Many people have a misconception that saving income tax means getting away with not paying tax. But using tax saving means is never tax avoidance. Tax saving and tax avoidance are two. Although almost all taxes are payable by everyone, income tax has a special feature. Income tax is a tax levied on the hard-earned income of that citizen after paying all the taxes levied on a citizen in the country.

TDS

It is because of this that the government keeps open ways to save tax. The government takes away a portion of our hard-earned income before it reaches our hands. Even if we work, the government gets the salary we should get first. TDS deduction, also known as Tax Deducted at Source, is literally taking a portion of our income in advance. Rest assured that only a portion of the salary goes this way. Most of the salaried earners do not even know why TDS is deducted from their salary every month.

This is about monthly salary. How about investing your hard earned money in a bank, stock or mutual fund? A portion of the profit from it will have to be paid as income tax. What if the savings were put into a savings account like everyone else does? If the interest is more than Rs 10,000 per annum, that too will be considered as income. Taxes will also be collected. Now, if there is any need for money in the future, what if I put it as a fixed investment? TDS will be deducted if the interest on it exceeds Rs 10,000 per annum. The situation is not different even if you can invest in any bond or debenture. How about selling stocks and mutual funds when the time comes to get a good price? If it is sold within one year of purchase, a portion of the profit is taxed. What if you sell the land or some gold that you bought when you are in need of money? Profits from it are also taxable. What if you win some lottery or participate in a reality show of channels. 30 percent of the income should be paid as tax. 30 percent tax is also payable on such additional income from playing online games.

Tax burden can be reduced

There is something more interesting than this. Assume TDS deducted as advance tax is more than actually deducted. The excess amount so deducted will be refunded by the government if the income tax return is filed. Interest will also be paid on it. But the interest paid in this way will also be treated as our income and taxed on that too. This means that the Income Tax Department itself will collect tax on the interest paid as a penalty for overbuying the amount, saying it is taxable amount. What a farce. Wherever such taxes can be levied, the government will levy them to raise money for the exchequer for the welfare of the people. Let it be imposed. But we should take advantage of the concession given to us by the government itself.

With a little thought and some systematic practice, you can reduce the tax burden by taking advantage of the exemptions provided by the Income Tax Department. But taxpayers should be prepared to make some changes in attitude to make the most of such concessions. More on that tomorrow. (The writer is a personal finance analyst and entrepreneurship mentor. Doubts can be emailed to jayakumarkk8@gmail.com)