I love Bengaluru. This is where I began my career as a financial advisor. This is where IMMPL was born.
I love Bengaluru even when it rains and there are pool pits on the roads. I love it, even more, when someone else offers to give me a lift to work. Like my friend did the other day.
The journey was taxing and so was the conversation. More precisely, all the talk was about taxes.
“I have had enough,” my friend growled. “I pay the government guys half my salary, and this is what I get in return?” I let him vent for a while the car lurched its way forward, ditch by inch.
When he was silent, I gently asked, “Let’s assume you don’t pay any tax, no one pays any tax. Who would pay for this road? And for that poor policeman who is struggling to stay standing and sane—”
“Don’t give me all that crap about patriotism, duty towards the nation and all that,” he rudely interrupted.
Silence reigned for a while before he murmured. “First the company deducts half my salary and then I have to pay extra tax when they demand.”
I was beginning to sense his problem, a very common problem.
Planning eases pain
He was painfully conscious of the TDS from his salary. He was getting a fat dividend from his shares, but that too reached him after tax licked off the cream. His bank was also in the cutting game. Despite all these cuts, why was he being asked to pay more taxes?
“Form 26AS,” I said. “Section 80C,” I added. He looked at me as if I were suddenly speaking another language. “My accountant says the same things,” he muttered.
Seeing how tightly he gripped the steering and how grim his expression was, I decided to skip the sections and numbers for a while.
At that moment, I did not have the courage to tell him that taxes were as inevitable as death. “It is simply a matter of planning. You will pay tax, possibly less than what you are paying now, and it will not be a painful surprise. Just some planning. That’s all,” I said. I had his attention.
Know the law
I told him how he could start by tweaking his salary structure if his company allowed that. He admitted his HR department had asked him something on those lines when he had joined. He had not paid attention.
There are some components of the salary that attract less tax. Sit with an expert and understand this. You can redistribute your salary among various allowance buckets so that your final tax outgo is minimum.
Understand the various sections of the Income-tax Act that allow you exemptions. For example, you can claim up to ₹1.5 lakhs under Section 80C. Imagine if all of that were to go into your PPF account, you would be not only saving tax but also building a nice nest egg.
Then there is Section 80D which gives your health insurance premium a hearty tax break.
Study Form 26AS seriously. It is a record of your tax credits. If anything is missing or incorrect, rectify that immediately.
Tax is a part, look at the whole
“Laws can change, and it is not easy to keep pace with all the sections unless you have expert help,” I suggested. He gave me a knowing glance. “Yes, I mean an expert like me,” I rubbed it in. He laughed. At last! The rain had not relaxed, but he appeared to have.
Tax is but one component of your overall financial plan. It is not about paying zero tax. But about paying the least possible tax without upsetting your investments, which in turn should be designed around your life goals. If you must choose between one mode of investment that can save you some tax and another that is more closely aligned to your goals, which one would you choose?
We had reached my office. “When you have some time, stop by. I will introduce you to one of my colleagues who will help you with not just tax but your entire personal finance.”
“Wait,” he said. He also got out of the car, locked it, and joined me. “Let us start right now.”
“But if you leave your car here, you will have to pay a parking tax, I mean parking fee,” I warned him.
“I think it will be a good investment,” he replied. Both of us laughed.
He led the way, with the confident gait of someone determined to master his finances, confidently bounding over the minor tax puddles, without slowing his pace.
Note: MoneyTales of Lovaii with MintGenie is a series that helps investors make better sense of their money. Our aim is to help you make better saving and spending choices.