Am back to my blog after a long long lazy break and here's my view on 'Saving Taxes' in the Indian context.
'Death and Taxes are the most certain things in life'; the quote (though slightly modified holds true in everyone's life.
As Indians, we are groomed to save. Right from childhood, parenting has inculcated the habit of saving for a 'rainy day'. Piggy banks of our childhood give way to complex jargon of the Income Tax Act during our earning years.
As many of my friends, I too 'saved' in 'safe' (from risks) instruments. Somewhere over the years, my efforts went from the primary focus of 'saving for the future' to 'saving from taxes'.
Over the years where I have learnt the nuances of personal finance from personal experience (and the experience of friends and family), I would like to highlight 2 key points.
Firstly, 'saving from tax' is not investing. Secondly, saving in 'safe' instruments is a dream.
Let me elaborate on each point.
In our country, where the taxman treats every citizen as a 'dishonest' tax payer, you are guilty of tax evasion till proven innocent. Tax evasion is not defined by the quantum of tax one has evaded. As the law of the land prescribes, tax needs to be paid on most 'sources of income' and 'forms of wealth'.
Another case in point is that our constant focus is to save in instruments which as per the stipulations of the Income Tax Act help us save some tax.
Let's take an example:
Option 1: One spends Rs. 100/- in a tax saving instrument (say Insurance Policy) and gets Rs. 30/- (highest tax bracket) reduced in his tax liability.
Option 2: Alternatively, you pay 30% on your Rs. 100/- as tax and invest the remaining Rs. 70/-
Given a choice which option will you choose.
'Death and Taxes are the most certain things in life'; the quote (though slightly modified holds true in everyone's life.
As Indians, we are groomed to save. Right from childhood, parenting has inculcated the habit of saving for a 'rainy day'. Piggy banks of our childhood give way to complex jargon of the Income Tax Act during our earning years.
As many of my friends, I too 'saved' in 'safe' (from risks) instruments. Somewhere over the years, my efforts went from the primary focus of 'saving for the future' to 'saving from taxes'.
Over the years where I have learnt the nuances of personal finance from personal experience (and the experience of friends and family), I would like to highlight 2 key points.
Firstly, 'saving from tax' is not investing. Secondly, saving in 'safe' instruments is a dream.
Let me elaborate on each point.
In our country, where the taxman treats every citizen as a 'dishonest' tax payer, you are guilty of tax evasion till proven innocent. Tax evasion is not defined by the quantum of tax one has evaded. As the law of the land prescribes, tax needs to be paid on most 'sources of income' and 'forms of wealth'.
Another case in point is that our constant focus is to save in instruments which as per the stipulations of the Income Tax Act help us save some tax.
Let's take an example:
Option 1: One spends Rs. 100/- in a tax saving instrument (say Insurance Policy) and gets Rs. 30/- (highest tax bracket) reduced in his tax liability.
Option 2: Alternatively, you pay 30% on your Rs. 100/- as tax and invest the remaining Rs. 70/-
Given a choice which option will you choose.
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