India – A tax haven
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 of our Income Tax Act, 1961.
Till early 70-80’s, India was one of the highest taxed countries 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 immovable properties valued at market price. He was liable to gift 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 calculated on the market value of the assets. Many heirs had to sell their assets to meet their estate duty liability.
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 many Indians, to become experts in avoiding, evading and cheating the government in legal and illegal ways. There was a parallel black market economy. Ill-gotten wealth was either stashed abroad and routed back to India through dubious means or invested in under-valued assets 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 wef March 16, 1985 (which still exists in USA and many developed countries). Gift tax is done away with effect from October 1, 1998. Expenditure tax has been 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 through sections 80C to 80U which having exhausted all alphabets of English language, had to repeat the same twice 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 paid on housing loan is tax deductible, so also profit on sale of any capital asset after 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 of wholly 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 Act which has hundreds of tax 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.
