After demonitisation of high value currency notes, a lot of businessmen are using different ways to convert their black money to white money. Though the practice of accepting black money is illegal, but it is an age old practice all over the world. Here are some of the ways that are used by businessmen to deal with all the unaccounted income:
1. By showing fictitious sales :– The most famous and simplest way of converting your black money to white is by showing fictitious sales. Now fictitious sale means a sale without an actual exchange of goods or services. This a mere journal entry in your accounting books. Usually, businessmen generate a false invoice to support such transactions.
2. Increase in the sale price of an asset :– Lets understand this point with an example. Just assume that there is a buyer “B” and a seller “S”. Now Mr. B has a lot of black money with him. The sale price (as per Mr. S) for the property is Rs. 50 lakhs. Mr. B will ask him to sell the property to him at Rs. 65 Lakhs and promises to pay the additional stamp duty on the inflated price. Furthermore, he will ask the seller “S” to deposit the additional Rs. 15 lakhs in installments of Rs. 50,000 in his account. This is how the buyer “B” will get the property plus he will be able to convert his black money to white without getting in notice of an income tax officer.
3. Hawala Route :– Hawala is the method of transferring money without any actual movement. This method involves very high risk and is generally adopted by big businessmen. Lets assume Mr. X, a businessman, politician or officer in Delhi has Rs.50 Lakhs in cash. Since it is black money, he can’t deposit the same in the bank. So, he searched for a Hawala agent. The agent takes the cash in Delhi and through his counterpart, hands over Rs.50 Lakhs worth in dollars/pounds/dirhams in a foreign country to his/to his representative. Mr.X gets this money back to India as Foreign Direct Investment (FDI) or seed fund in a private company, etc. Or he may choose to invest abroad in properties/shares. Thus, he converts black money to white without paying any taxes.
4. Depositing in banks less than Rs.50,000 :– This route is taken by small time operators. They open multiple bank accounts and deposit cash upto Rs.50000 at a time. Remember, if you have to deposit over Rs.50000, you have to give PAN details to the banker. Mostly, these kind of petty transactions goes unnoticed by the income tax department and thus small businessmen play safe by adopting such a route.
5. Agricultural Income :– The best way to convert your unaccounted income is by adopting this method. Agricultural Income is exempt from Income Tax. This means the money earned from the sale of paddy, pepper or wheat is exempt from tax. So, what a business man does is, he shows a fictitious sale of some agriculture produce to some fictitious person at inflated prices. The entire collection done from such transactions can be freely deposited into bank account without a single word from any officer. However, for the sake of record, these people will acquire or show the proof of ancestral property in villages through wich they have produced this agricultural income.
6. Gifts from relatives and friends on occasions :– Any amount of money received from relatives (gift) is exempt from Income Tax. It is an easiest way to convert black money to white. Businessmen just show that they have received some cash on the occasion of your son’s or daughter’s birthday as gifts from relatives. However, Gifts from non-relatives and friends attract income tax. But those who have huge sum of black money shows gift and pay taxes. Still the money earned through corrupt practices can be converted into white (after paying taxes).
7. Sale of Gold and Diamonds :– Well-known professionals suggest this route. Suppose, Mr. XYZ has Rs.25 Lakhs cash and gives this amount to a Jewellery shop. The Jewellery shop will generate a invoice that he has purchased Gold/Diamonds worth Rs.25 Lakhs from Mr. XYZ and make a payment in a cheque to Mr. XYZ. For facilitating this transaction, he will charge a fee. Thus Mr.XYZ converts his black money into white, without paying any income tax. However, usually big businessmen involve in such practices as they need to have good links with the jewellers as these type of high value transactions involve huge risks of being coming into the notice of Income Tax officer.