Investing for TAX SAVING!
The major reason why a large number of young people invest is
to
save tax! In fact, thank God for tax. If tax did not exist, the youth
would never even think about investing!
Incase you do not know how this whole “tax saving”
and investing thing works, let us explain that first.
You see the Govt. wants us to invest in certain things. Some of the
things that the Govt. wants us to invest in are for our own good. The
other things are for the good of the nation. So to encourage people to
invest their money in the “these things” the Govt.
says
that, “If you invest your money in these things, you do not
have
to pay ‘income tax’ for earning that
money!”
Incase you are confused, I will just give you are very basic and crude
explanation on how income tax is calculated and paid. You see,
“income tax” is all about your
“income” i.e.
the money you earn! You have to basically pay a portion of what you
earn to the Govt.
Suppose you do a job and you earn Rs.20,000 every month you will have
to pay a part or a “percentage” of that money to
the Govt.
What is the percentage that you have to pay? That depends on the
“tax bracket” you fall in.
What is a tax bracket? You see, the Govt. feels that rich
people
can afford to give more money towards the development of the country
and poor people cannot give much. Also the really poor people cannot
give anything at all since they are struggling financially. So the
Govt. has decided whether you are “very poor” or
“poor” or “rich” or
“very rich”
depending on how much income you make. If you fall in the
“very
rich” category than you have to pay a big percentage of your
money towards the county. If you fall in the “very
poor”
category you do not have to pay anything to the country.
This is basically what tax brackets are. The Govt. has decided what
percentage of your income you must pay as “income
tax”
depending on how much you make or which “tax
bracket” you
fall in.
Now there is a legal way of paying less tax than what you are supposed
to pay. And this way is though “investments”. If
you invest
part of your income into Govt. bonds, infrastructure bonds, life
insurance etc. then your income will reduce and you will have to pay
less to the Govt though income tax!
However, this is not true for any type of investment. It is true only
for certain types of investments as stated by the Govt. Also, if you
invest your money in these tax saving things, it does not just
“go away”! You actually create an asset. An asset
that
produces money for your self. So, instead of loosing the earning power
of the money by giving it to the Govt. though income tax, you could use
the money to create an asset and also save tax in the process.
Again, incase you lost the original point in all the explanation,
invest your money to save tax!
What we have told you above, are just the very basics of saving tax. There is a lot more to learn! If you are interested, we suggest you read the book "How to save income tax though tax planning?". You can get yourself the book from ebay.in
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Next - Inflation....silent killer! >>
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Table Of Contents
- How to
manage your money? - Intro
- Why should you invest your money?
- >> For making "big buys"!
- >> For tax saving!
- >> Inflation
- >> "The power of compounding!"
- How to invest?
- Investing
in Mutual Funds!
- Assured return investments...
- >> Fixed Deposits (FD's)
- >> Public Provident Fund (PPF)
- >> Employees Provident Fund (EPF)
- >> National Savings Certificate (NSC)
- >> Kisan Vikas Patra
- >> Post-office - Monthly Income Scheme
- >> Post-office - Time Deposits
- Insurance