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Unit 3: Tax Planning: An Introduction

(vi) Ceiling on Depreciation and Other Business Expenses: Government has imposed restriction. Notes
It has also circumscribed expenses on advertisement, entertainment, guest houses,
and payment of perquisites to directors. The purpose of these restrictions is to protect the
shareholders and consumers from the unscrupulous action of businessmen. But
businessmen feel that these restrictions are unjustified. They take the maximum advantage
of these provisions but do not like to part with the remaining part of by various clandestine
devices; they convert it into black money and use it either for conspicuous production to
satisfy the wants of the rich and elite sections of society.
(vii) Unscrupulous Charitable Trusts and Societies Create Tax Evasion: Unscrupulous charitable
trusts and societies including religious institutions manipulate the funds of the institutions
run and managed by them and create black money.

Example: A stark example of this has come to light when crores of rupees in hard cash
and several more crores of rupees worth jewellery, diamonds and other valuables have been
taken over when the personal chambers of the late Satya Sai Baba were opened recently at
Puttaparthy in Andhra Pradesh. There are a lot of discussions going on in the matter whether
the money found at Satya Sai Baba’s Ashram at Puttaparthy is accounted or unaccounted money.
Only sincere investigations undertaken by the government in this matter can find out the exact
truth. This is one example which has come to light and many more are still likely to exist
running this fraudulent business simply because such institutions had been exempted to submit
the reports of their income and expenditure. It is feared that a lot of tax evasion is taking place
at the religious, social and educational trusts throughout the length and breadth of the country.
(viii) Foreign Banks are Havens for Tax Evaders: Foreign banks especially the Swiss Banks
which do not disclose the particulars of the account holders have become a safe haven for
the people who want to hide their income without paying the taxes. There are different
versions by different sources as to amount of the black money stashed in Swiss Banks.

Example: As alleged by Baba Ramdev during his agitations against black money, the
amount of black money stashed in the Swiss banks ranges between ` 50–75 lakh crore of rupees.
(ix) Prohibited Trades: Important source of unaccounted money generates from illegal activities
like large-scale smuggling of gold, diamond and numerous luxury products and drug
trafficking leads to tax evasion.

3.3.3 Impact of Tax Evasion

The impacts of Tax Evasion are as follows:
(i) Country’s Economic Growth: The biggest impact of tax evasion is that it halts the country
GDP growth due to lack of funds from government. Government earning is depends upon
the tax revenue. If the public will not pay the tax to government, Government cannot fund
to particular sector which needs the funds for their better operation. Due to lack of funds
government force to have taken loan from World Bank or other’s countries, which will
increases the burden of foreign debit on the government.
(ii) Increase the Inflation: The inflation rises while the black money circulates in the market.
The price of eatable/others goods are increased to supply of that black money and less
production of things in the market. So people which have that money they offer more
price in the market. As compared from other person in the market. Higher inflation has
affected middle and poor class families very badly. Since high amount of cash in limited
hands has increased the purchasing power to that limited people and hence resulted in
growth of market and prices.

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