Taxing Times
Talk of taxes makes us run the other way. As we get ready to file our individual tax returns, we often worry whether we have added all the income and taken into account all the deductions so that we do not underpay on the one hand or fall foul of the IT department, on the other. Is there a possibility of overpaying? How should you cross check your tax computation? E-filing (compulsory for several categories of taxpayers) works fine, if you understand the process. It is undoubtedly better than standing in a queue at the I-T office, to submit your returns. Moreover, e-filing at I-T department’s website is free. Instructions are available for each ITR, but it cannot ensure smooth filing. We have put together a comprehensive guide that will help you through your tax filing process. Our Cover Story on taxation will help understand how your financial data translates into tax liability or refund calculation. 
In her Different Strokes section, Sucheta analyses the maiden Budget of the Modi-led government and questions whether the new government is moving along the direction it had promised before the elections. The government surely has got a lot of cleaning up to do. In her Crosshairs section, Sucheta writes about the weak regulator, the Forward Markets Commission, and suggests that a government, which has promised good governance, may want to set new rules. 
Ponzi schemes lure people with the promise of high returns and manage to garner a few thousand crore rupees each. Sucheta mentions that the government should keep this in mind before it allows itself to be influenced by those who are lobbying for legal protection for MLMs and chain schemes. 
It is with deep grief that I share with you the news that our colleague, Abhishek Rajak, died in a tragic railway accident on 17 July 2014. We have lost a wonderful, hard working colleague, who was always smiling, always ready for challenges and on the threshold of life. Words cannot describe our loss. We will miss him everyday.


