Even though no political party is ready to admit it openly, it is no secret that most of them are stunned by the latest move by the PM. In all major elections, political parties bring in sacks full of black money to distribute in exchange for votes. The parties with strong financial clout can easily turn the results in their favour by such illegal means.
The significant chunk of money spent on elections are usually in cash, and it comes from real estate, infrastructure, smuggling and other illegal businesses. Most politicians and their funders keep the money readily available in cash and take it out during the elections.
This decision will definitely have some impact on the free flow of money in the upcoming Uttar Pradesh and Punjab elections, money plays a big role.
9. Hawala Dealers
Hawala works by transferring money without actually moving it. In a hawala transaction , no physical movement of cash is there. Hawala system works with a network of operators called Hawaldars or Hawala Dealers. A person willing to transfer money, contacts a Hawala operator at the source location. The hawala operator at that end collects the money from that person who wishes to make a transfer. He then calls upon his counterpart or the other Hawala operator at the destination place/country was the transfer has to be made. Now the hawala operator at the tranferee’s end, hands over the cash to the intended recipient after deducting a certain amount of commission.
Such illegal dealers who hoard millions in cash will be greatly affected by this decision, as they are left with limited options to convert the old currency with new ones. There are hardly any options available for people with unaccounted cash to siphon off these currency notes as the government will impose penalties at 200% after tax which account for almost 98% of the total value of the currency notes found to be illegitimate income.
The Income tax department is also conducting raids throughout the country to nab such hawala dealers.
8. Real Estate Mafia
In cities and villages throughout India, mafias consisting of municipal and other government officials, elected politicians, judicial and law enforcement officials, acquire, develop and sell land in illegal ways for profit.
Sometimes, government land or land ostensibly acquired for some legitimate government purpose is then handed over to real estate developers who build commercial and residential properties and sell them in the open market, often with the connivance of administrative and police officials.
Computerisation of records relating to the classification of tracts and land ownership is a key tool in countering the illegal activities of land mafias, since it creates transparency on all information relating to a given parcel of land. But black money is what funds these operations and the decision to demonetize 500 and 1000 rupee notes will hit them the most
7. Fake Currency Dealers
Counterfeit money is imitation currency produced without the legal sanction of the state or government. Producing or using counterfeit money is a form of fraud or forgery. A recent study commissioned by the NIA showed that 250 in every 10 lakh notes in circulation in India are fake, with FICN bearing a face value of Rs 400 crore in circulation at any given point in time.
A detailed forensic analysis by the NIA had revealed that the paper used to print the counterfeit rupee notes is an excellent match with the legal tender of Pakistan.
The NIA’s explosive conclusion was revealed to Parliament’s Standing Committee on Finance by the country’s top intelligence agencies – the Research and Analysis Wing (R&AW), the Intelligence Bureau (IB), and the Department of Revenue Intelligence (DRI).
The study also reveals that the fake 1000 rupee notes constitutes nearly 50% of the total values of the fake notes. The fake notes of 100 and 500 rupee are also in circulation but the ratio of their detection is slightly higher.
The latest decision by the government comes as a body blow to the fake currency dealers as all the fake currency in circulation has become useless overnight. Reports also suggest that the newer notes are much more difficult to fake.
6. Terrorist Organizations
The security features of Rs. 500 and Rs. 1,000 notes had been compromised by Pakistan and was flooding the Indian market with fake currency which was also used for financing terrorism.
While removing black money, the demonetization process will also definitely address the problem areas of terror financing and fake currency. There is illegal money behind terrorist funding. The channel through which the adversary sends in militants and arms is also used to send fake currency.
The demonetization would impact the terror financing, particularly in Jammu and Kashmir. Terrorist outfits like Hizb-ul-Mujahideen collect donations in Pakistan and then route the money into the State through hawala operators. The terror funding module in place right now, will be affected as the terrorist operatives always store money in the form of big currency notes. That money has become a piece of paper now.
