How Indian Traders Avoid Paying Taxes LEGALLY!

Summary

In this special episode, PR Sundar discusses the tactics used by some high net worth individuals (HNIs) to avoid paying taxes in India. He explains how they leverage Dubai's tax-free status, currency stability, and cultural ties to India to establish residency and trade in derivatives without incurring taxes. Sundar also mentions the legal alternative of registering as a foreign portfolio investor to avoid taxes on derivative income. The video offers insights into these tax-saving strategies while emphasizing the importance of operating within legal boundaries.

Takeaways

• 😀 The video discusses how some high net worth individuals (HNIs) avoid paying taxes in India by using various strategies.
• 🤔 The speaker contrasts the consequences of borrowing small versus large amounts of money, highlighting the different impacts on individuals and banks.
• 💰 The video mentions the case of Vijay Mallya and the Nirav Modi scandal, indicating the disparity between the lifestyles of the rich and the legal consequences they might face.
• 👕 The speaker emphasizes their own frugality in comparison to the extravagant spending of some HNIs, using the example of designer clothing.
• 🛍️ The strategy of purchasing unbranded shirts from Singapore to avoid high costs is highlighted as a personal finance tip.
• 🏦 The video explains that HNIs often choose Dubai for its tax-free status and currency stability linked to the US dollar.
• 🇦🇪 Dubai's Golden Visa program is mentioned as a way for HNIs to gain residency, allowing them to split their time between India and Dubai for tax purposes.
• 📈 The use of Non-Resident Ordinary (NRO) accounts and the exploitation of double taxation avoidance treaties to avoid paying taxes in India is described.
• 📊 The video suggests that by registering as a Foreign Portfolio Investor (FPI), one can legally trade in the Indian derivatives market without paying income tax on derivative income.
• 🏦 The process of setting up a company in Dubai with a foreign passport, having majority shareholding, and trading as an FPI to avoid taxes is outlined.
• 🚫 The video emphasizes the importance of staying within legal boundaries and avoiding grey areas when it comes to tax strategies.

Q & A

What is the main topic of the video?

The main topic of the video is how some high net worth individuals (HNIs) avoid paying taxes in India while still making money.

What is the significance of the statement about borrowing money and the resulting trouble for individuals and banks?

The statement highlights the irony that small debts can cause personal trouble, while large debts can cause systemic issues for banks, suggesting a disparity in the way financial responsibility is managed at different scales.

Why does the speaker mention the cost of their shirt and the jacket worn by Nero Media?

The speaker uses the cost of their shirt and the jacket worn by Nero Media to illustrate the contrast between ostentatious wealth display and their own modest spending habits, possibly to establish credibility or to make a point about wealth and consumption.

What is the role of Dubai and Singapore in the tax avoidance strategies discussed in the video?

Dubai and Singapore are presented as locations culturally close to India with different tax regulations. Dubai is highlighted as a tax-free country, and Singapore has taxation, but both offer opportunities for tax avoidance due to their proximity and cultural ties.

What is the 'Golden Visa' mentioned in the video?

The 'Golden Visa' is a 10-year residency visa offered by Dubai to individuals who meet certain criteria, such as earning a certain salary or investing in property, which can be used for tax residency purposes.

How can staying in Dubai for more than six months affect an individual's tax status in India?

Staying in Dubai for more than six months can make an individual a tax resident of Dubai, which, due to the double taxation avoidance treaty between Dubai and India, can exempt them from paying taxes on certain incomes in India.

What is the significance of the ANRO account in the context of tax avoidance?

An ANRO (Any Person Resident Outside India) account allows non-residents to deposit funds and engage in financial activities without being subject to Indian taxes, which is part of the tax avoidance strategy discussed.

What is the legal way mentioned in the video to trade in the Indian derivatives market without paying income tax?

The legal way mentioned is to register as a Foreign Portfolio Investor (FPI) in India, which exempts the individual from paying income tax on their derivative income in India.

Why might someone give up their Indian citizenship to become a foreigner for tax purposes?

Giving up Indian citizenship and becoming a foreigner allows the individual to set up a company in a tax-free country like Dubai, and then register as an FPI in India, which can exempt them from paying taxes on their derivative income.

