The friend of a mathematician saw him out of the office of a tax consultant. What are you doing here? asked the friend. The Professor replied, Arranging for them to do my income tax. You? The friend said You are a professor of mathematics, Do you mean to say that you cant file your own tax returns? Thatís right the professor repliue Its beyond the abilities of mathematician!
The example sums up how one ends up when it comes to Income Tax. In spite of your well planned investments sometimes you are caught in the maze of income tax laws and end up by paying huge taxes, penalties and of course interest on the amount due by you !
1. Importance of Transparency: First and foremost is to be open as possible. The maximum amount of tax you might save by evading is just 33% of the amount sought to evade.
Of you declare this amount you are able to invest the remaining 67% say in tax free return investments and enjoy seeing the amount grow. If unfortunately you are caught by the tax department say after four years (Department can open your file any time before the lapse of 16 years) you may end up by paying more than the amount sought to be evaded and lose your face. Maximum amount of returns you might have earned on your evaded amount during those years at say 15% would not be sufficient to pay the taxes, interest and penalty due. Thus it does not make any business sense to evade taxes, unless you want to compromise with your conscience leading to maladies unknown !
2. Maintenance of books of accounts: Once you are open, you have to prove to the authorities that by producing your books of accounts. The Income Tax Act insists on all professionals to maintain the books of accounts when gross receipts are Rs 60,000 or more. There is misconception that it is enough if the doctor maintains daily case register (Form 3) Doctors whether General Practitioners, Consultants, or visiting specialists have to maintain the following books,
A) Day Book showing daily receipts and expenses. B) Journal showing non cash transactions. C) Ledger showing details of transactions in a particular head of account. D) Bills & Vouchers in respect of expenses. E) Bills issued by you if the fees are more than Rs. 25.00
Maintenance of these books is not only mandatory but also proves the fact that returns submitted by you are not cooked up figures and are genuine transactions.
If your total income (Gross receipts minus expenditure relating to profession plus any other income) exceeds the tax limit you have file the return even though you need not pay taxes due to your investments in tax rebate investments. Such return is to be filed before the notified date.