[DIY] Save on Tax Money – India

As many of you have been taking sessions with your financial adviser on how
to cut tax. Most of you will agree with me that their suggestion were

  1. take up a L.I.C policy
  2. buy a new home
  3. Invest in PPF
  4. Invest in Indira vikas patra
  5. Mutual Fund (tax saver)
  6. etc etc

But how many of us are actually able to buy or invest on the above.

Kind Note: Most advise from financial adviser, seems not to helping
us. Because we don’t sound intelligent on financial terms. Your adviser will
only be able to help you when you have a sounding knowledge about your financial
status. You need to ask him the right phrase or term for your adviser to answer

Let me illustrate with an example if you are programmer or coder in an
software industry you know what a for loop is and the other
Method 1:

   1:  for(var i=0;i
   2:  // do some thing
   3:  }

Method 2:

   1:  for( var k in object_or_array){
   2:  // do some thing
   3:  }

Assume that a amateur coder approaches you with a buggy code
and requests for debugging the code. Most of us will say the problem in the some
line number and may not explain about the other methods to approach the problem,
because it involves learning curve, Which of course many of us are not ready to
spend time with the new kid on the block.
The same happens when we seek
advise from our financial adviser.

Before you want to cut your taxes you need to understand and know what is
Savings – If you want to cut tax you need to have saving, so that
you could invest money.

Caution: Before you start saving money,
Kindly ask the question below

How much you can save every
This question is very important, if some one asked you this
question you might have said,

  1. Where is the saving
  2. May be I can save 2000 INR or more

Don’t float in the clouds, start talking real.
Once I committed the same
mistake, At first I answered no:1 and finally felt I should start saving and I
answered no:2. After which I went ahead and started investing money, finally
ended borrowing money from friends, to keep my family needs going.

Where did I go wrong?
It was my bloody Life Style – me a high
flyer, me a gadget freak
and what not. It took some time for my friend (Girish – My boss) to
make me understand what was the problem, if he had communicated the same message
earlier, I guess I would have taken it lightly. The problem about not having
money in hand to do saving.

It was some thing like filling up petrol for your bike and riding it when
your bike hit reserve, What was the obvious thing which you did next

  1. Kept riding it till it became empty.
  2. or filled the tank as soon as it hit reserve

The same goes for our saving and expenses too. If you want to invest you need
to have surplus money.

How do you generate surplus money, considering that you come from middle
class family and you are the only bread winner?
Simple, check your life
style, cut unnecessary expenditure, stretch on things if you can.

practice for couple of months so you know your pattern of expenses which
happen at your home.

It could be

  1. groceries
  2. rent
  3. electricity bill
  4. telephone bill
  5. mobile bill
  6. petrol and vehicle expenses or commuting charges
  7. etc etc

or so called fixed expenses

There some more expenses like

  1. medical
  2. new dress
  3. your trip to native place
  4. your inlaws coming home 😉
  5. etc etc.

or so called variable expenses which you can’t foresee.

Now after generating Surplus money, you need to know,
what would be right investment for your portfolio.

Your choice

  1. *Should you invest in L.I.C (life insurance corporation) which your
    forefathers or ancestors where investing
  2. *Or invest in Insurance policies which are newly opened foreign brands (Max
    Newyork, ICICI prudential, etc) who promise good returns
  3. **Whether buying new House
  4. Mediclaim policy
  5. How about Indira vikas patra
  6. Why not little risky investment in mutual funds, there are tax saver one’s
  7. Not worried I have time and ready to risk in stocks, from return I would
    invest in all of the above.

*A pure Insurance means life coverage, nothing to do with money returns (Ask
your agent to give in writing that X amount will be returns which they have been
promising) You will know the truth.
A Term Insurance policy
is pure insurance – you spend money for your insurance, in case of your
demise, your family would receive the benefit and you don’t make your family
feel that your departure had costed them dear.
After investing in term
policy, invest rest of your saving to some other investment.

**Now buying a house in an investment, but doesn’t become your Asset it is your liability, It is bank’s Asset. Once you are
finished of with the bank loan, it becomes your ASSET. So
Caution, before you buy real estates etc. Consider the bank
interest rates (which are increasing, in recent days). The effect would be that
your loan get extended for couple of years and that depends on the loan amount.
You may be paying EMI’s after your retirement.

Mediclaim is always important, do have one. If your working
company doesn’t cover your family. And if you have elder people @ home,
Mediclaim is a boon.

Now you have made your investment from the variety of choices you had above.
How about cutting your tax.
Well if your salary is lesser or equal to 1 Lakh
(100 thousand) INR you don’t pay tax
Above 1 Lakh you can cut your tax by
showing the investment which come under 80 G etc (I don’t want to be too
financial with words).
Some of you would have known that the maximum you
could cut your tax is for another 1 Lakh INR.
So how do you make more
Simple, Earn more (Work hard, It is time for your hike in salary).

or Start your own Business.

I will let you know how to save more money when you start your own

Before I close the post. Few points to ponder

  1. Learn to read your financial statements.
  2. Do have a book keeper so as to track your expense, If you can’t afford one
    book keeper. Be sure to keep track of your income and expense every week if not at least monthly
  3. When you seek advise from your financial adviser do have all your financial statements and supporting documents.
  4. Financial advisers are like Doctors. Doctors are for your human body and
    Financial advisers are for your personal or company finance. So no secrecy. Keep
    your account open so that they can help.
  5. Earn more to save more and to Invest more.

Note for Financial advisers: Keep your lips tight, don’t let
down your client’s vital financial information to others. In the long run you
may end up with more clients, if you live up with the promises.

Happy investing. happy self realization.

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6 thoughts on “[DIY] Save on Tax Money – India

  1. As you said, ask the right questions. i should consider myself a rookie on savings, cause the first thing that pops to my mind is that ‘hey, there are so many ways in which we can save tax’ but what should i really opt for. And the main problem for me is in understanding how tax system works.

    Well the brief descriptions that you have given to most of the savings would surly help.

  2. Hi, I would like to know what is the purpose of NSC bonds, there are so many types of bonds available in the market…. How good is it if i invest in them?
    Can u explain/

  3. Recently, there has been a good deal of inquiries by the
    FTC against bloggers and website developers
    for not revealing advertising profits, or existing
    connections with advertising agencies.

    What are your personal ideas about how this could potentially hurt
    the blogging world?

  4. I just subscribed to your feed. Great post and great website, you must have put a lot of work into it.

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