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Fact, fiction and taxing times

An ‘amuse-bouche’ of basic answers to whet your appetite for deeper investigation into tax rules, strategies
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First Published: Fri, Jan 18 2013. 11 49 PM IST
Photo: Mint
Photo: Mint
Updated: Sat, Jan 19 2013. 12 46 AM IST
Calm down. Calm down, I tell you. CALM DOWN FOR SACHIN’S SAKE!
Yes, I know that the government is thinking of increasing tax rates, cutting diesel subsidies and secretly planning all kinds of other devious reforms to make you, the helpless salary-earning cubiclist, pay for its fiscal profligacy.
BUT PANICKING LIKE HEADLESS CHICKENS IS NOT THE WAY TO DEAL WITH IT. We can cope with this. We’ve coped with the Deve Gowda administration, we’ve coped with that whole Lotus Notes thing, and we’ve coped through that Mamta Kulkarni phase. If we cubiclists put our minds together, we can cope with absolutely anything.
Over the last one week, thanks to these swirling rumours of increased tax rates, I’ve been inundated by requests from readers. Having perused these queries and doubts, it gives me great displeasure to inform you that many, many cubiclists have no idea how the income tax system in India works.
Some of you have even asked such basic questions such as “Can I sell my house to my wife and then pay her rent in order to get HRA tax deduction?” (Answer: I don’t want to get too technical, but yes you can. Provided you have submitted your tax return in the preceding assessment year, or any assessment year not directly preceding a non-assessment year as mentioned heretofore in paragraph 7(b), as a Hindu Unified Family or a portion thereof not amounting to less than 55% in any subject and subject to medical tests. What is the purpose of your visit?)
People simply don’t know the rules and strategies. And knowing them is the first step to coping.
Today, therefore, I am going to get the conversation on tax rules and strategies rolling. I am going to do this in that classic format: “Fact or Fiction?” I am hoping this ‘amuse-bouche’ of basic answers will whet your appetite for deeper investigation.
Popular belief: We are currently in financial year 2012-2013 but in assessment year 2013-2014. So I should be filing taxes for this assessment year.
Fact or fiction: Fiction. In fact nobody really knows which assessment year we are in right now except for certain highly placed officials in the finance ministry. This information is usually only revealed at the very last minute, just as you are submitting your tax returns on the IT website. Thankfully the finance ministry has developed a fool-proof mechanism to alert you of any errors as soon as you file your returns: prison.
Popular belief: My company lets me lease a car from it instead of buying one outright. This can help me save lakhs of rupees in taxes.
Fact or fiction: Mostly fiction. When many cubiclists are presented with the idea of a car lease plan their eyeballs roll back in their sockets, they collapse to the floor, and writhe around in delirious delight.
This is not just the delight of owning a car. But also that of being able to save lakhs in taxes that they would incur if they buy a car in the usual way: approach a bank, falsify documents, visit a showroom, choose a car, order a colour—Whimsical Plum—that almost immediately becomes old-fashioned, take delivery, drive into the back of an auto on Wadala Bridge, hate yourself.
What they don’t see are the shackles that come with it. Now you can’t quit the company without losing your car, and you have to deal with the smug admin guy who thinks you owe him for your Skoda. Also, you actually don’t save a lot of tax.
Popular belief: Investing in tax savings certificates and infrastructure bonds not only make sound investment sense but is also the patriotic thing to do.
Fact or fiction: *Maniacal laugh*
This is how things would work in the ideal world. You decide to save some tax. So you go online, click a few buttons, enter a few details, and buy a whole stack of savings certificates and infra bonds. Five or 10 years later the instruments mature, the funds start rolling in and you go buy a shirt made of pure gold to wear on the weekends.
This is not how things work. In reality, you go to the post office at Connaught Place and haggle with some superbly shady agents who sell these certificates to you. The certificates, when you buy them, look less authentic than Monopoly money. Still you place faith in the government. You go and stash them away in the Godrej almirah. Two years before maturity in 2026, somebody, an enterprising child perhaps, will clean out the almirah and throw out everything: old bottles of Brut 66, old tins of Nivea, copies of Sputnik magazine, and all your certificates.
Meanwhile, the government has used THE MONEY FROM all your infrastructure bonds to build a massive statue of Manmohan Singh outside the Rashtrapathi Bhavan Shopping Centre in New Delhi.
I leave you on that uplifting note. I hope you will continue on this new journey of discovery. Plan wisely my friend, and no tax regime of any kind will take away the 17% that is rightfully yours.
Cubiclenama takes a weekly look at pleasures and perils of corporate life.
To read Sidin Vadukut’s previous columns, go to www.livemint.com/cubiclenama- -
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First Published: Fri, Jan 18 2013. 11 49 PM IST
More Topics: Savings | tax | HRA |