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Old 27th May 2012, 10:29   #31
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Default Re: Self-employed Professionals / Businessmen - Buy on finance or outright?

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4. Buying a 20 lakh - 1 crore vehicle outright will have the IT officer at your doorstep. Anything cheaper is okay.
I am self employed and planning to buy a 4x2 Yeti within the next 1 month and I hate taking loans. Its about 16L as you know. Do you think it would risk attention? Yeti is still not really an aspirational car is it and its well below 20L(4x2 version), it should be ok buying it without loans, right?

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Old 27th May 2012, 18:25   #32
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Default Re: Self-employed Professionals / Businessmen - Buy on finance or outright?

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I am self employed and planning to buy a 4x2 Yeti within the next 1 month and I hate taking loans. Its about 16L as you know. Do you think it would risk attention? Yeti is still not really an aspirational car is it and its well below 20L(4x2 version), it should be ok buying it without loans, right?
Its never a question which car you buy, once you are in the high rollers bracket (ie. 20 L + income shown in IT returns) you will be under the scanner even for small car money, on the other hand if you have filed returns of less than 10 L taxable income and end up buying 20 L SUV by full down payment, it is bound to raise questions, where did you get that money from, presumably not known to IT dept. So once you buy any car for that matter your PAN number is taken by the dealer and once the dealers accounts are filed the IT dept. normally picks up high value cars and cross verify PAN number with the returns filed under that number, puzzle solved for them!
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Old 27th May 2012, 18:32   #33
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Default Re: Self-employed Professionals / Businessmen - Buy on finance or outright?

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Its never a question which car you buy, once you are in the high rollers bracket (ie. 20 L + income shown in IT returns) you will be under the scanner even for small car money, on the other hand if you have filed returns of less than 10 L taxable income and end up buying 20 L SUV by full down payment, it is bound to raise questions, where did you get that money from, presumably not known to IT dept. So once you buy any car for that matter your PAN number is taken by the dealer and once the dealers accounts are filed the IT dept. normally picks up high value cars and cross verify PAN number with the returns filed under that number, puzzle solved for them!
Makes sense. I am pretty ignorant about this stuff. I am a webmaster and own a few dozen sites, so not a businessman in the real/traditional sense, as such I lack that business sense and awareness of financial aspects - thanks for helping me out. Have to talk to the accountant I guess.

Now my next question. Can two people(me and my wife) own the car? Do you think that can tone down things a bit.( I get the point you made, but still)

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Old 28th May 2012, 00:51   #34
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Default Re: Self-employed Professionals / Businessmen - Buy on finance or outright?

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Now my next question. Can two people(me and my wife) own the car? Do you think that can tone down things a bit.( I get the point you made, but still)
It does if she too is IT payer, taxable income will be divided if you both own the business together, but get advised by a CA, there are lots of smaller details.
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Old 29th May 2012, 15:33   #35
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Default Re: Self-employed Professionals / Businessmen - Buy on finance or outright?

Whether to buy new or used and whether to buy outright or on finance are two different questions altogether. For the first question it really does not matter whether you are self employed or not. For the second question I would say that for a businessman it makes sense to go for the finance option due to the foll advantages

1) You don't need to disturb your working capital, which is the most important thing for a businessman, as shortage of working capital can negatively impact his Business. Even if you have excess capital you may want to invest that money in expanding the business or as businessmen would call "rotate the money".

2) Car loan rates are generally lower than other borrowing rates like ODs and CCs.

3) You can set off interest paid on car loan against your profit. Which effectively reduces your tax outgo. What this means is if you pay Rs. 10 by way of interest on car loan, it reduces your tax outgo by Rs. 3.50 . Net effect is that the cost of borrowing will be only 65% of the actual interest paid.

4) In the rising interest scenario you book the loan at a lower rate for a period of 3 years or whatever the period of loan. OD and CC rates are variable and go up the moment RBI revises the PLR.

5) Of course the most important advantage is facility of staggered payment

Some people have mentioned depreciation benefits as one the reasons for going for car loan. Depreciation on vehicles is 15% and is available irrespective of the whether the car is purchased outright or on loan (used or new) and is calculated on the total price paid at the time of purchase.

