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Are You A Tax Cheat? Watch Out! - Outside View by PersonalFN

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Are You A Tax Cheat? Watch Out!
Jul 27, 2017

India enjoys a demographic advantage, but the irony is only about 3% of its working population pays income tax. Contrary to what tax collections tell us, there's no dearth of money in India. The investment accounts of "poor Indians" speak volumes. The records of property holdings and other assets are astonishing. In a country of 125 crore people and counting, about 76 lakh draw an income of over Rs 5 lakh, as per the existing records. Interestingly, consumerism is in a full swing, and India is one of the fastest growing markets for global airlines companies. Luxury carmakers have been reporting their highest-ever sales from India.

Are we a society of perpetual tax-evaders? Looks like it, doesn't it? At least, the present Government feels so.

Ever since it announced demonetisation, it's been chasing perennial tax evaders with focused efforts. Lately, the Income-Tax (I-T) Department sent SMS' to nearly 10,000 citizens who made huge investments (bought properties worth more than Rs 50 lakh or invested Rs 10 lakh in mutual funds), over the past two years but neither paid taxes nor filed returns.

The I-T Department has asked these citizens to come clean. Else, tax evaders are likely to face the music this time, if they don't fall in line. Comments of Mr Sunil Chandra, Chairman of the Central Board of Direct Taxes (CBDT) revealed their intent. Speaking about the SMS initiative of the Department asking tax evaders to disclose their income, he said, "If they don't, then we will take appropriate action."

"With the government going after black money hoarders, many people have voluntarily come under the tax net in the recent past and through data mining we are getting real-time information about all citizens who have made big investments but are outside the tax net" , he added.

Some citizens pay taxes because they are honest and want to obey the rules of land. While others discharge their tax dues fearing action if they are caught evading them. But a majority of tax defaulters don't pay taxes under the false-security that it will be tough for the I-T department to identify and prosecute them. And if they are caught, they assume something can be worked out.

The Government seems to be sending shivers down the spine of such citizens. Thrust on digitalisation post-demonetisation, use of data analytics and constant monitoring of big transactions is helping the Government fish in the shallow waters.

However, the question is, can it catch the sharks?

The I-T Department is receiving constant feed from the Financial Intelligence Unit (FIU) that allows it to keep a track of people who spend a big deal of money, but don't pay taxes or file returns.

Should you worry about such initiatives of the Government?

Yes, you should if:

  • You frequently go abroad, but do not pay taxes
  • You own high value assets and show disproportionately low income
  • You buy assets in the name of your relatives to minimise your tax liability
  • If you live a lifestyle that doesn't suit the income group you claim to fall under

What's the way out?

Swallowing a bitter pill once, for all diseases, is the best option. You should reveal all your income, pay the fine, file the I-T return, and become tax compliant. Doing so will make your life financially healthier and easier in the future. It will also save you from the embarrassment of being caught red-handed.

Living free of tax woes is a choice, and only 3% of Indians seem to be making the right choice.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "Are You A Tax Cheat? Watch Out!"

Kaustubh Chavan

Jul 27, 2017

Excellent article and findings! One of the best I've come so far on Equitymaster.

Like 
  
Equitymaster requests your view! Post a comment on "Are You A Tax Cheat? Watch Out!". Click here!

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