Which one of the following effects of creation of black money in India has been the main cause of wo

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UPSC Prelims is a competitive examination conducted in India. This question is from the 2021 UPSC Prelims Economy paper.

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Question

Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?

Accepted Answer

Correct Answer: D — Loss of revenue to the State Exchequer due to tax evasionStep-by-step Solution:Black money refers to income that is hidden from tax authorities, either from illegal activities or legal but unreported income (e.g., cash transactions not recorded). The primary concern for the Government of India is the loss of tax revenue. When income is not reported, taxes (income tax, GST, etc.) are evaded, reducing the government's fiscal capacity to fund public services and infrastructure. Options A, B, and C are consequences or channels of black money, but the main worry for the government is the direct loss of revenue. ✓Why other options are incorrect:Option A (Diversion to real estate): This is a consequence (asset conversion) but not the primary governmental concern; the core issue is tax evasion.Option B (Investment in unproductive assets): This affects the economy but is secondary to revenue loss.Option C (Large donations to political parties): This is a specific channel; again, revenue loss is the fundamental worry.Key Concept: Black money undermines the tax base, leads to budget deficits, distorts economic decisions, and fuels corruption. Government measures to curb black money include: Benami Transactions (Prohibition) Amendment Act, 2016; Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015; GST (formalisation); demonetisation (2016); mandatory PAN for high-value transactions; and cash transaction limits.

Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?

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Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?

Master UPSC Prelims with Our Test Series

More Questions from Taxation – Direct & Indirect Taxes, GST

Frequently Asked Questions