7 ways to stay away from black money, 3rd one is fool-proof
On Monday when the Centre revealed the names of Indians with bank accounts in Switzerland, a customary call to a chartered accountant made sense. Straight up, the question was how to make sure that a person be financially healthy and disciplined, without having back-of-the-mind worries of the tax man knocking on the door. Here are seven steps toward a corruption-devoid, black money-free bank account. A caveat: these are only for general information and may vary on a case-to-case basis. Again, for your case, step No. 3 may be the best to follow.
1. Knowledge is the first deterrence. Be aware of at least the primary tax laws and rules of your country. There’s no harm in staying out of harm, or in defining what is declared and undeclared income. A basic understanding of Income Tax Act and Income Tax rules can save you a lot of trouble. For any query, Indian tax laws and rules can be easily accessed at – www.incometaxindia.gov.in
2. Come tax season, the mere act of filling returns as per Form 16 and thinking all is in the clear may not be enough. Form 16 itself is not the sole embodiment of tax returns or the transactions you have made in a financial year. Form 16 provides details only of the tax deducted by your employer from your salary and is useful in filing your income tax return, but it does not provide details of other sources of income besides your salary.
3. Always consult a certified chartered accountant, an approved tax-return preparer or an income tax advocate before you file income tax returns. Through just this one step, a taxpayer need not be afraid of scrutiny of bank accounts and also cover all sources of income, at one go.
4. Remember that all transactions made by you whether cash, cheque or credit card payments are traceable. Investments from, for example, fixed deposits, family pensions, income from shares, income that does not have tax deducted at source can all be traced back to the spender. Any spending from a source which has not been declared in return can land the taxpayer in trouble.
5. Many a times, the taxpayer does not declare cash income, but pays credit card bills, tuition, mutual funds, electricity bill, telephone bills , instalments with unaccounted money thinking it will not be traced. That is not the case. All transactions, bill payments, penalties, kids’ education fees, gift money can be traced. One must be able to justify all premiums, credit card bills and instalments, whether of home loan or insurance. The same applies for inevitable expenses like electricity, telephone bills, tuition fees paid with cash. This cash should be declared in the income-tax (IT) returns.
6. If the taxpayer is an Indian resident and has a global income, then it has to be declared in India at the appropriate place in income tax returns and all relief as applicable under Double Taxation Avoidance agreement should be claimed. An Indian resident’s accounts are liable to be scrutinised any time by the country’s tax authorities. In certain circumstances, foreign bank accounts and assets have to be declared in Income Tax return or the Income even if earned abroad may be subjected to tax in India. An information about the same must be provided to your tax consultant. Non-disclosure or non-accounting of the same in IT returns may land you in trouble.
7. Do not accept unaccounted-for or stray cheques or cash from friends, relatives and acquaintances or indulge in transactions, the nature of which is unknown or is not clear or is not documented. Friends or acquaintances may offer you cash in lieu of a cheque in return from you. Remember that even this act of helpfulness on your part can land you in trouble unless properly documented or disclosed. Any loan whether given or accepted or repaid must be in cheque. Also, as per income tax rules, one cannot repay or accept a loan of more than Rs.20,000 in cash.
