Does it Make Sense to Generate Black Money???

Does it Make Sense to Generate Black Money???

Black Money

Many people were/are under impression that if they somehow don’t pay tax on their income or major part of it they are acting very smart.

The recent move by the government has destroyed this belief.

But barring that also the generation of unaccounted income (black money) does not make any sense; not just from the ethical or moral perspective but also does not count as great financial wisdom.

Let’s try and understand why I say so. First of all, let’s understand that black money is a very complex concept and it includes many things. For the simplicity of discussion, we are only considering about income which is not disclosed. So, for example, a doctor who has a cash practice of Rs.10000/- per day and he is advised(or ill-advised) that he deposits only Rs.5000/- in his bank account then it means that he is generating a black money of Rs.5000/- (as he is not going to disclose the remaining Rs.5000 in his books) now he will keep doing this for years and that is how he will be generating black money.

Now let’s see what are the disadvantages of this strategy:

1. Investing is difficult:

Most of the unaccounted money is difficult to invest in securities, Mutual Funds, shares etc.
Some may argue that he can invest the money in Real Estate or Gold but that also he can do it in a small part and not entirely. Also, he may invest in a wrong instrument (for e.g. in real estate at current prices) and end up losing money just thinking that he is saving tax.

Now what happens is, because he is not able to invest his money and just stacks the money he will not earn any interest or growth on this money; therefore loosing on all the benefits (so-called) he got by avoiding the tax.

2. Weak Balance Sheet:

In a growth phase of a business, a businessman needs to take a loan for expansion; but when he advises (or ill-advised) to generate black money he ends up making his balance sheet weak. So when he goes to the bank for loans, they are unable to grant him sufficient loan as per his requirement as the bank only considers disclosed income.

3. Under IT scanner:

Nowadays with technology and government initiatives all the transactions are coming under scanner so trying to be too smart can turn out to be counterproductive.

So what is the solution ???

It’s very simple -there are many legitimate tax-efficient strategies that will help you save tax and also save you from all the above-mentioned pitfalls.

Take help from a professional to get your TAX act together.

Niraj Nanal

CFP, RLP

Call us on +919130126096 or mail us on support@nirajnanal.com

Leave a Reply

Your email address will not be published. Required fields are marked *