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(Precious) Words of Wisdom : "Wall Street makes its money on ACTIVITY, you make your money on INACTIVITY." ~ Warren Buffett

How to Save Tax

I know tax is not a welcome subject. So let me first lighten the mood with some humorous quotes.

The income tax created more criminals than any other single act of government.” ~ Barry Goldwater

The tax collector must love poor people - he's creating so many of them.” ~ Bill Vaughn

In many years of my experience I have seen people focusing mainly on the returns that an investment has to offer. That is why a bulk of the queries I receive are either ‘Which investment will give maximum returns’ or ‘I want 20-25% returns; where should I invest’.

But that is looking at only half the picture. The other important half i.e. the tax often gets ignored… primarily because both understanding and paying taxes is not a very happy proposition.

When a bank offers 11% interest for a 1-year fixed deposit Asmit Kapoor is thrilled. But he is also thorough with his investments. So he explores other avenues and finally settles for a 1-year Fixed Maturity Plan (FMP) from MFs. The indicative rate of return for the FMP is around 9.5%.

Despite the lower rate, in the end he is better off.

In FD his investment of Rs.10 lakhs would have earned him Rs.1.10 lakhs as interest. But after paying 30% tax (Rs.33,000) he would have received only Rs.77,000 in hand. 

Whereas in the FMP his earnings work out to Rs.95,000 on which he pays tax @10% (Rs.9,500). Thus, his post-tax return works out higher by Rs.8,500 at Rs.85,500.

This is just one example. There are many ways to legally pay lower tax and thereby enhance your net post-tax returns. All that it needs is some simple tax planning. After all, what really matters is what finally comes into our pocket! After all, you don’t want to suffer from Intaxication…Euphoria of getting a tax refund, which lasts until your realize it was your money to start with.

You can expect four types of income from your investments viz. 
-  Interest income
-  Dividend income
-  Capital gains
-  Rental income

The bottom-line: Even elementary tax planning strategies can vastly improve your returns.  
...Know how you can save tax on different types of incomes you earn on your investments, in my latest book 'Your Guide to Finance and Investments'.

An Investment In Knowledge Pays The Best Interest ~ Benjamin Franklin

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