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How to reduce your taxes?

This week we explain how one can reduce their taxes by utilizing the deductions properly followed by what’s trending in markets and curated good reads .

1. How to reduce your taxes?🧐

Written by: Pankti Shah

It’s better late than never to understand your personal finance because it’s your money and you are going to need it till you die. We procrastinate building good healthy habits and later regret it when we pay hefty medical bills🩺🏥 

Similarly, in our wealth creation journey, here we end up paying the taxes, which we could have saved otherwise💰

Government be like💁🏻‍♀️:

But did you know, that you can save 50% of your taxes by utilizing your deductions cautiously! 😱 

So, to understand some easy-peasy ways to save taxes & increase our take-home salary using tax deductions…hang along here!😉

  1. Understand which tax slab you fall into & the meaning of your salary breakup components. 
  1. Recognise which expenses can be used as deductions while calculating taxable income. 

For e.g.: if you have a home loan running, EMI will always be there as a major expense back of your mind. This EMI consists of two components – interest payment & principal repayment. While this is an outflow, did you know, that both of them can help you reduce your taxes?🤩

Likewise, the interest you pay on an education loan, life insurance premium and more such expenses that can also help you reduce your taxable income. 

In the graphic below, we cover the majority of the ways to increase your take-home salary

Note: This isn’t an all-inclusive list and all these sections have upper caps and conditions. So its better to consult a tax advisor. The Idea of this newsletter is not to make you an expert but to give you basic understanding and direction .

While deductions do help in reducing your taxes thereby increasing your take-home salary, you need to carefully choose between the old tax regime and the new tax regime. 

The deductions discussed above can be claimed only under the old tax regime. Under the new tax regime, you cannot claim any of the deductions. But hey, it doesn’t mean that the new tax regime is bad because the new regime has more tax slabs with lower rates of taxes. 

Let’s talk some numbers now💡

You will notice in the table above that the tax rate under the old tax regime is 30% if the income is more than 10 Lacs, but under the new tax regime, its 20% between 10-12.5 lacs, 25% between 12.5lacs-15lacs and 30% only when your income is more than 15 lacs. 

Now, let’s compare the tax payable (new vs old) for someone earning Rs. 15 lacs.

In the example below, the tax payable is ~50% less in the case of the old tax regime due to deductions claimed and the taxable income in the old regime is 8.9lacs which would have been 15lacs without deduction.

Now, if we calculate tax on our taxable income (according to the old regime), it comes to Rs 94,120 and otherwise it would have been Rs 2,72,500 without deductions in the old regime and Rs 1,95,000 in new regime. So, the benefit is clearly visible here🌝

The math may be completely different if your income and deductions are different. That’s why there is no one size fits all approach.

What should be kept in mind is one has to save, invest and insure yourself, and alongside that make sure not to lose out on any tax benefits wherever it’s possible. 

We welcome your queries on any of these on Multipie by simply asking your questions with the hashtag #askonmultipie. No question is a small question, you never know a small question could help you save lots of pennies. 

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2. What else is trendin’?🤙🏻

✔️ India’s largest cement producer- Ultratech cement which already announced to buy ACC and Ambuja cement few weeks back, have recently announced investment of Rs 12,886 crore. This will be a mix of greenfield and brownfield capex to increase the capacity by 22.6mtpa. But as a reaction of this, the stock fell by 5% on that day, though brokerages see a significant upside from this levels. 

✔️ Amul launched its first organic product- Whole wheat Aata. In future it also plans to launch its Organic Moong Daal, Tur Daal, Chana Daal, and Basmati Rice.

Companies which are expected to get impacted from this are ITC, Tata Consumer, Basmati players (KRBL, LT Foods).

This is another example of related sector diversification. I wrote a detailed write-up on business diversifications, to read the same, click here.

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3. Good reads 📚

3.1 A thread on the most mind blowing talks/presentations one would like ever to see.  

3.2 Vedant fashion performed extremely well in FY22. This is triggered by mixture of the new brands, campaigns, & initiatives taken by the company and from the industry tailwinds. 

To know the size of wedding industry and sectors which benefit due to good wedding season, tap here

3.3 Listen to an excellent podcast of Aswath Damodaran hosted by Patrick O Shaughnessy

See you next week. Until then, happy investing!

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