Black Money

Unaccounted money or the Income on which you evade Tax is called Black Money. 

How is it created?

There are several hundered ways to evade tax, let's start with two simple examples:

• When you sell property you need to register as well as pay stamp duty etc. Assuming the value of the property is 1 crore but u decide to accept 20 lakhs in Cash and the rest by cheque then naturally you have under stated/reported your value. You pay less tax on the gain and for the 20 lakhs you do not pay tax. This 20 lakhs  now is black Money. 
• Companies/businesses can have fictitious vendors and show payments and hence reduce profits. 

Ways and means to evade tax is numerous and the tax authorities come out with ever cumbersome procedures to catch them. But as usual the lone sufferer is the common man-common middle class infact.

Various agencies have estimated India's black money at valuations between18,00,000Cr to 30,00,000Cr. This is about half of India's GDP and bigger than about 100 other countries GDP figures.Tax evasion peaked out during the early 90's. since then the rate of growth of black money moving abroad has reduced. India at one point of time had the highest Tax rates -90%, absurdly high owing to large outflows of funds.

Now, the question everyone keeps asking is how do you convert it into white or how do you use the money. Of course you will find cash stashed under the bed, but then when it involves several hundred crores it does not sound has a good proposition. So, you move them out of your room,home, city, state or generally out of the country itself.

You would be wondering how does black money move out of the country, as it is impossible to carry a bag full of cash and board a plane. I guess u would have heard about the Hawala operations, they are pretty complex but all you have to do is deposit Rs100 with a Hawala dealer here in India and it gets converted to dollars in Switzerland where the Hawala dealer's counterpart delivers it. The delivery happens in real time-concurrently, on the spot.

Then are these big Private Banks especially MNC's that create trust and various other organisations and are experts in moving funds between countries. Don't for a second think that the big banking names you hear are the most transparent and best banks in the world. They are the best banks in routing Black Money and Drug Money.

The government of India is doing nothing about them...

How do you know whether a particular country is a Tax haven or  favours Black Money. Simple!!!

What is GDP... it is the sum total of all the goods and services produced in a country in rupee terms or dollar terms or whatever currency.

So any kind of production or sales made or income generated shows up in the GDP. Now let me give u a startling fact. The GDP of Switzerland is $522 billion the size of its banking assets is $840 billion. i am not making this up you can check this out in Wikipedia. The GDP of Mauritius is $9.4 billion its banks hold cumulatively $15 billion in deposits. Cayman islands GDP $2.25 billion & Banking assets at $1300 billion.

Some other popular tax havens are British Virgin Islands, Bermuda, Seychelles, Bahamas, Liechtenstein, Luxembourg.    

Now you know why these are some of the favorite spots the rich keep visiting.