Why Are We Crazy about Buying Houses?
Among the major asset classes are equity, debt, real estate and gold. Let’s examine real estate—its merits and demerits from an investment perspective.
In India, you can invest in real estate via: 1. house/flat/villa, etc; 2. plot/land; and 3. commercial property. Let’s save the first category for the last. Let me explore the first two. Land, as an investment, suffers the same demerits as gold. It doesn’t generate any income (unless it is used for agriculture). All you get are capital gains. Valuing land on the basis of price is not easy and don’t forget the liquidity. It is also a big-ticket investment and, hence, your point of entry and exit matter a lot (you can’t SIP it either). Plus there are no tax benefits. All points considered, it is not a great investment.
On the other hand, commercial property does provide a regular continuous income. But it is again a big-ticket investment with closed doors access to neta-babus. In my city, almost every mall/office has the backing of a politician. They are able to get access to plush land at throwaway prices. Even if a common man manages to get a piece in it, he should have the time and resources to manage it. 
Again, there are no tax benefits. In addition, rental income can fluctuate, based on the prevailing environment.
This brings me to the final option—owning a house. People buy houses for two reasons: 1. either to live in them; or, 2. as an investment. If one buys it to live in, it doesn’t matter how much one shells out. I prefer to treat it as consumption. When I say consumption, it also implies that it can be deferred. It is a trend in our country that once a person starts earning, the next goal is to buy a house—all everyone sees is the tax benefit tied to it, the status symbol, the money drained in rent, etc. Little thought is given to investing in other assets, or building a corpus for other goals, EMI burden, etc. I think the priority after getting a job should be to build a corpus with various goals like house, car, marriage, etc. 
Once you have a good corpus, you can make a down payment and, perhaps, even be left with a buffer. This should be the time to buy a house and enjoy the hard-earned savings.
In case one is buying a house as an investment (to buy in early stage and sell when ready to occupy or buy and sell in few years), one is settling for average returns. Consider this; if the house quotes a price, it has the price of the materials/labour/equipment used to build the house built into it. So you can think of it like the price of a house includes the price of cement, steel, land, labour, tiles, sanitary ware, electrical wiring, plumbing, etc. This also implies that the price of the house does not just reflect the price of individual components; it also includes a profit margin for each of the entities involved. To make it clearer, when you buy a consumer product like soap, chocolate bar, etc, it contributes a certain percentage to the profit of the entity manufacturing it. Similarly, when you buy a house, you are contributing to the profit of each entity whose goods/services are used in construction. You become part of an investment chain (similar to the food chain) where each person earns a profit. 
A home-buyer (investor in this case) is the last entity and is probably paying the highest price for the asset, as profits of earlier links are built into the price. Even if he manages to sell the house for a decent profit, he could have earned a better return if he was higher up the investment chain.
With the help of hindsight, we can prove this. In the past five years, the real estate market has been muted. But do names like Havells, Kajaria Ceramics, Cera Sanitary Ware, Astral Polytech, Somany Ceramics ring a bell? While one could also say the opposite of this by investing in, say, DLF (a colleague of mine was about to invest in this company instead of buying a house), Unitech, cement companies, steel companies, etc, the point is: by trying to invest in real estate, we are opting for sub-optimal returns, as we are the last link in the chain. Real estate loses on all fronts—liquidity, taxation, transparency, etc. 
Some people like to club tax benefits and the realised gains to show the total gains in an asset (for example, SBI’s tax-saving FD quoting 17% yield). I think this is a flawed model. Income saved by investing in tax-saving instruments is not my return. It is my own hard earned money. Let’s just call it saving—not returns. And seldom are we able to invest these savings—we consume them as part of monthly pay-cheque. Even if one manages to invest these savings, we can’t decide on the expected rate on return. It depends on various factors. Similarly, tax benefits from a home loan are not my return. In fact, as your tax bracket increases, a self-occupied home on an EMI and an almost equal HRA amount equalise each other. If one is, indeed, keen on saving the tax to the maximum, he should let it out. You can claim a 30% deduction on the rent before paying tax on rental income and enjoy deduction on the entire EMI interest. 
Among other points that make me averse to invest/buy (consume) property are: involvement of black money, bribes for registration, maintenance of the property, etc. But the major point is big-ticket investment. I don’t know if this is good or bad, but I just can't think of investing/saving lump-sum. The very idea of keeping aside some money every month and then making a purchase is uncomfortable for me. In the process, I might dip occasionally into my savings and deplete them. I rather like the periodic investment approach, as far as possible, in whatever asset class.
I sometimes wonder why Indians are crazy about buying houses. You see, the best things are never advertised or preached. No one tells you in school or college the importance of investment, or the importance of equity in wealth creation. 
Similarly, you don’t see advertisements for term plans, health insurance, or top-performing mutual funds. Instead, you see ads for colas, water purifiers, toothpastes, chocolates and what not. If this is true, don’t advertisements for flats imply the same? Is it really an investment? Or are we just a consumer? And if real estate is really an investment, why is someone selling it to me? Why not invest yourself and get rich? In the end, it is no different from any other consumer product; for the builder it is a business.  
Pravesh Pandya, by email
Luring unsuspecting people
A couple of weeks ago, I received an invitation on Linked In from an individual whose profile read as deputy chief operating officer of a company in Chennai. As is the norm, I accepted the invite. After a few days, the person sent me an email asking me to leave my contact details with him as he wished to speak to me regarding a potential opportunity. I presumed that he was talking about a future opportunity so I did not flinch from sharing my details with him.
A few days later, this gentleman called me and told me about a potential opportunity from which I could earn additional income and that the effort was being steered by a group of individuals from IIMs and IITs. Being a cerebral guy, I was thrilled. I thought this may be an opportunity to get additional income by doing something creative (like management consulting, writing a book, etc).
On the scheduled day (it was a hot Sunday afternoon), I met this individual at the spot that we had agreed to meet. He picked me up from the bus stop in his car and led me to a venue where about 25 people seated in the dining room of a bungalow.
Within a few minutes, an IT geek, calling himself a product of Great Lakes Institute (Chennai), introduced himself and spoke at length about job losses, need to earn additional income, etc. To give the devil his due, he was articulate and made sense when he spoke to all of us. After about an hour, the penny dropped, as one of their team members started displaying Amway products one by one.
I had to excuse myself from the meeting and expressed my disappointment to my host. I told him that since he had mentioned about IIT/IIM graduates, I thought it was an academic opportunity. But my host prevaricated in giving a reply.
Through the columns of Moneylife, I request all readers to be careful while accepting Linked In invites and also whenever someone calls you offering an opportunity for earning additional income. Do insist on getting the full details. The modus operandi of most of these people is that they never tell you about it in the beginning. So, you end up wasting your time and money on a multi-level marketing scheme that you may not be interested in. This is one more example of how social networking tools are being misused.
G Venkatesh, by email
Penalty for enterprise?
This is with regard to “CSR Needs a Re-think” by Sucheta Dalal. Compulsory CSR is the refuge of a bankrupt and immoral government. Paying extortionist income-tax itself is more than enough to give back to society. With enough indirect taxes and income taxes, CSR is a penalty for efficiency and enterprise.
Wonder if prime minister Narendra Modi and his RSS team will have the courage to roll this back?
R Balakrishnan, online comment


Why scam mails in the name of RBI are fooling so many people?

