Friday, November 11, 2016

How to Convert Black Money to White - What to do with Black Money?

How to Convert Black Money to White - What to do with Black Money?

  • Looking to convert Black Money to White?
  • Suffering from the panic that What to do with Black Money?
Major question involves individual, economical & national problem related to India, which is going these days and in trending a lot across all over the World too as well as in terms of Google Searching terms.

Here In this article, We are providing you the easy and legal solution to convert your money to white. In this article, we are giving you the way to Convert Black Money to White as well as we are also giving you the solution for What to do with Black Money, which is inside your house or any relevant place which is corresponding relevant to your Shop/Business too, specially for Real Estate Business (If you buying and selling any property right now before New Year 2017 than beware, It may cause you a problem). So, one can get a brief idea about How to convert Black money into White money methods and tricks after reading this article. Converting of Black money into White money is the biggest searching topic in INDIA after the Prime Minister Narendra Modi announcement of  ban on 500 rupee and 1,000 rupee notes in INDIA. So, you can have some methods to know about how to convert this Black money into White money.

Note : The article no ways encourage taxpayers to use any of the below methods. The Article is just to let people know about what others are doing to convert their Black Money into white money currently in India. In addition to those mentioned below there are many other methods which people use to convert their black money into white money.

Modi's ban on Rs. 500 and Rs. 1,000 notes, a crackdown of sorts on tax evasion, makes 86 percent of currency in circulation worthless.

"This one decision will change social culture, in the way people keep money and spend," Finance Minister Arun Jaitley told reporters on Wednesday about the government's move. "The honest person has the satisfaction to be honest and the not-so-honest worry."

Every citizen will be allowed to withdraw 10,000 Rupees from Bank or ATM per day and 30,000 per week which seems to be less. This ban on notes can be major stroke on Indian economy but we will, have to wait and watch how it turns out to be.
Why India Banned 500 and 1000 Rupee Notes

An explainer on the sudden removal of 23 billion Indian bank notes.

The property sector will be among the hardest hit from Modi's move, brokerages including CLSA Asia-Pacific Markets, Credit Suisse Group AG and Nomura Holdings Inc. predicted. The S&P BSE India Realty Index, comprising 11 property stocks, plunged as much as 16.5 percent on Wednesday, the biggest drop since 2009, before rising 4.6 percent as of 11:07am on Thursday amid a broader market rebound.

In fact, if you amend the Google Trends query to " how to convert black money," Haryana tops the list with Gujarat close behind. Other states asking the same question include Punjab, which is due to hold elections early next year, and the capital Delhi. Unexplained cash often crops up at election time to bribe voters.

Overall, Indians sought more information about the government's planned new currency notes that include better security features. Questions on these were among the top five searched topics for Google from India on Tuesday. India has 277 million internet users, the world's largest after China, according to the 2016 Internet Trends report by Kleiner Perkins Caufield & Byers.

Google India didn't immediately respond to an e-mail seeking comment.

© 2016 Bloomberg L.P.

Why India Banned Rs 500 1000rs Notes – How To Exchange Black Money For New Notes

Prime Minister Narendra Modi has called an emergency address speech, where he revealed to the country that 500 and 1000 rupee notes are to be discontinued from midnight today. I know how defective decision it is but it is true and will be staunch decision of striking off usage of 1000 and 500 Rupee notes currency in India. This decision has been made by the present government under the PM who says, IMF and World Bank states India is an economic star now.

Every citizen will be allowed to withdraw 10,000 Rupees from Bank or ATM per day and 30,000 per week which seems to be less. This ban on notes can be major stroke on Indian economy but we will, have to wait and watch how it turns out to be.
Why India Banned 500 and 1000 Rupee Notes

1000rs banned notes

India Banned 500rs & 1000rs Notes from 9th November 2016

India has made a strict decision of banning regular 500 and 1000 rupee notes from circulation which is a result of finding 1.25 lakh crore black money. Indian government believes that by taking this decision we can hit black markets down and you would be least circulation of black money and fraud would not take place.

Indian Announces 2000 Rupee Note Circulation

Instead of 500 and 1000 Rupee notes RBI will be issuing 2000 rupee notes which will be a regular currency circulation over India.

