"The parallel economy has to be squeezed...and (it) has to be done in very fair manner, not in a harsh manner. In doing so, as senior officers you have to ... maintain the highest standard of integrity," he said while addressing a conference of top officials of the Central Board of Direct Taxes (CBDT).
The government, the minister said, has taken a host of measures to curb the menace of black money.
These include passage of the black money law by Parliament and introduction of Benami Transactions (Prohibition) bill to deal with unaccounted domestic wealth.
He further said that improvement in tax collection will increase the ability of the government to step up spending on social and infrastructure projects and provide relief to individual taxpayers.
For the current financial year, the minister said, direct tax collection was likely to improve by 14-15 per cent and there was possibility of government improving upon the fiscal deficit target of 3.9 per cent.
However, he added that the government would prefer to increase expenditure on social sector schemes instead of improving its fiscal deficit target.
On the new black money law which seeks to bring back the illicit funds stashed abroad, Jaitley said, "no honest taxpayer has anything to fear.
It's targeted only against those who have stashed assets abroad." "Black money has to be squeezed", he said, adding only those who have defied the system in the past and intend to defy the compliance window to come clean have to worry.
The objective is not to better fiscal deficit number, he said, adding, "...we want to increase expenditure because increased expenditure leads to growth."
"We would like larger revenue collections to be invested in areas of infrastructure, irrigation, in the social sectors to bring larger dividends back to the economy."
As regards black money, the Finance Minister said that several steps have been announced and the government would come out with more measures in future to squeeze the quantum of illicit wealth.
"There are steps which have been announced and some may be announced in future, with regard to squeezing quantum of black money.
"If the base increases, collection increases and those who have to pay taxation are compelled to pay it, the ability of government to give concession, in terms of rates to honest tax payers also increases," he added.
Observing that there are no grey areas in taxation, the Finance Minister said, "Either a tax is payable or it's not payable. If it's not payble no attempt has to be made to recover it but if it is payable then there is no scope for any other collateral consideration why it must not be recovered for the government."
The policy has to be "crystal clear" that nobody should be harassed, but the evader must not succeed, he said, adding "within the parameters of the policy we continue to do our job...a very unenviable job."
Government, Jaitley said, has already taken various initiatives on the taxation front which include roll out of the Goods and Services Tax (GST), reduction of corporate tax rate from 30 per cent to 25 per cent over the next four years and removal of exemptions to the extent possible.
As regards indirect taxes, Jaitley said, "The process of introduction of GST is on. A lot of work has been done, a lot of work remains to be done and we have only few months to accomplish the task."
Rajya Sabha recently referred the GST Bill to a select committee which is expected to give its report to the House at the start of the next session.
The government plans to roll out the GST from April 1, 2016.
On direct tax front, Jaitley said, "Our effort over the next four years will be to bring down the taxation to global levels and phase out the exemptions to the extent it is possible."
Efforts would also be made to expand the tax base and encourage non-filers to file tax returns, he said and added that individual taxpayers would continue to enjoy certain set of exemptions so that they could spend more and add to the economic growth.
"We are also trying to ensure that segments need a certain sets of exemptions so that we can encourage them to spend more. We should all be conscious of fact that even when we talk of expansion of the base, there are in-built limitations," he said.
"If 55-60 per cent of India lives on agriculture that's the number of families which are out of tax base. ...there are several initiatives which we have taken. Every advisor will tell you, tax base has to be expanded."
"I do understand that the CBDT is also working on simplification in many areas including the forms which will be a great asset to the taxpayer itself," the minister said.
Earlier, Revenue Secretary Shaktikanta Das said the Rs 7.98 lakh crore or Rs 7.98 trillion direct collection target for the current fiscal is "very much achievable and very realistic".
With regard to HSBC list on alleged black money holders abroad, he said all the assessment that had to be completed before March 31, 2015 have been completed.
The nuts and bolts of the new black money law
Black money laws are in place, but who will enforce them?
New black money law recreates inspector raj of yore