Those who are aware about the modus operandi of such scamsters tend to blame it on the greed and ignorance of victims. It is time for policy makers to stop blaming people and do some thinking on putting an end to these scams


The deluge of e-scams that are ensnaring Indians everyday, suggests that we have become a soft target for such fraudsters. While those who are aware of the modus operandi of such scamsters tend to blame it on the greed and ignorance of victims, it is probably time for policy makers to stop blaming people and do some thinking.


Not a day passes without a new variation of fraudulent e-mails in the name of RBI governor Raghuram Rajan. The latest is to offer NEFT transfer of funds (see image below) - a telephone fraud – or what bankers call ‘vishing’ (like the email fraud which is called phishing). The Mumbai Mirror reported one such case on 20th July in Mumbai, where conmen posing as RBI officials got a couple of youngsters to part with their PIN number claiming to make income tax refunds directly to their accounts!


Does this indicate that Indians have become soft targets for such scamsters? We think so. It has happened because of three factors. On the one hand Indians are savvy enough to adapt to technology very fast, which is normally a positive. On the other hand, extremely poor financial literacy combined with the government’s push to force people to e-reporting and e-filing platforms, without making the time and effort to enhance awareness about the downside, makes fraud in the name of the IT department and the RBI easier to pull off.  



That people fall for the scam only indicates that people are not even aware of the role and function of the RBI. It also explains why engineers in leading technology companies fall for these scams.


Adding to this mess is the fact that government organisations are largely inaccessible, because they use e-mail mainly for one-way communication from them to the people and never to respond to queries. The RBI and other organisations also configure their email servers to throw out all emails with attachments over 1MB. This makes it impossible even for activists like Moneylife Foundation to warn them about new emails generated in their name so that corrective action is initiated swiftly. All nationalised banks have a strong technology department to identify phishing emails and block every new attack. Since our emails to the RBI keep bouncing, we have no idea whether the RBI works actively to block new phishing attacks in its name.


What it has done instead is to adopt a couple of easy options. Governor Raghuram Rajan’s email signature carries a warning about phishing attacks. It reads...



The RBI also spends money on warning advertisements. However, in our experience of meeting people over hundreds of seminars and workshops conducted by Moneylife Foundation (a not-for-profit sister entity) is, that financial literacy cannot work with sporadic advertisements from regulators. It has far more impact if financial literacy is imparted in a serious and systematic manner with an explanation of how scams work and their financial consequences.


Making the nation financially literate or even more careful is a herculean task, but a little nudge from the RBI to corporate CEOs would go a long way in ensuring that this becomes a part of the awareness training for all employees.


You may also want to read...


RBI offering unclaimed funds through lottery? Beware, scamsters are on the prowl again


Another 'lottery scam' email with new RBI governor's name


When lottery email scam turns into murder!


RBI governor latest victim of scam e-mail


RBI Cautions Public Once Again against Fictitious Offers




shadi katyal

2 years ago

The sophistication these fraudster has adopted mislead the greed of our community. What can and how any Govt can do to save such greedy people.
Nigerian scammers openly operating in India while living or visiting India but people want to become rich overnight.
In USA some scammers do a better job by threats etc.Most of these call NRI and mode is simple. This is office of investigation and looking into your past due taxes, traffic tickets, county taxes etc and this to notify you that warrants of your arrest are on the way etc. thus shaking the person or will leave message on your phone to call certain number. They cajole and threat same time and will ask for immediate payment before they can stop such court orders. They even guide you where to go and get the payment card and read the numbers while the party collects the cash immediately and one cannot trace anything due to cyber world. We have read such cases.
I hve had 3 different calls and have just hung up been called back telling me line got cut etc so when will I pay and my reply is let the warrants be served and goodbye as I need not worry. The person on other side represent as attorney etc.
It is greed and fear of being arrested which makes people pay
It is a business of Billions and we are foolish to even listen to such calls.
In India new papers and media should not publish such adds. IGNORE SUCH LETTERS OR PHONE CALLS Be smart and trade will die.

Yerram Raju Behara

2 years ago

RBI has been repeatedly announcing in all language dailies and in all its communications that they would never seek such information from any client/customer. If people lend credence still to such communications it is their greed that is the driver of such frauds.

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