Hiding Tax – Why it is tough now, honest will be rewarded.

are you hiding tax? then this article is right for you to read, and how will the honest be rewarded?

I have seen so many people avoiding tax and cheating the income tax department with wrong information.

But this will not last for long.

Very soon, your insurance premium, school, and hotel bill are coming under the Income-tax Department Scanner.

In addition, some other high-value transactions will also be coming under the I.T. scanner.

This is really a good move and will benefit the nation and honest taxpayers.

and the tax avoiders will be punished.

The list of high-value transactions to find out income tax avoiders (those hiding tax)…

All the good and service providers should report directly to the Income Tax Department about high-value transactions as per the 2016 Notification by the Government of India.

However, with new norms, purchases of shares, mutual funds, term deposits, immovable property, and sales of foreign currency should be reported to the income department in a prescribed format (61A).

A list of high-value transactions is…

• Investment in Financial Securities

• A company should report if a person buys more than or equal to 10 lakh worth of bonds in a financial year to buy bonds, debentures, or units of a mutual fund.
• But it does not include switching of funds from one fund to another.

    * Deposits in Current Account…

*  If your deposits or withdrawals aggregated is more than 50 lakh in a financial year, including all your current accounts, then the banks has to

the IT Department.

• In addition, any cash payment for 10 lakh or more for the purpose of demand drafts, etc. also should be reported to the IT Department.

• Term Deposits in Banks…

• Banks must report to I.T. if a person deposits 10 lakh or more in a term deposit (aggregating all deposits in one or more accounts) in a financial year.
• However, if the person is renewing his old deposit, then reporting is not required.
• In addition, this reporting rule applies to the post office term deposits also.

• Credit Card Payments…

• If you make a cash deposit of 1 lakh or more for paying credit card bills in a year, this transaction will be reported to the I.T.
• In addition, NEFT and cash payments of more than 10 lakh also should be reported.

• Immovable Property…

• The registrar has to report about the purchase or sale of properties whose value is more than 30 lakh to I.T.

• Bank Cash Deposits…

• If you deposit cash of 10 lakh or more in one or more accounts in a Financial year, banks have to report this I.T
• In addition, term deposits and current account deposits are also applicable.

• Professionals…

• Professionals also should inform I.T. if they are accepting more than 2 lakh for selling goods or services.

But recently the Govt. of India added a few more transactions to the above list, which have to be reported to the Income Tax Department.

• Purchase exceeding more than 1 lakh of Jewelry,  painting, marble, etc.
• Rental payment of more than Rs. 40,000.
• Educational fees/donations, which are more than 1 lakh in a year.
• Domestic Business Class air travel/foreign travel
• Electricity usage of more than 1 lakh worth in a year.
• Deposits more than 1 crore in the current account.
• Payment to hotels more than Rs. 20,000.
• 2 lakh or more expenditure on foreign travel.
• Deposits/Credits in a current account that are more than 50 lakh.
• Deposits/Credits in a non-current account that are more than 25 lakh.
• Life Insurance Premium of more than Rs. 50,000.
• Health Insurance Premium of more than Rs20,000 per year.
• Sale of foreign exchange, which is more than 10 lakh.
• Tds on withdrawal of more than 1 core.
• Tax deducted at source on withdrawal of more than Rs 20 lakh for non-taxpayers.
• Tds on e-commerce suppliers.
• TCS on purchases exceeding above 50 lakh of goods aggregated.
• The tax collected at source on motor vehicle purchase exceeding 10 lakh value.
• TCS on foreign remittance LRS scheme exceeding 7. 5 lakh on overseas packages.

However, the above list is for proposed transactions; the notification is yet to come.

Is hiding tax really beneficial to you?…

Why do people avoid paying tax?…

People think that paying taxes is a loss.

In addition, they think if the avoided tax amount is invested in various assets, they will end up accumulating more wealth in the long run.

Now, let’s discuss is right or wrong with an example.

If you are not paying taxes, then you can save or invest in assets like real estate and gold only.

where you can hide the unaccounted money.

But you can not invest this unaccounted money in financial assets like pdf, Bank FD, equity mutual funds bonds, post office, etc.

As you have limited your investments to assets like real estate and gold, then your overall CAGR will be compromised in the long run.

Do not argue with me that real estate and gold will give positive and constant returns every year.

Read this article about what happens to your “CAGR” if you get zero, low, or negative returns.

In addition, your investment in any asset may give a positive 20% and a negative 20% in another.

Real estate and gold also give returns that are volatile.

Now, let’s see two scenarios…

Scenario 1) Hiding the tax and investing in real estate and gold only…

In this case, as you have invested only in a few assets, your overall return (CAGR) will be below.

Let’s assume that you got an ROI of 6% per annum on the 1 lakh unaccounted money.

In addition, you have invested this 1 lakh for a period of 30 years in a combination with real estate and gold at a 6% ROI.

 

You can see in the above image and chart that the 1 lakh invested in a combination of gold and real estate in 30 years became Rs. 5,41,0000.

Scenario 2) Not hiding tax and investing assets like equity and bank FD along with real estate and gold…

Let’s assume that in this case you have paid Rs. 30,000 tax on 1 lakh and invested a balance of Rs. 70,000 in more assets (equity, etc., along with gold and real estate) at an ROI of 8% for 30 years.

 

You can find from the above image and chart that you will end up accumulating Rs. 6,52,000 in 30 years if your investment gives 8% ROI (CAGR).

In addition, you can find that you have accumulated more than 1 lakh wealth than that you have accumulated with unaccounted money investing in real estate and gold.

Moreover, this happened as you were able to diversify your investment across assets such as equity, real and bank FD and gold, etc.

 

You can see from the above image that the future value of a Rs. 70,000 investment crosses the future value of a Rs. 1,00,000 investment in around 22 years with just a 2% extra return.

In addition, for honest taxpayers, the Government of India is planning to launch a charter of taxpayers.

You will be respected and will be given priority in availing a few services for being loyal to the nation.

Conclusion about hiding tax…

 

Finally, hiding taxes and investing in real estate and gold is not at all beneficial to you.

So, it is a wise thing to start paying full tax and enjoy higher returns on your investments and also a charter of taxpayers’ benefits.

Read Why real estate is a bad investment.

Also read About DTAA—to Non-Resident Indians.

In addition, read about different types of loans in India.

And read about 5 interesting facts about the Sukanya Samridhi Yojana.