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Old 29th May 2012, 17:42   #36
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Stay away from debt if possible. Stay with debt that gives you tax break only if you really really need that!

Buy what you really think you need(want). And it is better to pay tax - we don't gain much cooking the books and with numerous transactions.
Bribes/Fines to IT may be higher than you net tax outflow if you accidentally make a mistake. And as start-ups/self employed we may not have the funds and time to fight the legal battle till end! The pigs just love to fight in dirt and for dirt.

Keep things simple and plain. Pay taxes you owe.

May be one day we all will be fortunate to drive in toll-free express ways! After all corruption cant go on till infinity!

This is the reply I got from my start-up mentor when I was discussing the issue with him.
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Old 2nd October 2012, 20:33   #37
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Default Re: Self-employed Professional/businessman - Finance the car or pay full down payment

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There is another thing. Buying a car with full down payment raises a red flag at the IT department. You will get audited by them.
I don't see any issue if the books are clean and the monies are properly accounted for.

Another interesting practice followed by certain RTOs is they do not accept your PAN even if you have one. You need to sign Form No. 60 (Declaration to be given by persons not having PAN). They accept the papers for registration only when the paper count tallies with the standard. Sad but true!

When the above practice is followed none of the High Value transactions get reported!
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Old 2nd October 2012, 21:18   #38
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Default Re: Self-employed Professional/businessman - Finance the car or pay full down payment

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I don't see any issue if the books are clean and the monies are properly accounted for.
I have already answered it here: http://www.team-bhp.com/forum/indian...ml#post2784432 (Self-employed Professionals / Businessmen - Buy on finance or outright?)

Are you just speaking from theory or do you get regularly audited?

I regularly get notices from IT/ST/CT/Excise departments since I keep everything above board and keep tripping their red flags. Fortunately, I have a full time accountant who keeps representing me/company at every department with all the records. If I had to do it personally, I would have blown my fuse everytime.

For example, few months back I got a notice for spending a lot on credit card in 2010.
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Old 2nd October 2012, 22:15   #39
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Default Re: Self-employed Professional/businessman - Finance the car or pay full down payment

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I have already answered it here...
I should have been more specific on that. What I am precisely trying to convey is that when your books are clean you don't have to worry about facing the department at all.

As you have rightly pointed out in the other post, IT returns are selected for scrutiny by computers which is popularly called CASS - Computer Aided Scrutiny Selection.

They have several parameters such as Turnover, Gross Margin % etc., based on which the system randomly picks up the returns for scrutiny. A businessman/professional may enter into several High value transactions which may anyway trigger the alarm.

IMO, when you sit on a huge pile of cash and your books are perfect there is no reason to stop you from doing a full cash down purchase keeping other factors aside.

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For example, few months back I got a notice for spending a lot on credit card in 2010
That's pretty strange. May be you did not report that on your AIR - Annual Information Return. When your CC spend exceeds 2 lakh rupees a year or other txns exceed the threshold limit you are supposed to file this return in Addition to your IT Return.

When your PAN that is linked to your CC shows this info and the AIR doesn't show this info, a information mismatch is created which could prolly trigger the red flag.

However this requirement has been done away since AY 2011-12 I guess.

Last edited by Warwithwheels : 2nd October 2012 at 22:17.
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Old 2nd October 2012, 22:46   #40
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Default Re: Self-employed Professional/businessman - Finance the car or pay full down payment

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I should have been more specific on that. What I am precisely trying to convey is that when your books are clean you don't have to worry about facing the department at all.
It is not the worry, but the waste of time & energy dealing with government departments that bothers me. Even my accountant and auditor hate to face any audit, it is too much work for them.

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They have several parameters such as Turnover, Gross Margin % etc., based on which the system randomly picks up the returns for scrutiny. A businessman/professional may enter into several High value transactions which may anyway trigger the alarm.
Their system is not perfect. When I switched a few MFs, I got notice for the purchase of MF, while ignoring that I also sold similar amount.

That's like if you sell a house and buy another house for the same amount, they question where you got the money to buy the new house.