All those people who are worrying what to do with the stacks of 500 and 1000 notes, need not to glaze and run punching on the government. Because they have released a statement saying that all the remaining 500 and 1000 rupees notes are to be deposited at neat by Post Offices
Well Indian finance is sure going to face chaos by the demoing plans of our beloved Prime Minister Narendra Modi. So, most of you might be wondering what more topics have been discussed and stated during this speech. So I have posted all of them below.

  • Sab ka sarkaar, sab ka vikas – governance and progress for all is our motto. We are focused on empowerment of the poor. A series of schemes we have introduced all aim at this. This is a government for our farmers.
  • Corruption and black money are diseases rooted in this country, they are obstacles to our success.
  • We are among fastest-growing economies, but we also rank so high in global corruption rankings.
  • Terror strikes at the innocent. Who funds these terrorists? Across the border, our enemy uses fake currency and dodgy funds to sponsor terror – this has been proven repeatedly.
  • Terror strikes at the innocent. Who funds these terrorists? Across the border, our enemy uses fake currency and dodgy funds to sponsor terror – this has been proven repeatedly.
  • When you elected this government in 2014, world was talking about India being shaky economically. But India is now an economic star – this is what IMF and World Bank are saying.

Commoners over social media networks like Facebook and Twitter has started trolling the decision made by Indian government Prime Minister Narendra Modi. This issue might seem going easy but would turn into a chaos if government takes no necessary steps to circulate money correctly.

Consequences for people depositing unaccounted money: 

CASE-I: Someone who has never filed a return deposits unaccounted money 

"Let's start with a case study, in which a person has unaccounted money (Black money) with him, and he has not filed any Income Tax Return (ITR) in earlier years. Say, this man has not received any notice from the Income tax department and has been successful in concealing his income so far. 

The possible consequences he might have to face as per the provisions of current Income tax laws if he is found to have deposited unaccounted money are as follows: 

Launch of new currency notes and ban on old notes of Rs 500 and Rs 1000 will force the assessee to get his cash exchanged or deposit it in banks. While depositing the unaccounted cash into his bank account or exchanging he will have to submit his PAN and other details to the banking officials. This would make the likelihood of his case being caught by the Income tax Department very high As a result, he would be likely to get notices from the income tax department asking the source of this amount deposited by him in the bank.

1. Notice under section 142(1): 

This notice would require him to furnish his ITR within the time period allowed in the notice which is normally 15 days. Further the Assessing officer (A.O) would require him to produce his books of account, other documents and information. You might be astonished but here the A.O has powers even to enquire about your personal belongings and can ask you to submit your personal books of accounts. This notice can ask for information relating to the 3 years immediately preceding the financial year for which assessment is to be made. 
Generally this notice would come along with a notice under section 144, 148 or 153A. 

If you don't comply with notice under section 142(1): 

If the assessee does not comply with the directions, conditions specified in the notice, then he might have to face best judgement assessment under section 144 - this means that the A.O will assess your income and impose tax and penalty as per his own judgement. Also, in this case the A.O would not be liable to issue you any show cause notice under section 144 meaning that you would not be given any opportunity to convince the AO that section 144 should not be imposed on you. 

Further, not complying with the notice directives would lead to a minimum fine of Rs 4 per day which may extend up to Rs 10 per day for each day the failure continues. Apart from this you might end up in prison for up to 1 year.

Also a penalty of Rs 10,000 will be levied on you for not complying. However, this penalty would not be imposed in case you satisfy your A.O. that there were reasonable causes for not complying with the notice directives in time (such as death in family) 

2. Notice under section 148: 

You might receive a notice under this section in which case you would be subject to 'income escaping assessment.' This assessment is done under section 147 and the A.O has very wide powers while doing this assessment.

Here the A.O can open your assessment for the last 6 financial years i.e. he can ask you to explain source of your income , provide income related proofs etc for the last 6 years.

The A.O can ask for all the documents he thinks are necessary for him to compute your true income and finally assess your correct income and thereafter issue you a notice under section 156 demanding the amount of tax payable by you (as re-calculated by him), along with interest and penalties and prosecution.

