How Indian businessmen think about income tax

Had a very interesting conversation with an extremely succesful business man from Bangalore yesterday. He’s probably worth 100 crs (USD 20M) and files an annual return of only 1.5crs or USD 250,000 a year.

He has a very interesting perspective on income tax. He said that the income tax in India is close to 55% if not more. When asked why he described it this way:

Income: 100 rupees

Tax (33%) = 33 rupees

Your net after tax= 67 rupees

This means that when you make 67 rupees. The government makes 33. This is 49%. Now add to this VAT, Service tax etc that you pay on every purchase you make from your 67 rupees and soon you realise that the net value you get from your 67 is less than 67 rupees. Increasing your tax burden even further.

His takeaway was that there is no way to be rich in India unless you steal on the your taxes. This is why almost 90% of his business income remains undeclared. And, he prefers paying cash when he buys enticing the seller to not report this income either.

How interesting.