taxes, and business systems truly work.
Only then can the cycle of black money be broken.
Conclusion:
The game of black money is as old as modern taxation itself. High tax burdens, loopholes in the system, fake billing, and international hawala networks all contribute to a massive parallel economy that deprives governments of resources and slows down national progress.
Governments fight back with demonetization, GST, and strict monitoring, but the cycle still continues because of greed and survival instincts in competitive markets. For long-term progress, what’s needed is a balance of reasonable taxation, stronger enforcement, and greater financial awareness among the public.
Until then, the game of black money will remain a powerful shadow in the business world.
FAQs:
1. What is the difference between black money and white money?
White money is income that is declared to the government and taxed through systems like income tax or GST. Black money, on the other hand, is income that is hidden from the government, untaxed, and unaccounted for in official records. While white money contributes to development projects and public services, black money creates a parallel economy that harms the system.
2. Why do businessmen hide their income and create black money?
The main reason is high taxation. When businessmen feel that nearly half their earnings go to taxes like income tax and GST, they often resort to hiding income to protect profits. Some also exploit loopholes in the system using practices like cash transactions and fake billing, which allow them to avoid taxes and create black money.
3. How is black money generated in everyday business practices?
Black money is generated through several methods, such as not issuing receipts for cash payments, underreporting income, and fake billing cycles where companies create false invoices to claim input tax credits. At a larger scale, black money is also moved across borders through hawala networks and laundered back into the country as legal investments.
4. What steps has the government taken to fight black money?
Governments fight black money using multiple strategies. In India, these include demonetization of high-value notes in 2016, implementation of GST to unify taxes and reduce loopholes, monitoring of large bank withdrawals, and international cooperation to track offshore accounts. Despite these steps, black money remains a persistent challenge.
5. What is the real impact of black money on the economy?
Black money weakens the economy by reducing government revenue, fueling corruption, and inflating sectors like real estate. It creates unfair competition, where honest taxpayers struggle against those evading taxes, and undermines financial institutions by pushing money into informal channels. Ultimately, black money slows down development and deprives citizens of quality infrastructure and services.