In India, black money is funds earned on the black market, on which income and other taxes have not been paid. Also, the unaccounted money that is concealed from the tax administrator is called black money. The black money is accumulated by the criminals, smugglers, and tax-evaders. Around ₹22,000 crores are supposed to have been accumulated by the criminals for vested interests, though writ petitions in the supreme court estimate this to be even larger, at ₹900 lakh crores.[1]
The total amount of black money deposited in foreign banks by Indians is unknown. Some reports claim a total of US$10.6 – $11.4 trillion is held illegally in Switzerland.[2] Other reports, including those reported by the Swiss Bankers Association and the Government of Switzerland, claim these reports are false and fabricated, and the total amount held in all Swiss bank accounts by citizens of India is about US$2 billion.[3][4] In February 2012, the director of India's Central Bureau of Investigation said that Indians have US$500 billion of illegal funds in foreign tax havens, more than any other country.[5][6] In March 2012, the government of India clarified in its parliament that the CBI director's statement on $500 billion of illegal money was an estimate based on a statement made to India's Supreme Court in July 2011.[7]
In March 2018, it was revealed that the amount of Indian black money currently present in Swiss and other offshore banks is estimated to be ₹300 lakh crores or US$4 trillion.[8]
Sources of black money income
The root cause for the increasing rate of black money in the country is the lack of strict punishments for the offenders. The criminals pay bribes to the tax authorities to hide their corrupt activities. Thus, they are rarely punished by the judge. The criminals who conceal their accounts from the government authorities include big politicians, film stars, cricketers, and businessmen. Some Indian corporations practice transfer mispricing, by under-invoicing their exports and over-invoicing their imports from tax haven countries such as Singapore, UAE, and Hong Kong. Thus, the promoters of the public limited companies who hold rarely more than 10% of share capital, earn black money abroad at the cost of majority share holders and tax income to the Indian government.[9] By the year 2008, the cumulative Illicit Financial Out flows from the country touched US$452 billion.[9]
Political organizations, corrupt politicians and government officials take bribes from foreign companies then park or invest the money abroad in tax havens for transferring to India when needed. In addition, locally earned bribes, funds and collections are often routed abroad through hawala channels in order to evade Indian tax authorities and consequent legal implications.[10]
In the Vodafone-Hutchison tax case, a foreign multinational company also evaded tax payments in India by making transactions with shell companies registered in tax haven countries.[3]
The unlawfully acquired money kept abroad is routed back to India by the round tripping processes. Round tripping involves getting the money out of one country, sending it to a place like Mauritius and then, dressed up to look like foreign capital, sending it back home to earn non favourable profits.[11]
Foreign direct investment (FDI) is one of the legal channels to invest in Indian stock and financial markets. As per data released by the Department of Industrial Policy and Promotion (DIPP), two of the topmost sources of the cumulative inflows from April 2000 to March 2011 are Mauritius (41.80 per cent, US$54.227 billion) and Singapore (9.17 per cent, US$11.895 billion). It is not plausible that the small economies of Mauritius and Singapore are the true origins of such huge investments. It is apparent that the investments are being routed through these jurisdictions in order to conceal from revenue authorities the identities of such tax evaders; In many cases they are Indian residents who have invested in their own companies.[12][13]
Investment in the Indian stock market through participatory notes (PNs) or overseas derivative instruments (ODIs) is another way in which the black money generated by Indians is re-invested in India. The investor in PNs does not hold the Indian securities in her or his own name. These are legally held by the FIIs, but derive economic benefits from fluctuations in prices of the Indian securities, as also dividends and capital gains, through specifically designed contracts.
Foreign funds received by charitable organisations, non-government organisations (NGOs) and other associations need not disclose the Indian beneficiary.[3]
Gold imports through official channel and smuggling is a major conduit to bring back the black money from abroad and convert into local black money as the gold commands high demand among the rural investors particularly.[14] Also fictitious high value round trip transactions via tax haven countries by diamonds and precious stones exporters and importers is a channel for to and fro transactions outside the country.[15] Also, fictitious software exports can be booked by software companies to bring black money into India as tax exemptions are permitted to software companies.