What is the Liberalized Remittance Scheme (LRS) and how does it relate to transferring money abroad?

The LRS is a scheme that allows individuals to transfer up to $250,000 per financial year abroad for specific objectives. However, it cannot be used for speculative trading or buying lottery tickets, which is relevant to the discussion of legally transferring money for trading purposes.

What is the speaker's stance on operating in a 'gray area' for tax purposes?

The speaker expresses a desire to avoid operating in a 'gray area' and to conduct everything legally, indicating a preference for clear and transparent methods to avoid taxes.

Outlines

00:00

😲 Tax Evasion Strategies of the Wealthy in India

In this paragraph, PR Sundar discusses how some high net worth individuals (HNIs) in India avoid paying taxes by exploiting loopholes. He uses the example of borrowing money and the varying consequences based on the amount, to illustrate the disparity in how different social classes are treated by the tax system. Sundar contrasts his own frugal spending habits with the extravagant lifestyle of some tax avoiders, such as the high cost of a jacket worn by a member of the Nero media. The speaker also touches on the cultural and economic ties between India and two countries, Singapore and Dubai, and how the latter's tax-free status and currency stability attract these individuals to set up financial operations there. The paragraph ends with the mention of the Golden Visa in Dubai, which offers a 10-year residency to those who meet certain financial criteria, and how this is used by some HNIs to maintain a tax-avoiding lifestyle.

05:01

💼 Exploiting Tax Treaties and NRI Status for Tax Avoidance

This paragraph delves into the specific strategies used by ultra-high net worth individuals (UHNIs) to avoid paying taxes in India. It explains how these individuals use the tax residency certificate from Dubai, in conjunction with the double taxation avoidance treaty between Dubai and India, to avoid paying taxes on their income. The speaker shares anecdotes from his visit to Dubai, where he learned about the common practice of using tax residency certificates to evade taxes. He also mentions the legal ambiguity surrounding this practice, with some chartered accountants in India suggesting that taxes should still be paid on income derived from trading in futures and options. The paragraph concludes with the speaker's personal reluctance to engage in such practices due to the potential for future legal repercussions.

10:01

🏦 Legal Frameworks for Tax-Free Trading in India

In the final paragraph, the speaker explores legal methods for tax avoidance in the Indian derivatives market. He explains the process of registering as a foreign portfolio investor (FPI), which allows for tax exemption on derivative income in India. The speaker also discusses the strategy of giving up Indian citizenship to become a foreigner and setting up a company in Dubai, which can then register in India as an FPI. This setup enables the individual to trade in derivatives without paying taxes to the Indian government. The paragraph also touches on the complexities of transferring money legally from India to Dubai for trading purposes, mentioning the Liberalized Remittance Scheme (LRS) and the challenges of round-tripping funds. The speaker concludes by offering assistance to those interested in pursuing these legal tax avoidance strategies, while emphasizing the importance of operating within legal boundaries.

Keywords

💡Tax avoidance

Tax avoidance refers to the practice of minimizing one's tax liability within the bounds of the law. In the video, it is discussed as a strategy used by high net worth individuals (HNIs) to legally reduce their tax burden, often by exploiting loopholes or using legal structures in different jurisdictions.

💡HNIs (High Net Worth Individuals)

HNIs are individuals with substantial financial wealth and investable assets. The video script talks about how some HNIs avoid paying taxes by using various legal mechanisms, emphasizing the disparity between their wealth and tax contributions.

💡ANRO account

ANRO stands for 'Any Non-Resident Ordinary' account, which is a type of bank account in India for non-residents. The script mentions that HNIs use ANRO accounts to manage their finances while avoiding tax liabilities in India by staying outside the country for more than six months, thus becoming non-residents for tax purposes.

💡Double taxation avoidance treaty

This is an agreement between two countries to prevent double taxation of the same income. The video explains how HNIs with tax residency in Dubai can benefit from such a treaty with India, avoiding the need to pay taxes on certain types of income.

💡NRI (Non-Resident Indian)

An NRI is an Indian citizen or a person of Indian origin who holds an overseas citizenship and stays abroad for more than six months. The script discusses how HNIs become NRIs to take advantage of tax benefits and avoid paying taxes in India.

