What Is Black Money?

Before learning about What is black money? Y'all can have a look at my previous post  Why can't we print more money? This will give you a basic idea about money. 
There is a high possibility that there may not be a single person in India who has not dealt with corruption, like for instance getting admission in school, obtaining your driver's license, or registering a property.

Corruption in India is so prevalent that it has become an integral part of our lives. Of course, this does not mean that everyone is corrupt, there are still people who refuse to give a bribe and also those who refuse to take (I'm assuming people like you and me :p)

Whenever we talk about Black Money we instantly think about corruption which leads to how ministers, politicians, and the rich are responsible for it. But wait a sec...Is it so? Do you think this 1% of the population is responsible for entire corruption in India? Let's find out with a basic understanding of black money.


Black money is the amount of money that you have earned for which you haven't paid tax, although you should have. Black money is of two types-:

A) Money earned through illegal means - drugs, bribe, hawala, blackmail, etc

B) Money earned through legal means but not declared to Govt - Business not showing their actual revenues, not paying the actual taxable amount etc

Am I the only one missing these notes? :(

Now, we all pay taxes some way or the other, since we all buy goods and services. In a fundamental sense, there are two types of taxes direct and indirect. Indirect taxes include excise tax, VAT, service tax, etc For example buying any consumer good or product we have to pay tax (Compulsory tax which we cannot escape) Direct tax, it includes income tax, property tax, corporate tax, etc these taxes can be avoidable (which is actually illegal) Scroll below to know-how!

Is Black Money only with the Rich?

No, that's not the case. Let us say you are an employee (salaried person) who also has other income such as a rental income from your apartment which is Rs 50,000 per month - because you are a salaried person your company will deduct TDS from your monthly salary, therefore, this income is white. Now, let's assume that you have not declared your rental income of Rs 6 lakhs (yearly). Since it's not taxed even though you earned through legal means it still becomes your black money.

Let us take one more example, but this time we will not assume. India has 85% of the unorganized retail sector which includes kirana shops, local shops, local vendors etc, when we buy goods, most of them fail to provide us with a bill/receipt. If there is no receipt then there is no record that sale has happened. So whatever margin the shopkeeper is getting from the sale of the product is not taxed, this becomes their black money. 

"It's just a small amount or why should I pay tax"? said the 85% of the unorganized retail sector.

According to the Income Tax department of India, only 10 million people out of a population of 1.33 billion paid tax in 2019. That's close to 1% of the entire population paying tax (filing for tax returns) Whoa!!! Now, that's news! Look I'm not saying everyone comes in the tax bracket but there is more to this, most of us don't pay the actual amount of tax especially the MSME or the unorganized sectors.

Now, let's address the elephant in the room yeah, you got that right. Its Demonetization!!

The new notes remind me of the game Monopoly :p

Demonetization in India.

On 8th Nov 2016, Govt of India announced demonetization of all Rs 500 and Rs 1000 banknotes. It also announced the issuance of new Rs500 and Rs2000 banknotes in exchange for the demonetized notes. The main objective of demonetization was to curb black money out of the system and also to make India a cashless economy. But what do you think, was Govt successful? 

Former RBI Governor Raghuram Rajan has revealed that he did not favour demonetization as he felt the short-term economic costs associated with such a disruptive decision would outweigh any long term benefits from it. 
It is far more complex than you think. I found some reports which will help you guys decide whether it has made a difference or no. It's important to make some decisions on your own given the facts. 

Here it goes...

In my opinion, it did make India move towards a cashless economy but also going through some reports and understanding of demonetization I didn't think it impacted India much in terms of curbing out black money from the system.
Look, India is known for its JUGAD (flexible approach to solving problems). This also happens when converting black money into white. There are so many ways to do it, just by depositing your black money into someone's else's account is the easiest of all.

Hopefully, I have managed to cover a rudimentary understanding of black money.

Let me know in the comments section what you guys think about my post, also about demonetization and its impact in India.

Thank you for reading.

Post a Comment


  1. This is something which I haven't learned in school or collage lectures !

    1. I'm sure this helped you. Yes, sadly we don't learn the important stuff in school or colleges

  2. Insightful it makes us rethink on demonetisation and how we are facing more demerits in long term rather than short term merits

  3. Black money as explained in the blog that it is present in un-organised sector which i really agree .Dealing in more cash not counted as income as it has no record in income statement.Any money which comes in bank account record called as bank holder income amd deduct the tax as per holder slab.Any work which has to go via cash medium don't apply for tax deduction hence called black money.People are very much used to deal in cash avoiding any cheque transaction thus they are increasing black money at individual level.So to say any gov will remove black money is something very vague.

  4. Very nicely said the entirety of Black money has been covered and has been explained properly
    Topics we missed though(Kind suggestions)
    1. %age of black money accounted by 1% of India
    2. Description of Shadow economy(Actual size of black economy)
    3. GST angle in black money

    1. Hi Sumeet, thank you for your feedback. I did think of including those pointers. I will surely include them when I will write briefly about Demonetization.

  5. This isn't included in your college or school studies if they did the volume will increase as knowledge has advantage and flaws .
    But it's been explained in a way that even a lay man can understand,Kudoos...👍👍

    1. Hi Bhavesh, yes the goal is to reach the layman and not over burden them with knowledge.

  6. Thankyou for putting out answers to questions which many wouldn't be comfortable asking in open .... I'm sure this helps impart knowledge on mere simple questions that most of us have