Herald: India – A tax haven

India – A tax haven

12 Nov 2018 04:00am IST
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12 Nov 2018 04:00am IST

To search for a tax haven to free yourself from tax burden, you need not have to go to Bermuda, Isle of Man, Cayman Islands, Dubai, Switzerland, Mauritius or any other country. It is just right here in India where we are living, hidden in various sections ofour Income Tax Act, 1961.

Till early 70-80’s, India was one of the highest taxedcountries in the world. An enterprising tax payer was confronted and cornered like a rat on all sides with various types of taxes. On income earned,there was income tax at rates as high as 92%. On spending, there was expenditure tax.If he tried to save, there was annual charge by way of wealth tax upto 7% on all movable and immovableproperties valued at market price.He was liable togift tax upto 15%, if he tried to be generous and philanthropic. Even after death his soul was not allowed to rest in peace.There was Death Tax called Estate Duty as high as 85% over Rs 20 lakh calculatedon the market value of the assets. Many heirs had to sell their assets to meet their estate duty liability and live like pauper.

As a result, persons in highest tax brackets had to pay taxes of more than 100% on income of Rs 100 by way of income tax and wealth tax. In case of death of a wealthy tax payer, his family would become paupers after paying estate duty. This gave rise to a special breed of tax experts to show ways and means to avoid taxes by hook or crook under the guise of tax planning. This drove manyIndians, to becomeexperts in avoiding, evading and cheating the government in legal and illegal ways.There was a parallel black marketeconomy. Ill-gotten wealth was either stashed abroad and routed back to India through dubious means or invested in under-valuedassets or spent lavishly.This streak among Indians continues even after reductions in tax rates.

Since nineties this picture has gradually changed. Estate Duty is abolished wefMarch 16, 1985(which still existsin USA and many developed Countries). Gift tax is done away with effect from October 1, 1998. Expenditure tax is removed. Wealth tax is scrapped from April 1, 2016. The income tax rates are gradually reduced from 92% to just 30% with plethora of reliefs, exemptions and deductions. 

Chapter VI A of the Income Tax Act, provides for deductions from gross total income throughsections 80C to 80U which having exhausted all alphabets of English language, had to repeat the sametwice or thrice followed by numericals such as 80CCD(1), 80TTA etc to cover various deductions available to different entities, incomes and different sets of transactions. In this listing,individual tax payers are covered u/s 80C(LIC premium, PPF etc), 80CCC(Pension Funds), 80CCD (1)& (2) (New Pension scheme), 80D (mediclaim), 80DD(Treatment of dependents), 80DDB (specified diseases),80TTA(bank interest),80E(education loan),80U (Disability)etc.Interest paidon housing loan is tax deductible, so also profit on sale of any capital asset after 24/ 36 months is subject to deductions by making investment u/s 54 (residential house property), 54EC(Government Bonds), 54F(residential house property).

In addition, the Income Tax Act provides a plethora ofwholly exempt incomes on which you do not have to pay a single rupee tax even if you earn in millions. This is enumerated in section 10 of the Income Tax Actwhichhas hundreds oftax free incomes through its various sections, sub sections,clauses, sub-clauses, proviso, proviso to provisos, Explanations and Explanations to Explanations.From the maze of these sub-sections, I have picked a few which are generally applicable to common individual tax payers. There are more.Adventurous tax payers should look for this treasure hunt.

A few wholly exempt incomes on which an individual tax payer does not have to pay a single rupee as tax even if he earns in crores:

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Agriculture income from cultivation of crops,vegetables, fruits coconut, areca nut, cashew,fruit plantations; other income from agricultural land and farm house..Income from nurseries for samplings, seedlings, flowers, plants, mushrooms etc.

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Interest on Public Provident Fund, Recognised Provident Fund with interestrate of 7.8% to 8.7%. In addition, these deposits are eligible for deduction U/s 80C.

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Dividends from Indian Companies, now subject to limits.A few companies haveconsistently given dividends every year over 1000%.

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Dividend from Units of Mutual Funds is tax free in the hands of investor with dividends ranging from 300% to 500% and even more.

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Interest on tax free bonds issued by Public Sector Companies like NTPC, Indian Railways, National Highway Authority (NHAI), REC etc. carrying interest of about 8%.These are available on stock market.

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Interest on deposits under Sukanya Samruddhi Scheme in the name of Girl child with Interestaround9per anum along with benefit of 80C. 

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Profits earned on Companyequity shares sold after one year orunits of specified mutual funds redeemed after one year to book appreciation in stock markets. 

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Interest on NRE and FCNRdeposit accounts by non- residents.

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Amount received under Life Insurance Policy including bonus during lifetime or after death.

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Any amount of gift received on the occasion of marriage.

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Gifts received from specified relatives without limits.

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Share of profit from the partnership firms.

By taking benefit of above tax provisions, one can live a rich, happy, peaceful and fearless life withoutresortingto any tax evasion or avoidance and be a Good & Honest Citizen.

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