Question

UPSC Prelims 2021 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?

1. Diversion of resources to the purchase of real estate and investment in luxury housing
2. Investment in unproductive activities and purchase of precious stones, jewellery, gold, etc.
3. Large donations to political parties and growth of regionalism
4. Loss of revenue to the State Exchequer due to tax evasion

Answer (Detailed Solution Below)

Option 4: Loss of revenue to the State Exchequer due to tax evasion

Detailed Solution

Explanation:

Black money includes all funds earned through illegal activity and otherwise legal income that is not recorded for tax purposes. These funds do not enter the official banking system. It causes financial losses for the Central and State Governments as unreported income is not taxed.

Therefore, option (4) is the correct answer.

Relevance: The Standing Committee on Finance recently came out with its report on the status of unaccounted income and wealth both inside and outside the country.

Subject: Economics | Public Finance

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