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Originally Posted by Warwithwheels View Post
That's pretty strange. May be you did not report that on your AIR - Annual Information Return. When your CC spend exceeds 2 lakh rupees a year or other txns exceed the threshold limit you are supposed to file this return in Addition to your IT Return.
I pay all my bills and purchases using CC, it is very easy to cross that 2L limit. I know nothing about AIR, that means my accountant overlooked it.
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Old 3rd October 2012, 23:30   #41
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Default Re: Self-employed Professional/businessman - Finance the car or pay full down payment

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May be you did not report that on your AIR - Annual Information Return. When your CC spend exceeds 2 lakh rupees a year or other txns exceed the threshold limit you are supposed to file this return in Addition to your IT Return.

Annual Information Return (AIR) of 'high value financial transactions' is required to be furnished under section 285BA of the Income-tax Act, 1961 by 'specified persons' in respect of 'specified transactions' registered or recorded by them during the financial year. The 'specified persons' and the 'specified transactions' are listed in the link given below:

www.incometaxindia.gov.in/archive/AIR/Rule114E.doc


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I know nothing about AIR, that means my accountant overlooked it.
In all probability, you are not one of the seven entities listed in the above link and hence you are not liable to file an AIR. Your accountant has not overlooked it.
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Old 4th October 2012, 05:11   #42
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Default Re: Self-employed Professional/businessman - Finance the car or pay full down payment

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...In all probability, you are not one of the seven entities listed in the above link and hence you are not liable to file an AIR. Your accountant has not overlooked it.
IMO, there are two things to the Annual Information Returns.

One, Information to be furnished in AIR which forms part of ITR - 1, ITR - 2 etc., This is what will apply to Individuals and other assesses who enter into such specified transactions.

Check out Schedule AIR and Instruction 9 (ii) in http://www.incometaxindia.gov.in/arc...rm%20ITR-2.pdf

Two, High Value transactions to be reported by the specified entities. This will have the contra of the transactions mentioned in part one above on a consolidated basis. This is what your post talks about.

Is my understanding of it right?

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Old 4th October 2012, 10:32   #43
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Default Re: Self-employed Professional/businessman - Finance the car or pay full down payment

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IMO, there are two things to the Annual Information Returns.

One, Information to be furnished in AIR which forms part of ITR - 1, ITR - 2 etc., This is what will apply to Individuals and other assesses who enter into such specified transactions.

Two, High Value transactions to be reported by the specified entities. This will have the contra of the transactions mentioned in part one above on a consolidated basis. This is what your post talks about.

Is my understanding of it right?
Now, it is right. Both parts are separate. All you have to do is fill in a schedule in a Return being filed by you. An AIR return has to be filed only by the specified entities.

My post was in response to your comment that "When your CC spend exceeds 2 lakh rupees a year or other txns exceed the threshold limit you are supposed to file this (AIR) return in Addition to your IT Return" which got Samurai thinking that his accountant had overlooked it.

Last edited by lapsi : 4th October 2012 at 10:33.
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Old 4th October 2012, 10:42   #44
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Originally Posted by lapsi

Now, it is right. Both parts are separate. All you have to do is fill in a schedule in a Return being filed by you. An AIR return has to be filed only by the specified entities.

My post was in response to your comment that "When your CC spend exceeds 2 lakh rupees a year or other txns exceed the threshold limit you are supposed to file this (AIR) return in Addition to your IT Return" which got Samurai thinking that his accountant had overlooked it.
My bad! Thanks for pointing it out and making it explicitly clear.

Btw... Do you really think many people fill in those particulars? How serious is it from the standpoint of the Dept.?
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Old 4th October 2012, 13:23   #45
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Default Re: Self-employed Professionals / Businessmen - Buy on finance or outright?

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Btw... Do you really think many people fill in those particulars? How serious is it from the standpoint of the Dept.?
No worries. If I had been any more explicit, it would have become x-rated

I would not know how many would fill in those details but practically, it should not make too much of a difference. Cases come up for scrutiny based on the transaction.

A mismatch or match of the information in the AIR and your return, would not be a deciding factor in whether you would be subjected to scrutiny or not.
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