3. Assessment under section 153A i.e. income tax raid: 

After detecting your unaccounted income deposits, the tax department may decide to conduct an income tax raid at your place to find out other assets like gold, property papers, benami transactions etc in your possession/ ownership. In such a case you would not get any advance notice. Such search and seizure proceedings are the most aggressive step which can be taken by the income tax department and and hope that you are not the one who gets in its ambit.

4. Directions under section 144A: 

If your income tax return for any year is already being assessed under any section other than the normal self assessment, then your case could be hurt if you are detected depositing unaccounted income. The tax law permits the joint commissioner to instruct your A.O to take a stricter view of your case pending before him.

CASE-II-Someone who has not declared full income in returns filed 

Let us take the case of a person who has filed the ITR for earlier years but the income declared in his returns is way less than what he was actually earning/receiving. Consequently, he has been evading tax. The consequences these people might have to face as per the provisions of current Income tax laws are as follows.

1. Notice under section 143(2): 

You might receive a notice under section 143(2) which simply means that your case has been picked up for scrutiny by the income tax department. Now you would be asked to submit the evidences to substantiate the income declared in your ITR. For the financial year 2015-16, a notice under this section can be issued till 30.9.2017. In the notice the A.O can ask for books and accounts for any number of previous years 

Finally an assessment order under section 143(3) will be issued to you along with a notice to pay additional tax , interest thereon and penalty charges.

2. Notice under section 148 and section 153A can be issued here as well.

How does the black money get generated?

  • Corruption– Mr. Blackappa, an officer in government service, demands Rs.1 lakh from Mr.Shortcut for doing a favour (say to approve the building sanction plan). Mr. Shortcut hands over Rs.1 Lakh to the officer in cash (no one takes a bribe in cheque/demand draft!). This money will not be accounted in the books of Blackappa and he won’t pay any taxes on it (it may be good to legalize bribe and collect taxes on it) Count # 1 – Rs.1,00,000 black money is generated.
  • Sale of property – Mr. Greedy buys a property from Mr. Cheat for a total sale value of Rs.50 Lakhs. He takes Rs.35 Lakhs in cheque/DD and the balance in cash. He pays stamp duty on Rs.35 Lakhs, and the seller pays capital gain tax considering the value as Rs.35 Lakhs. Count # 2 – Rs.15,00,000 black money is generated.
  • Sale of goods/services without invoice – You buy a sofa set from a furniture dealer. What is the price? The shopkeeper will tell “the price is Rs.60000 plus taxes at 14.5%”. Any discount? The answer from him will be “Yes madam, I can offer it at Rs.58,000 without the bill. If you want, I can write on a piece of paper or on a quotation” Count # 3 – Rs.58,000 black money is generated.
  • Accounting for fictitious expenses –  A businessman tells his accountant “I can’t pay so much tax. Do something, reduce the taxes” The accountant accommodates by booking fictitious expenses. If the businessman declares a profit of Rs.15 Lakhs against the actual profit of Rs.25 Lakhs, black money of Rs.10 lakhs is created. Count # 4 – Rs.10 Lakhs black money is generated.

Avenues for spending black money in black

  • Investing in property – The middle-class black money earners spend/invest them in black. For example, Mr.GHK sells a house for Rs.90 Lakhs (of which, he takes Rs.30 Lakhs in Cash – black) and reinvests/buys another flat/plot by giving Rs.30 lakhs apart from white money. So, the rule is Black for Black and white for white
  • Spend on weddings and functions – I needn’t explain it. If you attend the weddings at Palace Grounds in Bangalore and hi-fi wedding halls, you will get to see the ‘real color’ of black money. As I understand there are people who spend 2-5 Crores for a wedding! A large sum of corrupt money is spent on social events and functions.
  • Buying goods/services where the identification is not mandatory – For example, white goods, building houses and its interiors, etc., are done using black money earned in cash.
  • School Fee and donations – You may be aware of donations! For the medical seat, over a crore of rupees to be paid as a donation in cash!
  • Buying gold / precious metals – Instead of accumulating cash, people will buy gold, diamond and other precious metals. People buy gold in small quantities, from different shops, in the name of all members of the family.
  • Elections – As per the Election Commission of India, a maximum of Rs.70 lakhs can be spent by a candidate per Lok Sabha Constituency. Do you believe that they spend only Rs.70 lakhs? I understand that each candidate spends over Rs.30 Crores per Lok Sabha Seat!  From where is this kind of money available? Corrupt money is spent in elections.
Now the big question – Is this not known to the Government? What actions have they taken to curb the black money? Honestly, so far, nothing much is done, except ‘lip service’ by a few politicians and a few ‘cosmetic’ changes in the law. (How to Convert Black Money into White Money in India without Paying Tax).

