Saturday, July 20, 2013

Tax - My perception and experience

I could recollect the memories of my Dad trying last minute tricks to save himself from getting taxed by buying KVP (kisan vikas bonds) and LIC. I recently figured that he started his first LIC at the age of 45 and that even was only to save some tax. After i started getting my own salary, in the initial years the tax wasnt too big to be worried as a monthly deduction. And i was too lazy to even submit the rent receipts. Infact, my expenses were so tight that i couldnt plan a monthly investment of 1000 even to save tax. My first LIC policy was taken after ~5 years after i started to earn, better compared to my dad though.
Tax basically is seen as a villain that anyone should elude from, it eased to some extent to me now though. Even in the movie 'Shivaji', there is a scene to explain the general public on why tax evasion is evil, which i couldnt comprehend when i watched then, felt explanation wasnt good enough. Basically the mindset is that all the money that is earned by an individual belongs to himself and asking for tax by govt is unfair. I dont even have to talk about return filing, though the agents kept kiosks every year at infy, i hardly submitted my form 16 to them twice or thrice and dint even care to get acknowledgement. I have no idea if they really filed my return. People now and then would shock and try to shock me as well on hearing me done no tax saving. But i convinced myself that i couldnt afford any investment at all. But even most people werent fully aware of all options except home loan. The most basic regret if at all would be that I wasnt even fully aware of the section 10 exemptions like HRA,Medical, LTA, Transport Allowance which were simplest to save some tax. If not for the default exemption calculation by the employer for Transport allowance, PF deductions and medical insurance deductions, i would have missed everything possible to save tax.
Turning Point: All my perceptions changed after my 2 yrs at chicago. Major credit goes to the internet and its penetration at US. As you all would agree, you can do almost everything sitting at home at US including the return filing. People there i know would yearn for return filing, wondering why? there will sure be great amount refund for every return filed and that refund on approval happens within a week or two. It was so systematized that the tax deduction every month of 40%(i guess) is comparatively easily digested while we scream at the 30% on 10L+ earners here. After doing the self filings of the return online at chicago, i came to realize slowly on what is tax and tax savings. Online filing sites guide you step by step putting questions and comments that help you understand everything in the process. Mind you there are also people who are dependent on agents still for filing, some of them did it on laziness but most of them did it to make the biggest refund possible, In any case I see that a loss for themselves in a way of either not understanding a tax or risking legal inquiries by tax authorities. Infact, i also understood about what is insurance be it for health or auto, especially health insurance is mandatory to 'exist' in US. until then I used to think that my 2 wheeler insurance in India was only to save myself from traffic police. I slowly realized that the tax that is paid comes back to you in so many ways like road, drainage, street lights ...etc. Though it is debatable highly on the come back of tax to common public in India, it is indeed the ideal concept of tax as i realize.
So after realization now on tax, is it a sin to save yourself from paying it? it is indeed a sin if you illegally try to avoid paying tax but it is also a sin to not exploit the deductions and exemptions provided by the government..Now having self filed my India IT Return online for the last 2 years, i seriously feel good. Hope that hard copy posting of acknowledgement to CPC is also gone soon....

I do have some questions on the allowed deductions like for example, the govt wants individuals to invest in stock market, but the 80C for me is already filled by my PF deduction and LIC. how would people come to invest in the risky stocks when they wouldnt even get tax deduction for that money? isnt the 1 lakh limit too small? Or is it the government is happy that such individuals would anyways pay 20/30% tax, so no worries if they dont invest in stocks?

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