Higher Taxes And Poor Tax Management
Here are a few tax management choices that determine you tax outgo and why you could be paying more taxes than your peers in the same income and age group: Higher taxes poor tax management
Tax Expert vs. Assumptions:
Tax experts have complete and accurate knowledge of tax laws just like you must have in your domain. Since you are not as aware of tax laws as an expert, decisions made based on your own assumptions lead to loss of your hard earned money in taxes, YOY. Changes in tax laws, as well as your financial circumstances, are more frequent than you would have noticed or acted upon. A tax expert helps in adapting to these changes more efficiently and accurately.
Fee vs. Commission:
A tax expert provides unbiased tax saving advice for a fee. However, an investment agent works on a commission and towards achieving his sales targets. An investment agent who generally belongs to the real estate, insurance, mutual funds and similar fields, may not have tax knowledge beyond 80C. They rely mostly on their marketing skills and not tax knowledge to lure you into buying inefficient tax saving instruments. Thus, the choice is to save on tax expert fees or be get stuck with tax inefficient and/or sub-optimal return investments. This is one of the most common reasons for paying a higher tax.
Tax Laws vs. Section 80C:
Section 80C is only one of the hundreds of sections/subsections/rules/notifications/case laws under Income Tax Act. In most cases, the tax knowledge of selling agents or a general taxpayer like you would be limited to section 80C. The complete and accurate knowledge of these tax laws helps in providing tax efficiency. The tax liability on CTC of Rs. 24 lakhs can be as low as Rs. 12,000 p.a. only if one uses maximum tax optimization options provided in the IT Act.
Compounding vs. Monthly Tax Loss:
Most taxpayers make a major mistake of underestimating the compounding value of tax loss during their working years. The monthly TDS amount reflecting in your salary slip doesn’t bother you too much. But it affects you and your family’s financial security in the long run. The compounded tax loss runs in lakhs and even crores by the time you retire. A mere saving of Rs. 3000 from your monthly TDS can increase your retirement corpus by Rs. 10,27,122, Rs. 50,85,990, and Rs. 1,94,73,533 in 10 years, 20 years, and 30 years respectively by the time of retirement. This saving in tax outflow can be used in building assets for your family.
Tax Saving vs. Tax Payment/evasion:
There is a misconception among taxpayers that paying taxes is good for nation and saving taxes is not. The fact is saving taxes helps your family, society, and nation too. We believe that: Paying tax is good, saving tax is better and saving tax with expert guidance to match your goals is best. And all this within four corners of the law, i.e., we do not suggest anything that falls under tax evasion. Higher taxes poor tax management
Tax Optimization vs. Tax Saving:
You might be one of the few taxpayers who actually are inclined towards tax saving. The shortcoming of pure tax saving is that its goals are limited. On the other hand, tax optimization process ensures that the financial goals of individuals are met to the maximum possible extent. While buying a tax saving product helps you save taxes, return from these tax saving investments or withdrawal can be taxable. Tax optimization helps you choose such tax saving investments and options that are tax efficient in terms of return and withdrawal as well.