This is a story of a small business family. The patriarch, leading a big joint family that comprised of his two younger brothers, their families and his own family. They had individual Income Tax Return file for each adult member. Three HUFs (Hindu Undivided Family) files. And, they would eagerly await members turning to 18. The accounts were meticulously managed to ensure that zero tax or at best only a minimal tax is paid to the government.
In many business families the money circulates in the business, with limited liquidity at times. The family had multiple properties in name of different family members. It was during one bad business cycle, one of the brother’s business was passing through tough times, he decided that he will start real estate construction in the plot of land that was in his name. Unfortunately, there was no easy liquidity available to develop / construct. He approached the banks to avail the loan. He was shocked that the clubbed income of his immediate family (wife, HUF and self) was only eligible for a small loan amount, no where close to the amount required to develop the property and sell them.
Similarly, one brother’s son wanted to go on a honeymoon to Europe. His own bank account statement wasn’t sufficient, his father had to support with a sponsorship letter for availing the visa.
These incidents led the family patriarch to re-think on his Tax Planning and Tax Filing strategy.
Few of the thing the family did right were:
1. Tax Planning – they were good at tax planning and tried leveraging every deductions & claims. A proper tax planning & filing enables one to take advantage of all the available claims & deductions.
2. Tax loss harvesting – Proper tax planning enabled the family to set-off capital gains against the accrued capital losses to save taxes.
3. On time Tax Filing – The timely filing of #incometaxreturns saves a penalty of Rs 10,000.
However, with the focus to save maximum taxes only, the family ignored few important things.
Ignored the bigger picture – The family built fragmented files and showed only limited incomes in each file. The myopic approach became a problem when they wanted to raise loans to build on their businesses. Paying the right taxes after proper planning not only makes one a responsible citizen enabling nation building but also helps in building one’s own networth as well.
This also applies to salaried people, to rightly file their income tax returns and build on their ner worth. This simple exercise helps in the following ways that the family missed out.
1. Loan eligibility – Increases your eligibility for loans & credit cards.
2. Visas – Seamless processing of Visa’s for international travels.
3. National Growth – The taxes collected by the government is used for the country’s development. Each brick towards building the country is equally important.
The point does not rest only for loans & visas. The income tax returns are important in helping build businesses, buying expensive assets such as luxury cars, the dream house, seeing the world and many more such things.
The right tax filing provides peace of mind and helps one enjoy their money because life is bigger than money. Consulting with a tax advisor can ensure that your tax filings are accurate.