Unlike in earlier decades, the interest rates offered abroad in US currency is negligible and there is no capital appreciation if the money is parked abroad by the Indians. So, Indians are routing their foreign funds back to India as the capital appreciation in Indian capital markets is far more attractive.[16]
The use of Swiss banks for storing black money
In early 2011, several reports in the Indian media alleged Swiss Bankers Association officials to have said that the largest depositors of illegal foreign money in Switzerland are Indians.[2][17] These allegations were later denied by Swiss Bankers Association as well as the central bank of Switzerland that tracks total deposits held in Switzerland by Swiss and non-Swiss citizens, and by wealth managers as fiduciaries of non-Swiss citizens.[3][4][18]
James Nason of Swiss Bankers Association in an interview about allowed black money from India, suggests "The (black money) figures were rapidly picked up in the Indian media and in Indian opposition circles, and circulated as gospel truth. However, this story was a complete fabrication. The Swiss Bankers Association never said or published such a report. Anyone claiming to have such figures (for India) should be forced to identify their source and explain the methodology used to produce them."[4][19]
In August 2010, the government revised the Double Taxation Avoidance Agreement to provide means for investigations of black money in Swiss banks. This revision, expected to become active by January 2012, will allow the government to make inquiries of Swiss banks in cases where they have specific information about possible black money being stored in Switzerland.[20]
In 2011, the Indian government received the names of 782 Indians who had accounts with HSBC. As of December 2011, the Finance Ministry has refused to reveal the names, for privacy reasons, though they did confirm that no current Members of Parliament are on the list. In response to demands from the Bharatiya Janata Party (BJP) opposition party for the release of the information, the government announced on 15 December that, while it would not publish the names, it would publish a white paper about the HSBC information.[21]
According to White Paper on Black Money in India report, published in May 2012, Swiss National Bank estimates that the total amount of deposits in all Swiss banks, at the end of 2010, by citizens of India were CHF 1.95 billion (INR 92.95 billion, US$2.1 billion). The Swiss Ministry of External Affairs has confirmed these figures upon request for information by the Indian Ministry of External Affairs. This amount is about 700 fold less than the alleged $1.4 trillion in some media reports.[3]
In February 2012, Central Bureau of Investigation (CBI) director A P Singh speaking at the inauguration of first Interpol global programme on anti-corruption and asset recovery said: "It is estimated that around 500 billion dollars of illegal money belonging to Indians is deposited in tax havens abroad. Largest depositors in Swiss Banks are also reported to be Indians". In a hint at scams involving ministers, Singh said: "I am prompted to recall a famous verse from ancient Indian scriptures, which says – यथा राजा तथा प्रजा. In other words, if the King is immoral so would be his subjects"[5][22] The CBI Director later clarified in India's parliament that the $500 billion of illegal money was an estimate based on a statement made to India's Supreme Court in July 2011.[7]
After formal inquiries and tallying data provided by banking officials outside India, the government of India claimed in May 2012 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.[3]
The through the Investigation Division of the Central Board of Direct Taxes released a White Paper on Black Money giving the Income Tax Department increased powers.[23]
2015 HSBC leaks
In February 2015,balances for the year 2006–07 in HSBC's Geneva branch. The list was obtained by French newspaper Le Monde and included the names of several prominent businessmen, diamond traders and politicians.[24] The number of Indian HSBC clients is roughly double the 628 names that French authorities gave to the Indian Government in 2011.[25] Indian government said it will probe into this matter.[26] The balance against the 1195 names stood at ₹25,420 crore (US$3.2 billion).[27]
The list which had names of dictators and international criminals, was simultaneously published by news organisations in 45