Money Wise: Don Ko Pakadna Itna Mushkil Nahin Hai

No one likes to pay tax. Yet, it is as ubiquitous as air and water and is practically as unavoidable. That hasn't stopped people from attempting to skim a little over the top. In my own interactions with a few, who have used perceived loopholes, however unwisely, to lower their tax outgo, I've heard several very interesting statements.

“Arre, this is a small amount. You think the government (tax department) has so much time on their hands,” one said. Another intoned, “This is legitimate! I even have the receipts.” And most of them have the air of the Bollywood character immortalised by Amitabh Bachchan and Shah Rukh Khan – Don – when he said, “Don ko pakadna mushqil hi nahin, namumkin hai!”

But, these taxpayers may be living on borrowed time. The tax department's hands were always long. Now, they're becoming more efficient. Over the past few months, over a lakh taxpayers have received one notice or the other from the tax department for a variety of reasons. These are e-mails asking a taxpayer to explain certain irregularities. Among them are credit card transactions that don't match a person's declared income, cash deposits, donations to political parties, and even capital gains from trading, which may have been wrongly categorised.

Chartered accountant Abhishek Mehta spoke to me this week on Money Wise and he pointed out the possible reasons why this may be happening. Of course, it is an increasing use of artificial intelligence and technology to sift through terrabytes of data – something the tax department didn't have access to in the past. Already, the annual income statement is a more holistic record of your financial activity in a year.

One interesting reason for notice stood out to me. If you buy a house from a non-resident Indian and fail to deduct tax at source, you're going to be answerable to the tax department. And the penalties can be quite severe. The rules state that if you're the buyer in this scenario, you are obliged to deduct 12.5% of the transaction value, not just the capital gains. I've come across at least one social media post where someone landed in soup for not doing this. The thing is, it isn't always the buyer's fault. It is possible that an NRI does not disclose that they are one. Giving them the benefit of the doubt, they could even be blissfully unaware. After all, the tagging of an individual as an NRI is based on the number of days they've spent outside the country in a given year. So what should you do? Mehta says, you should pay attention to the type of account you're being asked to transfer to. On a blank cheque, you will see whether this is a savings bank account or an NRE/NRO account. If it is the latter, you know the seller is an NRI.

Of course, you must always ask the seller about their status. After all, a tangle with the tax department is the last thing you want after spending as much as you probably will to buy your home.

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Updates From The RBI

There was no change in the interest rates when the Monetary Policy Committee of the Reserve Bank of India met this week. Instead, RBI Governor Sanjay Malhotra made a couple of announcements that are of interest to the average Indian.

One has to do with inheritance. The central bank will be standardising the process followed by banks to transfer money in bank accounts and the contents of a locker to legal heirs. This will likely lessen many headaches and will certainly ease a lot of heartache.

The second announcement was that the RBI would allow individual investors access to Treasury Bills in SIP or systematic investment plan format via the RBI Retail Direct platform. In case you weren't aware, Treasury Bills or T-Bills are government debt securities that mature in less than one year. They are the safest form of investment – even safer than your fixed deposit – because they have the sovereign guarantee.

But this may not find too many takers. There's no tax advantage or benefit to buying T-Bills directly. Instead, it's far easier to invest in them through short-term debt mutual funds.

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Until next week, happy reading!

Alex