MB#86: 𝙈𝙮 𝙀𝙡𝙙𝙚𝙧𝙡𝙮 𝙁𝙖𝙩𝙝𝙚𝙧 𝙏𝙖𝙪𝙜𝙝𝙩 𝙈𝙚 𝙏𝙖𝙭 𝙀𝙩𝙝𝙞𝙘𝙨 𝙖𝙣𝙙 𝙋𝙧𝙤𝙛𝙚𝙨𝙨𝙞𝙤𝙣𝙖𝙡 𝙍𝙚𝙘𝙤𝙜𝙣𝙞𝙩𝙞𝙤𝙣.

[MemoirBlogthon #86] For my father, a retired superintending engineer, paying his fair share of income tax was a lifelong priority. When his self-acquired property was sold in 2012, his first step was not distribution but meticulous compliance. This blog details the rigorous process of seeking counsel from both a tax advocate and a chartered accountant to analyze three complex options for handling the capital gains, ensuring neither he nor his family would face future tax problems. The key lesson lay in his instruction: professionals were hired not to manipulate or evade, but to accurately determine the dues. The final reaction of the CA—surprise at his client’s absolute honesty—affirmed the powerful moral legacy: Never avoid tax payable to the government.

MB#86: The Income Tax Assessee of Integrity.

A Routine of Responsibility: Pension and Professional Counsel 📝

For my father, a long-serving government officer, being a regular income tax assessee was an integral part of his identity. Paying tax was his priority, a routine that continued even after his retirement in 1983. Until he became a super senior citizen, exempted from filing in one assessment year, his annual routine included obtaining his life certificate for pension and compiling his tax return with the help of a professional.

When his self-acquired property was sold in 2012, generating a significant amount in sale proceeds, his first priority was not to distribute or spend the money but to fully comply with all income tax rules. He advised me to locate two categories of professionals, an income tax advocate and a chartered accountant, to seek their respective opinions on the complex capital gains implications before he made any financial decision.

The Advocate's Opinion: Three Complex Options 👨‍⚖️

My father prepared a comprehensive letter to the tax advocate, outlining three options for handling the sale proceeds (all involving a significant amount):

• 1. Option 1: Direct Sale and Retention. Sell the property himself and keep the entire sale consideration for future investments and use.

• 2. Option 2: Sale and Subsequent Gift. Sell the property himself, pay the tax, and then gift the balance cash equally to his wife and three sons.

• 3. Option 3: Gift Property, Then Joint Sale (Preferred). Gift undivided shares of the property to his sons and then allow them to execute a joint sale to the buyer, retaining a share for himself.

The Tax Advocate, after thorough review, advised against Options 1 and 2 due to the high tax liability involved in gifting cash that had already accrued capital gains. He strongly recommended Option 3, with modifications. He correctly pointed out that gifting a share to his wife would lead to the income being "clubbed" in my father’s hands. The modified plan involved gifting one-fourth undivided shares to the three sons and retaining one-fourth share for himself, allowing all parties to claim applicable exemptions by investing their respective shares in Capital Gains Bonds or acquiring new residential property.

The CA's Verdict: No Manipulation, Just Compliance 💰

Similar questions were put to the chartered accountant. The CA provided a provisional computation of the capital gains and the resultant tax liability (a substantial amount, based on the indexed cost of acquisition).

Crucially, the CA clarified several points that guided my father's ethical stand:

• --Senior citizens without business income were exempt from paying advance tax.

  
  

• --There was no option to hide pension or bank interest income; it must be disclosed.

  
  

• --One could distribute the consideration before paying tax, but only after keeping aside the full tax amount from the total consideration.

  
  

• --Executing an affidavit and transferring the consideration via Account Payee Cheques would be sufficient proof of donation to exempt the donees (wife and children) from tax on receipt.

  
  

My father’s primary advice to me before engaging either professional was vital: their services should not be used to manipulate the tax system to reduce or avoid taxes, but rather to accurately determine any dues payable to the government without concealing anything.

The Moral Legacy: Sincerity and Recognition 🏆

After the payment of the required tax was officially done as per the CA’s advice, my father transferred the contracted fee to both the Advocate and the CA, with an extra for their honesty and sincerity in guiding the process.

The professionals’ reactions validated my father's integrity:

- The tax advocate appreciated the foresight in structuring the transaction to ensure the children would not face any tax problems in the future.

- The Chartered Accountant was genuinely surprised, stating, "I have never seen in my lifetime any assessee of income tax who would ask for payment of full tax. There was not even a single attempt to ask me to manipulate. What a sincere and honest taxpayer!"

This entire episode taught me two vital morals:

1. Never avoid or evade tax payable to the government.

2. Acknowledge professionals with dignity and clarity, and pay a slightly higher fee than agreed upon, as they could potentially assist us in the event of any tax authority complications.

To further ensure compliance, my father appreciated my skill in drafting independent affidavits, which were useful at the time of filing the respective IT returns. This entire exercise enhanced my own knowledge, allowing me to confidently handle similar tasks for my clients later in my professional career.

MB#86: Quiz

MB86: Question: Which type of tax were senior citizens (without business income) specifically exempted from paying starting from the relevant financial year?

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• A. Capital Gains Tax.
• B. Advance Tax.
• C. Wealth Tax.
• D. Self-Assessment Tax.

MB#86: Quote

"The only thing certain in life is death and taxes." – Benjamin Franklin