Tax Bhare ya Bachaye?
A social, ethical and business dilemma of every person who earns money.
India is a cash-driven country. The recent advances in the internet and fintech have shifted the momentum to Digital payments, but cash is still plays a major role in the overall economy.
We sometimes get opportunities to avoid taxes by taking our revenue or income in cash from our customer or buyer.
What do we save?
30% of the amount, if we are in the top tax bracket.
10% to 20% if we are in a lower tax bracket.
Let’s consider we did take the amount in cash to save taxes.
Now we face another problem, where to keep cash?
There are generally 3 options that people use to store cash
- Buy Gold
- Buy Real Estate
- Spend the cash
If we spend that cash, 100% of it is gone.
If we buy Gold or Real Estate we will need to safe keep them. Usually both these investment options over a long term give returns of 10% PA.
What if we pay the 30% tax and Invest 70% in the share market
You will get long term average returns of 20%, or by availing advisory services, we compound it at 30% in the share market. Which you can benefit from.
What’s the big deal in 10% in cash, 20/30% in equity?
If you see the above chart
The Real Estate and Gold got compounded at 10% from a initial start of rs100. After 20 years the rs100 has turned into rs612.
Investment in stock market was started from Rs70 as we have paid 30% tax on it. After 20 years of return calculated at 20% it has turned into rs2236. If considered at 30% it has turned into rs10233.
Even with a head start of 30% the investments in gold and real estate seem to fall far behind over the long term.
Icing on the cake
Profit from the Share Market also have Discount of 50% Tax on Short Term Capital Gain (Profit made within 1 year time), which is taxed at 15% and not 30%.
Discount of 70% Tax on Long Term Capital Gain (Profit made beyond 1 year time), which is taxed at 10% and not 30%.
Let us know what you think in the comments. If you think this might help someone in your circles, share it wholeheartedly.
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