💡Derivatives trading

Derivatives trading involves buying and selling financial contracts whose value is derived from the value of an underlying asset. The video mentions that HNIs trade in derivatives to generate income that may not be subject to tax under certain residency conditions.

💡Foreign Portfolio Investors (FPIs)

FPIs are entities that invest in a country's financial markets but are not residents of that country. The script suggests that HNIs can register as FPIs to trade in the Indian derivatives market without paying income tax on their profits.

💡Golden Visa

A Golden Visa is a type of residency visa offered by certain countries, including Dubai, to attract foreign investment. The video describes how HNIs can obtain a Golden Visa by investing in property, which facilitates their tax avoidance strategies.

💡Citizenship by investment

This refers to programs where foreign individuals can obtain citizenship in a country by making a significant economic contribution. The script mentions that some HNIs give up their Indian citizenship and take up citizenship in other countries to become eligible for FPI status and avoid taxes.

💡Liberalized Remittance Scheme (LRS)

The LRS allows Indian residents to transfer a certain amount of money abroad each financial year for various purposes. The video touches on the limitations of the LRS, noting that it cannot be used for speculative trading or buying lottery tickets, which are activities some HNIs might engage in to avoid taxes.

💡OCI card

An OCI (Overseas Citizenship of India) card is a form of identification for people of Indian origin living abroad, providing them with certain rights and privileges. The script discusses how holding an OCI card can affect one's tax residency status and tax obligations in India.

Highlights

PR Sundar discusses how some HNIs (High Net Worth Individuals) avoid paying taxes in India while still making money.

The contrast between the consequences of borrowing small versus large amounts of money, and the implications for individuals and banks.

The case of Vijay Mallya and the Era Moody incident, highlighting the disparity in how the wealthy are treated compared to the middle class.

PR Sundar's personal anecdote about his spending habits on clothing, emphasizing the difference between his lifestyle and that of the ultra-rich.

The joke about the treatment of petty criminals versus those who commit large-scale financial crimes, reflecting societal and legal biases.

The focus on Singapore and Dubai as popular destinations for tax avoidance due to their proximity to India and cultural ties.

Dubai's appeal as a tax-free country and its currency's stability linked to the US dollar.

The safety and cultural familiarity of Dubai, along with the availability of the Golden Visa for residency.

The strategy of HNIs using the Golden Visa to shuttle between Dubai and India to establish tax residency and avoid taxes.

The use of ANRO (Annual Non-Resident Ordinary) accounts by NRI (Non-Resident Indian) tax residents to trade in derivatives and avoid taxes.

The conflict between the experiences of Dubai residents who avoid taxes and the advice of Indian Chartered Accountants on tax liabilities.

The legal method for avoiding income tax on derivative income by registering as a Foreign Portfolio Investor (FPI) in India.

The practice of giving up Indian citizenship to become a foreigner and setting up a company in Dubai to trade as an FPI.

The challenges and methods of transferring money from India to Dubai for trading purposes within legal frameworks.

The Liberalized Remittance Scheme (LRS) as a potential legal method for transferring money abroad, with limitations.

PR Sundar's personal contemplation on relocating to Dubai and registering as an FPI to save on taxes, considering legal and practical aspects.

The offer of assistance for those interested in legally structuring their finances to minimize tax liabilities, with a disclaimer against illegal activities.

