How do Rich Save Taxes in india | How to save Taxes Legally?

 How do Rich Save Taxes in India

Welcome to today’s blog. So, to begin today’s blog, allow me to share a brief tale about Mr. Warren Buffett. In 2007, Mr. Buffett was asked, “Hey, Mr. Buffett, how much money or how much taxes does your employee normally pay in a fiscal year?” So he stated, “My employees pay 33% tax.” And he said, “How much money do you pay in a fiscal year?” He stated that I pay roughly 18% tax. You may be asking why someone working for Mr. Warren Buffett pays nearly twice as much tax as Mr. Warren Buffett does. Why is this the case? Now comes the crucial topic for you to grasp: what is the distinction between income and wealth? Now, this is one of the primary basic ideas of Thomas Piketty, an economist and novelist who speaks a lot about why wealth should be taxed more than income. This is precisely what we will learn in today’s blog.

I’m going to provide you five basic instances that will almost certainly persuade you to start a vital business. You must build your own digital enterprises and do a variety of other things. But, after reading these five instances, you’ll realise why this is such a crucial notion.

Power of owing a business

Let me begin by giving you the first example of what the difference is between when I buy stuff from Amazon with a list and when the majority of other people buy it. And please understand that I’m not doing this to brag. I’m only assisting you in visualising the power of owning and running a business. Okay, then let me take you to my Amazon link, where you can check it out for yourself. So please allow me to get a 2020 Apple MacBook Air 13 inch M1 chip. Assume the price is INR 87,900.

This price includes GST. This is the price a typical retail customer will spend. And what is the price I am being asked to pay? I’ve been requested to pay INR 74,491.53 in total. And it saves without a doubt, except GST. So, effectively, it implies I’ll get a GST rebate on it. Right? This is the first instance. This is not a temporary promotion. I’m going to acquire this for practically all of my consumer durable items. As a result, you can notice substantial legal tax savings chances in every product. And this isn’t only true for high-priced items. This also works on low-cost items.

So, if you operate a GST-registered firm, you will receive a significant tax rebate in the form of GST credit inputs. Now, I’m not a Chartered Accountant. I’m keeping my blog as simple as possible. If you have any counter-arguments, please let me know, but I’m only trying to convince you that if you run a business, you can save a lot of money on taxes. That is the most essential one from a legal standpoint. Also, a little disclaimer. These are not product recommendations, because every time I write a blog, you people tell me that you’re recommending that we buy this stock or that stock. No, I’m simply showing you some examples. These items will not be purchased by me.

Now, if you add up all of the products you’d buy on Amazon in a year and apply a 10% savings rate, you’ll see that there’s a lot of money you can save in a year. I’m not going to do the math because it would depend on how much you spend on Amazon. What exactly is the GST rebate? You’re receiving a lot of different things, but I hope you get the overall idea. Okay. Let us now go on to the second point.

Assume I’m in the market for an automobile. This is an article that appeared in Economic Times last year, and it was rather intriguing. Let us quickly go over everything you need to know if you want to buy an automobile worth 15 lakhs. So, how are you going to get it? You will effectively transfer that money from your bank account to that specific car dealer, or you will send a check or a demand draught to that specific car dealer, and that car dealer will give you the automobile. Right. So you go present them with a cheque for Rs. 15 lakhs. That 15 lakh is a savings for you, not an income. For example, if your annual income is $100,000 or one lakh rupees, your tax rate would be 20%. So you’ll pay 20,000 in income tax and save the remaining 80,000. Right. As a result, this money is likely to become a portion of your savings, further simplifying the case. As a result, this is the saving. So, how much money are you truly paying when you buy a 15 lakh automobile with your savings? That was the gist of the piece. So let me walk you through it fast. So, in order to own a 15 lakh automobile, you must earn 21.42. Assuming various tax laps, do you also need to incur gas or diesel charges, repair, and so on? So there are a variety of purchasing and running costs associated with purchasing and operating an automobile. Now, if you had owned a business, you might have reaped a slew of benefits. For instance, you can look into depreciation. Again, I am not a tax professional. I only understand basic taxation, but the idea is that if you operate a firm, you may surely discount part of your revenue in terms of expenditures. You will save a lot of money this way. Again, when you fill your gasoline or diesel tank, or when you have maintenance or repairs done on your automobile, you may deduct the cost from your business. Please check with your CPA to see whether your company qualifies.

