We all know the distinction between tax evasion and tax planning. Tax evasion is illegal and hence we will totally avoid. We need to utilise tax planning to become rich faster. Tax Planning is not only a vast subject but also varies from country to country. It always pays to be on the right side of the laws not only to be rich but also to enjoy peace of mind. When we do that we can enjoy the benefits given by the tax laws.
It is my considered opinion that most of us need the guidance of an expert in planning our taxes. An advisor can help us to be on the right side of tax laws and at the same time minimise the outflow of tax. Hence it is better to identify one such expert and pay the person well. We need to remember the famous adage, "If you pay peanuts you get monkeys."
Let me give a few examples of tax planning based on the Indian tax laws:
- My family members and I have derived tremendous advantage by investing in ELSS (Equity Linked Savings Scheme). The entire amount invested is allowable as a deduction from the total income subject to a maximum of one hundred thousand rupees per individual in a year. It does not stop here. The average return on investment in ELSS of good mutual funds has been upwards of 20 % per annum. Of course, one has to stay invested for a minimum period of three years but this condition is nothing when viewed in the context of such fabulous returns.
- For people who wish to avoid risk, there is a good opportunity available through Public Provident Fund (PPF). The entire amount invested is allowable as a deduction from the total income subject to a maximum of seventy thousand rupees per individual in a year. The return is 8 % per annum. Of course, there is a lock in period of 15 years, but should one require any funds, he can avail loans after 5 years.
- A married person can give a loan to his wife and when the wife invests the money and derives income, it is taxed only in her hands. This tax planning is very useful for any couple when the husband is in the high bracket of taxation and the lady is a housewife. I personally many people who save a lot of income tax through this simple method.
- There are similar tax planning methods through parents, children grand parents etc. One can also pay rent to his father for the house owned by the father, in case the father has no income.
The above list is illustrative and not exhaustive. It is better to consult your tax expert and make a thorough tax planning for you and your family. A smart advisor may give a few simple and powerful tips like after investing in ELSS for three consecutive years, you can deduction by recycling the investment made three years back. I do not want to sound like an expert but am trying to throw light on some very interesting possibilities in tax planning. It is needless to add that any amount saved in tax will help you in the journey to be Rich. As I said at the beginning, we can abide by the law and still save a lot of money happily.
Let us look at the lighter side of life. Long ago there was a minister living in one of the largest countries in the world, did not pay his tax dues. When asked, he told the press, he did not wilfully default in paying the due tax, but forgot about it. Very interesting indeed!!
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