Many people opine that complying with the tax law slows the growth of people in Personal Finance. Some people even call the law abiding class as impractical. It is my considered opinion, that Finance Ministers of many countries like India have reduced the tax rates to really low levels that it becomes our duty to pay the right taxes. This is not moral science but a pure practical approach.
I am not saying that we should blindly pay taxes. Wherever there is a scope to legally avoid and reduce taxes, we should. In fact, it pays to employ a competent tax advisor who can help you reduce taxes absolutely in legal ways. Let us a few examples from the Indian Income tax scenario that are normally overlooked by many people:
- In the case of a working and tax paying couple, when they buy any large value property by raising housing loans, it makes sense to buy the property in joint names rather than in the name of the husband or wife. There is scope for both of them getting deduction under Section 80 C (for deduction of principal) and Section 24(for deduction of interest). I am not going in depth and you can check with your auditor to utilise this double deduction.
- If you invest for three consecutive years in Equity Linked Savings Schemes (ELSS) of mutual funds thereafter you can claim deduction under Section 80 C every year without any funds. This is possible by a simple tax planning exercise. You can redeem the units invested three years back and use the proceeds to invest and claim benefit under Section 80 C. Interestingly, you need not pay income tax on the gains made while selling the units, since it becomes a long term capital gain. A smart way indeed!
- If House Rent Allowance is not shown separately in a person’s salary structure, the person can claim benefit under Section 80 GG of the Income tax Act.
- If your organisation is willing to listen to you, you can suggest changes in salary structure by including food coupons, medical expenses reimbursement etc. and legally save tax. In fact, your colleagues will thank you for your suggestion. Of course, I see the relevance of this only in large organisations.
- On wedding a Hindu/ Sikh can make use of the concept of Hindu Undivided Family for tax planning purposes even without having any ancestral property.
- Similarly you can make use of the legally allowable gifts.
I am not a tan expert and hence would request you to consult your advisor and plan your taxes. As I said at the beginning, after reducing your taxes through legal means, pay your taxes and enjoy peace of mind in the journey of your Personal Finance! In my opinion, this is the best approach.
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