Transcripts

hi this is PR Sundar welcome to this

special episode

I'm going to talk how some hnas avoid

paying tax in India and they make money

and still avoid paying tax the people

say just for fun you know you borrow a

small amount of money you will be in

trouble and if you borrow a big amount

of money from a bank then the bank will

be in trouble so the problem is not for

the individual is for the banks and you

know what happened in case of an era

Moody uh Vijay Malaya somewhere I read

you know Nero media was wearing a jacket

it cost more than 5 lakh rupees and look

at my shirt I've never spent more than

thousand rupees in my lifetime for my

shirt so the maximum I spend is only

about 700 800 rupees per shirt still

those who are wondering where I'm

getting all these designer shirts so I

buy these shirts from Singapore

and uh you know whatever shirts I'm

wearing they are all unbranded shirts

only and nothing is branded if I'm

wearing any branded shirt now that means

somebody has gifted me so I never buy

one apart

you know uh there's another joke also

people say you do some petty crime the

police will uh hit you using their boots

and uh you know if you rob billions of

dollars and then the police will uh

clean your boots generally

diplomatically putting you know in most

of the countries uh it is only the

middle class people who suffer the low

class people there they don't pay tax

high class people also they don't pay

tax they know how to avoid it so it's

always the suffering of middle class

just I'm coming back to my topic how

some ultrasonic lens avoiding tax the

first thing is that you know there are

only two countries which are nearer to

India three to four hours of flight

and culturally closely associated with

India so one is Singapore other one is

Dubai and of course Singapore is very

expensive but Dubai is relatively very

cheap first thing is that people choose

Dubai

why people choose to Dubai number one

it's a tax-free country we can't say tax

free is a zero tax you pay tax but you

pay zero tax so I was told tax free and

zero tax they both are different

uh details will come later Singapore

there is a taxation

so first thing is that Dubai is tax free

country and number two Dubai currency uh

they said they run uh expect with the

dollar that means it will never

depreciate against the dollar when the

dollar appreciates automatically so this

currency is packed with the dollar also

appreciates I know few countries one is

the Dubai the other one is Hong Kong

these two countries have picked their

currency with US dollar and then you

know uh it's a safe country crime rate

is less and then you know culturally

associated with India few hours flight

from India flight tickets are cheap and

also people can get residency Visa there

is something called Golden Visa so

that's a 10-year Visa so if you are

working if you are getting a salary of

30 000 Dirham per month you get a golden

Visa or if you buy a property for 2

million Dirham so that's about 4.5 crore

in Indian currency even with a bank loan

you are still eligible for uh golden

Nissan so until recently it's 2 million

Dirham from your packet but now even

with the 2 million Dirham even with a

bank loan also eligible what some of the

hni clients do uh you know assume that

there are so many family members father

mother brother sister you know so many

people just one person is being settled

in Dubai how uh they just gone by some

property they get the golden Visa

and then no no they stay in Dubai for

two weeks three weeks then come back to

India stay here for two weeks three

weeks again go back to the way stay for

two weeks three weeks so like this they

shuttle between Dubai and India at the

end of the year

in One Financial year for more than six

months they stay in Dubai that's because

you know if you want to be a tax

resident of any country you have to stay

in that country for more than 180 days

so then only you get the tax residency

certificate you are a tax resident of

Dubai what happens you know so the

people stay one of the family members

stay in Dubai for more than six months

so effectively he is considered as NRI

in India because any person who is

staying abroad more than six months is

considered as an NRI of course there are

some nitty-gritties recently they've

changed to eight months but eight months

or six months you know there are certain

uh exceptions so then what happens this

guy open an anro account in India and

means non-resident ordinary account so

put the money into that account and then

start trading in derivatives Futures

options you know at the end of one

Financial year so they have to file the

tax return while filing the tax return

what this per person do he gets a tax

residency certificate from Dubai and he

submitted to the income tax department

of India and so because there is a

double taxation avoidance treaty between

Dubai and India so these people do not

pay any tax this is how Ultra hna claims

save tax recently when I went to Dubai I

spoke to some clients I spoke to some

Brokers I spoke to some bankers also

so they all told me the same story if

you get a tax residency certificate of

Dubai then you do not have to pay tax to

Indian government and in fact I met some

people who have been filing the tax

return in India for the last three four

years but they have not been paying tax

and they are showing their tax residency

certificate but however when I talk to

some of the Chartered Accountants in

India so their story is different they

say that you know even if you are a tax

resident of Dubai if you are pre-trading

in Futures and options you still have to

pay tax in India as far as now what I

know there are many people who are