Recently, Special Investigation Team (SIT), appointed by the Supreme Court has come out with its findings and suggestions to curb black money.

Black Money Conversion Case Studies

CASE 1: Go to a Jeweler. Give him the amount you want to convert into white as cash. he would give you a cheque back for the same amount less 4%. He would give you a purchase bill to show that you have sold silver utensils to him. On the amount of the cheque when you file your return you will have to pay no capital gain tax as Silver utensils are Personal effects and capital gain does not arise on sale of personal effects. There you go , the money is white now!!!

CASE 2: Conversion of Black Money to White Money with the application of Sec 51 of the Income tax act, 1961.

Mr. X : A Business man who wants to convert his black money to white.

Property: Cost of Acquisition: Rs. 10 Lacs.

Mr. Y: A Salaried person who wants to convert his white money to black may be because he has to make payment in black for the property purchased by him.

Mr. X enters into an agreement with Mr. Y for the sale of property for Rs. 150 lacs with a condition that advance money of Rs. 30 lacs shall be given by Mr. Y and balance shall be paid within 3 months else advance money shall be forfeited.

Modus Operandi: Mr. Y makes payment of Rs. 30 lacs to Mr. X by way of a cheque as the advance money and Mr. X in turns gives the black money to Mr. Y of the same amount. Now, Mr. Y intentionally fails to make balance payment within the due time and the amount is forfeited by Mr. X. In this manner black money of Mr. X is converted to white money.The money is white now!!!

CASE 3: Another popular way of converting black into white money is by getting a gift from a relative. For this modus operandi, the relative must possess white money. For example, you have some black money (say Rs. 10 lacs) which you want to convert into white. You can ask your relative to gift you Rs.10 lacs by way of cheque and you will in turn transfer your black money to him/her. Here 56(2)(vii) is not attracted as gift is received from a relative.

CASE 4:- Converting black to white by way of cheque

People also give the black money to a person (say a family member or a friend) and take a cheque from them. They show that as a loan receipt and thus they can temporarily convert their black money into white.

Then they again give them a check as a repayment of loan and receive cash which converts white to black again, but during the time the loan is outstanding, they convert their black into white, but people who do this are not aware that Section 68 on loans is applicable and you will have to prove the creditworthiness as well as the genuineness of transactions to the IT Department or else the loan receipt will be treated as income from undisclosed sources.

CASE 5: Another popular way of converting black into white money is showing income in cash like tuition income or any other professional fees.Just pay the tax at normal rate and your money is white now!!!!

Also people make investment where it is allowed to invest in cash and where the maturity is tax free for example buying an insurance policy where you are not required to show all your premiums and the maturity is tax free. For example your insurance premium is 25000/- per annum and you can pay 6000 in check (shown in books) and remaining in cash, people increasing the proportion of premium paid in cash increasing as and pay entire premium in white for last two years before maturity. No ITO is going to check premium of more then last two years and it is a small example. People are paying huge cash premiums everyday. In case of this small premium, the cost of investigation exceeds the benefit to the exchequer so the ITO will give a test check for at the max last two years.

  • I don’t recommend readers to follow any of these steps. I just want them to be aware regarding these false practices.
  • I encourage open discussion regarding this article but advices, opinions, suggestions which may land the opinion seekers into trouble later on are not encouraged.
  • I trust that a tax planning should be done in such a way that it can stand the test of the legal battle of course subject to debates.
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