There is No Fate But What We Make: Converting black money to white

Wednesday, February 15, 2006

Converting black money to white

Like every body else, I have relatives who are agents of LIC. You know the kinds who call you up and peddle high-premium insurance policies. I met one such relative during a cousin's marriage. He claimed he could give me any policy without any medical checkup. Not to mention the usual 50-50 split of commission. The commission splitting is very common. I was more intrigued about the "no medical test" part. So I asked how it was possible to do that when LIC clearly needs medical documents for underwriting purpose. He explained to me that he can get medical documents arranged with no difficulties. I was like, "hmmmmm...". What came next was a shocker. He explained to me that most of his clients were businessmen who bought single premium policies - where the one time premium is in lakhs. Mostly as an investment - not for insurance. I advocate term policies to most people. So I was interested to know why many businessmen would buy single premium almost pure investment type policies. My relative explained to me the whole process of how many businessmen convert black money to white. Let's say they have a black money of 1 lakh. They purchase a policy of 1 lakh single premium. Now LIC doesn't care or check about the source of the income. So they issue the policy bond. Now the person can sleep at ease because if Income Tax officials do a raid, they won't find the money. However, there is the problem of the policy bond. That can be found by the IT officials. Solution is simple and ingenious. The businessman would take a loan of a small amount (say, a hundred rupees) from LIC. Now, LIC would take the policy bond as a collateral. So in effect, LIC takes care of the safe-keeping of the policy document. The tenure of the loan will usually match the tenure of the LIC policy. So at the end of term (say, 5 years), the businessman gets back the bond which he then uses to liquidate the original investment. Now this money is white as it is the maturity proceeds of an insurance policy. Since IT officials can only dig through three years of paper, they cannot question on the source of funds of the insurance premium. Neat, isn't it ?
Here I am - suggesting simple things like term insurance and mutual funds. So naive !!!

P.S - This is not an advice or suggestion for an illegal transaction. I pay my taxes and do not endorse anything illegal. Loss of sleep and risks are not an adequate compensation for the gain by tax evasion. Just don't do it.

P.S 2 - The story could be apocryphal. Even if it is true, I am sure the IT department is smart enough to have caught up by now.


At Monday, February 20, 2006 12:57:00 AM, Blogger Harsha said...

Are you sure that IT officials can dig back only 3 years? i've tried to find out info, but couldn't get concrete. i'm sure it is minimally 5 years, and somewhere i was reading that it could be 15 years.

but black money is black, the proceeds of lic can't be treated white since he fails to prove the source of income.

At Thursday, March 02, 2006 6:44:00 PM, Anonymous Anonymous said...,curpg-1.cms

looks like IT dept is waking up..

At Thursday, June 19, 2008 10:37:00 PM, Anonymous Anonymous said...

what is the other source of turning black into white mail me at

At Saturday, October 11, 2008 3:01:00 AM, Blogger rama said...

rif IT people ask the against which security , the loan has been taken from the lic of india, they can easily find that the assessee is having insurance policy and paying or paid the premium, the next step is, the source of income to pay the premium hence i think so it is not a correct method to follow, why i am saying this is black is black if the it people dig the history they can easily find what the actual seen.

At Tuesday, December 30, 2008 8:41:00 PM, Anonymous Anonymous said...

This comment has been removed by a blog administrator.

At Saturday, May 02, 2009 10:38:00 AM, Blogger Deenanath said...

The IT officials can easily make out the details of the LIC policy by the amount received by the person as loan from LIC against his policies, as the loan amount will be in the form of a cheque and not cash.

At Saturday, May 02, 2009 10:42:00 AM, Anonymous Anonymous said...

not sure what you meant.. yes, IT officials may know the proceeds are from an LIC policy. So what? The issue here is will the IT officials ask how the person had the original premium money (the money being converted to white) ? They probably won't as it was may be 15 to 20 years back.

At Friday, May 08, 2009 10:48:00 PM, Anonymous Anonymous said...

This comment has been removed by a blog administrator.

At Sunday, December 06, 2009 12:00:00 AM, Anonymous Anonymous said...

i am looking for investors to invest $40 million in a world class project. let me know if you have a party who has money

At Sunday, December 06, 2009 12:01:00 AM, Anonymous Anonymous said...

you can send me a direct email at for $40 million investment

At Thursday, March 04, 2010 1:32:00 AM, Anonymous Anonymous said...

IT officer have a wide powers.I think wont work coz permium money is paid in cash and the IT officer can easly find this.

At Wednesday, May 12, 2010 8:47:00 PM, Blogger joys said...

This comment has been removed by a blog administrator.

At Monday, August 30, 2010 10:27:00 AM, Anonymous Anonymous said...


At Tuesday, February 15, 2011 3:18:00 AM, Blogger Pranayeshwar Vashisth said...

Good !
It is a nice way of hiding the Black and keeping safe till it becomes white.

At Friday, May 30, 2014 12:22:00 PM, Blogger Pranayeshwar Vashisth said...

Now lic has taken some step to control such practice !


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