enjoying this double taxation avoidance

treaty and the white tax residency

certificate and they are not paying tax

and they have not been questioned by

income tax department so far

so that is one thing then you know I do

not want to operate in a gray area so as

one of my friends so like you know I I

don't want you know income tax

department don't question me uh after 10

years they come and question me then

they asked me to pay for the 10 years

along with interest and I don't want to

get into these things

so is there any 100 legal way without

any gray area a person can trade in

Indian derivatives market and yet do not

pay income tax

so the answer is yes

so all you have to do you have to

register yourself as a foreign portfolio

investors in India we call it as FIS

foreign institutional investors but now

they change the definition to foreign

portfolio investors

and these people they do not pay any

income tax for their derivative income

in India

however for the cash Market profit they

have to pay capital gain tax for

derivative income so they don't have to

pay the tax to Indian government what

some people I know one guy what he has

done

so the family there are so many people

so one person you know what he did he

gave up Indian citizenship he took a

citizenship in one of the countries

there are few countries in the world you

buy property for two three crore they

give you citizenship

or even that is also not required you

just give some donation to the

government and they give you the

citizenship so what happens they give up

Indian citizenship and they took they

take citizenship of those countries like

Saint Gates

like that okay so I think earlier I've

come out with a video why so many uh hni

people giving up Indian citizenship and

in fact that news is the one triggered

me to do all these things so what

happened so this guy became a foreigner

so if you say foreign portfolio investor

you should not be an Indian you have to

be a foreigner actually I am also a

foreigner right but the thing is uh I'm

holding oci card I am treated at par

with NRI

so for all practical purposes I am not a

foreigner I am a NRI moreover I stay in

India for more than 180 days

irrespective of my citizenship I am

becoming a tax resident of India if I

want to be a foreigner

uh there are two things I have to do one

I have to give up my OCA card

and then every time I want to come to

India I have to get the visa and second

thing I have to stay outside India for

more than six months so then a person

becomes a pure Foreigner

and then so this guy a foreigner will

have to set up a company you know in any

country but people choose Dubai because

it's a tax-free country so one member in

a family give up Indian passport get a

foreign passport then set up a company

in Dubai and in that company this guy

will have to have minimum 51 percent

shareholding the remaining 49 percent

shareholding can be held by nris again

each NRA cannot hold more than 24

percent

what normally people do they choose two

friends two NRA friends so this

Foreigner take 52 percent those two nras

for 24-24 percent so they get 100

percent

so they set up a company so they bring

the funds to that company and then this

company register in India as a foreign

portfolio investor

and then they bring the funds to this

company and they start trading in

derivatives so then they become foreign

portfolio investor and they do not have

to pay tax to Indian government

so although I gave you the modest

opportunity uh how how people do

but there are a lot more nitty-gritties

actually

uh number one

uh how to transfer the money from here

so mostly you know what these people you

know they have friends NRA friends so

they borrow money from the NRI friends

and then that is how the funds come to

India

but otherwise the money from India

cannot go abroad for the purpose of

derivative Trading and particularly for

Indian derivative trading because you go

money goes from here to abroad and then

again coming back to India so that is

called round tipping the income tax

people so which is totally not allowed

so there are ways and means you know

people are transfer money but legally

transferring money from India to abroad

for the purpose of speculative trading

or trading in derivative markets or

buying lottery ticket is not allowed

so there is a scheme called LR scheme

liberalize the remittance scheme whereby

a person can transfer up to 2.5 lakh US

dollars per person per Financial year

but with the specific objectives oh hi

I'm also thinking now because I am a

foreigner so why not I give up my OCA

card why not I relocate to Dubai so why

not I register as a foreign portfolio

administer so that I can save taxes but

then again the money from here it cannot

be transferred but you know so many

anaras will give money to me so even

without interest you know so by God's

grace I have a lot of people who will be

willing to help me so all kinds of

things can be at that although I have a

base in Singapore

uh but I'm because Singapore is a again

it's a taxation is there it's more

expensive so we are looking at Dubai as

an alternate

so

uh you know uh if any of you uh need

some more information

if you want to do this

of course you can contact us our office

numbers are given in the description

uh so we will be glad to help you so of

course we will expect you to pay

something for us for the services that

we are giving

uh and another thing you know please

don't call us if anything you want to do

illegally but you know we want to do

everything legally okay

so

uh I hope you uh understood how legally

Ultra hna cleanse uh make money and yet

they do not pay tax

hope you enjoyed watching this video

thank you for watching

thank you

foreign