Tax evasion

Tax evasion is pretty widespread in India, and a lot of chartered accountants make a living out of suggesting creative ways to evade tax for their clients and channeling their "black money". I really don't understand why can't the government come up with ways to tackle it, when all of us see it and know how it is being done. I seriously believe the problem with this is "political will", since a lot of politicians will probably be at the receiving end.

Instead of being too negative about this, I was trying to think if there is some way to incentivize paying taxes. Can we offer something to tax payers, so that they feel good about paying taxes? I think one way to do that is to offer perks, for which the sole eligibility is being in a certain tax bracket. I feel we as Indians do crave for prestige and social stature and our tax department could exploit that to lure a few more eligible tax payers to pay up.

For example, we could have some convenient reserved parking at critical locations where parking is usually hard to find (connaught place!!), which is only accessible to people who pay more than certain amount in taxes. There could be free bypass lanes in all toll booths all over India for tax payers above a certain limit. There could be reservation for admissions in premier institutions. There could be exclusive premier residential enclaves where the eligibility to buy is based on your income tax bracket. I'm sure we can come up with all sorts of interesting incentives to make this work.

Obviously, the monetary cost of all these "benefits" will be trivial compared to the tax being paid to get them. But, if these are structured well, the "prestige" value of these will make them work. At some level, it may sound like reservations for the rich, but I feel that a little bit of creativity can help design something that is a win-win for all.

If such incentives are in place, society will play its natural role is helping this process as well. Imagine if I am a successful businessman, but don't pay any tax. The fact that I don't have access to any of these special privileges, even though I clearly make a lot of money, will expose me to my near and dear ones and I might decide to pay some taxes to avoid the ridicule (open or behind-the-back) that this will invite.

Crazy thought, but I wonder if someone has thought this through.

Financial planning cheat sheet

Here's a quick summary of all that I have assimilated about personal financial planning over the years

Insurance: Don't go for ULIPS or complex insurance plans, stick to simple term insurance, it is the cheapest method. Insurance cover should be about 10 times your annual expenses (not income). Online only insurance policies will give you the best deal since they cut out the agent's commissions, consider icici pru's iprotect or aegon religare's iterm. Btw, you need insurance only if you have dependents, so no child insurance policies please. also, never lie on the insurance application, it's a sure shot way of claim rejection

Investment: Consider asset allocation to all the following asset classes - liquid, gold, equity, debt, fixed income, real estate

Liquid: Keep aside some amount as liquid investment for contingency requirements - either in a savings bank account or some good liquid fund, expect returns of 4-6% p.a. on this. 6 months expenses is a good thumb rule for how much to set aside here

Gold: Consider keeping about 5-10% of your total portfolio as gold. Gold ETF is a good way to invest in gold, you need a demat account for that. If you don't have that yet, consider opening a demat account and start purchasing gold ETF on monthly basis. GOLDBEES is a good one. Buying physical gold is not a great idea - banks charge a huge premium for certified gold coins, jewellary incurs huge making charges

Equity: Unless you have lots of spare time and interest in following the stock market, stay away from individual stocks. Instead, invest in established mutual funds. Don't invest in a lump sum. Rather go in for STP or SIP. Look for market dips to invest a little extra. diversified equity funds are the best choice (HDFC equity, HDFC top 200, Fidelity equity, Reliance RSF). Index funds are good too, you can also invest in index ETFs through a demat account (QNIFTY), the management charges are usually lower. Invest for a long time frame, at least 10 years, and don't be perturbed by market changes. If you don't have money to spare for 10 years, don't invest in equity, invest in debt. http://www.fundsindia.com/ is a good online provider for mutual fund investments without any charges

Debt, fixed income and Real estate in a later post.

Kasauli trip

We figured monsoons would be over by sep-end, so planned a trip to kasali in the last weekend of september. Kasauli is a small, quiet hill station about 350 kms from Delhi. Shimla is another 60-70 kms further on the same route. We figured shimla is too commercialized and Kasauli would be more relaxing, and the shorter drive is preferred with kids.

It took us about 7 hours to get there, with a couple of stops in between. For food stops, Haveli is highly recommended (there's one is murthal, and another in karnal - the one in karnal is quite happening with shops and all).

In kasauli, we stayed at the Kasauli Resort, and had a good overall experience there. The view from the rooms was great, which is very important in such a stay. Also, they had a nice campus with swings for kids. Pretty decent restaurant, but we didn't like the food too much. There are three floors, but no lift which can be a problem for some. Also, it would be nice to have heating in rooms, which was not there. It does get pretty cold at night.

There's not much to do in kasauli, just a visit to Manki Point and the local mall road shopping area. Go there to enjoy the nature and the views, which there is plenty of.