5. Sports Betting
Gambling in India is heavily restricted except for selective categories including lotteries and horse racing. According to the Doha-based International Centre for Sports Security, India’s illegal sports betting market is worth some $150bn a year. And much of that gambling money is directed towards cricket.
Most of these transactions involve black money, which is cash not declared to the income tax department.
One of the biggest obstacles faced by sports bettors in India is the fact that depositing to foreign bookies is extremely difficult. Typically, the majority of users deposit to online bookies using Moneybookers or Neteller. Some attempts to deposit using a Visa or MasterCard may fail. The same is true of online bank transfers. In order to circumvent these blocks, savvy internet users have started to use ewallet services for depositing.
These services add a middle layer to disguise the nature of transactions, enabling users to get around the blocks by first depositing to an ewallet and then using that ewallet to fund an online betting account in Rupees. This is important because it circumvents legal issues that may have arisen about Foreign Exchange law.
4. Educational Institutions
Many institutions that are meant to provide education have been promoting corruption, and education has been a major contributor to domestic black money in India.
Indian education system generates at least Rs. 48,400 crores of black money every year from KG to PG admissions. This black money fuels corruption and inflation. It may also find its way into overseas tax heavens, election, terrorism and religious conversion
Single common entrance exams for various professional courses (medicine and allied, engineering and allied, business management and allied), releasing the audited financial statements of the trusts/ not-for-profit organizations that own these educational institutions in the public domain (website, a common e-repository), stoppage of government funds from AICTE, DST etc. to such institutions, are some of the suggestions to reduce the generation of black money in education
3. Fake Trusts and Charity
Large amount is donated to various religious institutionsor charities. Nobody can object for charity donation but at the same time, as per rules that when large amount is donated, it should be only accounted money and that payment should be by account–payee cheque to the charity or the institution. Even if gift of jewelry is made to the charity or institution, it should be by mentioning donor’s name and his PAN Number.
Money laundering in India was rampant through NGOs and charitable trusts. The majority of industrialists and even some top politicians are using NGOs to launder their black money back into the country.
There are easily over a million charitable and private organisations registered in the country under these laws and their annual monetary transactions, through banking and other channels, runs into thousands of crores of rupees.
2. Rich Agricultural Land Owners
Agricultural income, being tax exempt, has become a channel for money laundering. The country is losing billions in revenues.
Among the vast majority of poor farmers, there are quite a few millionaires and billionaires – rich landowners, masquerading as the poor old Indian farmer, the only commonality between them being subsidies- fertilizer subsidy, power subsidy, minimum support price, loan waivers, and tax relief.
Large farmers and agro-corporations with tax-free agricultural income wield significant clout over the government and they continue to lobby against taxation.
Those who know how to game the system will tell you that fortunes are made at the bottom of the pyramid. The road to riches passes through barren land. People have been buying cheap uncultivable land, claiming it to be agricultural land to get the status of farmer and enjoy the tax exemption on ‘income from farming’.
While a vast majority of farmers are struggling to make their ends meet, some large landowners hoard millions in cash, without paying any taxes. This cash has now become useless pieces of paper
A recent report of the Income Tax department on Mumbai’s film industry finds significant funding from hawala and hot-money routes, portending a grave threat to tax mobilisation, and even to general law and order.
In 2011, a leaked cable released by Wikileaks had spoken of the film industry’s underworld connections, and that “it welcomed funds from gangsters and politicians looking for ways to launder their ill-gotten gains, known in India as ‘black money’”. In 2012, a sting operation by news website Cobrapost had caught leading producers and directors allegedly admitting on camera how the industry is being used to convert “black” money into “white”.
The IT Act, 1961 provides for different sections and rules to impose tax on revenue sources of the industry. Sections 44AA, 44AB, and 285-B, Rules 9A and 9B for producers and distributors respectively, and the TDS provisions of Sections 192, 194 C and 194 J are also to be used when making payments to/for actors, directors, editors, special effects experts, logistics contractors, and recording and dubbing studios, among others.
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