However, running a business gives you the freedom to do so. At the very least, if you are a salary employee, you cannot claim this. You might now express what you’ve been saying about starting enterprises. I get the argument that it saves us money in terms of taxation. But don’t you believe it’s evil? That would be a no from me. And there are two opposing arguments.

 1.If you’re starting a business, the first thing you should know is that it produces additional employment.

For example, I currently employ roughly 20 full-time people, which means that I am assisting in the creation of new employment in the economy. Any country would like to create a more entrepreneurial culture. Now, if the government tries to impose a slew of new taxes on firms, many of them may relocate to Dubai. Many others have already made the switch. Many nations, including Estonia and Portugal, provide visas to businesses in order to attract individuals to work in their countries. And this is becoming a major issue in terms of brain drain.

As a result, the government must also provide an effective framework for entrepreneurs to continue interacting with the economy and begin producing more and more employment. This is the first qualitative reason why firms are not taxed as much as people.

2. Comes down to the Risk Reward Equations.

For example, when I decide to start a new business, then what happens is and I have to put in so much capital go to a certain scale. Only then it starts becoming profitable. That is how majority of the businesses function. So because entrepreneurs are taking more risk. So when things become successful for them, they are rewarded more. So this is a simple argument. I understand that many of you might not agree with this would have counter arguments. Love to listen to that. But I am presenting to you one side of the equation. I’m not trying to paint jobs in a bad situation. I’m just trying to tell you or motivate you that go and try to start businesses because it can actually be a worthwhile exercise. This gets me to the third point.

Why are Rich Taxed Less

Many times, you would have read in the press that Jeff Bezos and Elon Musk were feuding. They do not pay taxes. They pay close to zero percent tax. However, the ordinary American pays 35-40% in taxes. Isn’t that unjust? No, or yes. We need to comprehend the nuances of it. So, in a nutshell, let me explain this notion to you in a few sentences. So, let us try to explain this by using Tesla and Elon Musk as examples. Assume that the total value of Tesla in 2020 is $800 billion. Then, in 2021, the results were revealed, and Tesla’s value increased. It grew to be a $1 trillion company. This $200 billion was the extra money that was created. It is still registered with Tesla. It’s not as though Elon Musk has accepted this 200 billion. That is not going to happen. So, because this $200 billion of value is registered into Tesla, it is not taxed from that standpoint, as compared to income. As a result, income is a slightly distinct idea. So, in terms of earnings. What occurs is that if your income is one lakh rupees, you must pay a certain amount of tax on it since it is going into your pocket. As a result, the taxes structure on wealth differs greatly from the taxing structure on income creation. So, Elon Musk just opted to sell a specific piece of Tesla’s stack, and whatever transaction he made, he will have to pay tax on, at a far higher rate of tax than wealth growth. So I hope this helps you comprehend that when you read news stories like that, millionaires pay no taxes at all. That may not be entirely accurate. Rich individuals amass fortune, invest in various enterprises, and then use that money to counter it. 

How Billionaires use loopholes 

How billionaires are able to take advantage of particular loopholes in order to generate more money. So, to help you understand, I’ll use the purchase of a home as an example. So, assume, for example, Jared Kushner, Donald Trump’s son-in-law, and Donald Trump were the President of the United States. So he goes out and buys a bunch of properties in New York, so he will go out and purchase this entire block of four incredibly high end homes in New York right now. How does he manage to accomplish it? He’ll have to borrow money to buy it. He’ll go to a bank and take out a loan. Why will he incur debt? Because his name is Jared Kushner. He has developed several company empires. He’s a very wealthy man. As a result, banks are also more willing to lend money to him. Let us now imagine that this debt is worth $1 billion. And on this $1 billion, he must pay an annual interest of, say, $60 million. Right. $60. That interest can now be deducted from the company’s profits. So, whatever money he gets from this firm, let’s assume it’s $100 million. However, he is repaying a $60 million debt. Then his profit is what his profit is, which is $40 million. As a result, he is only required to pay tax on this amount. So this sort of system is rigged since middle-class, lower-middle-class, and even affluent individuals don’t have access to such vast sums of money and can’t take advantage of tax loopholes. So our life objective should be to get so wealthy that banks practically give us money for free. Because money is truly free these days. That is why you practise high inflation. Capital is available at a very cheap cost. When the cost of capital is really cheap, affluent individuals may go out and take out large loans and physically do this exercise in order to continue becoming richer and richer. Okay, you could argue, we’re talking about American society now. What about India, for example? Do such things happen in India? Yes. Amitabh Bachchan has done some of it. Legal. Illegal? I’m not sure. It’s probably legal.

So you have agricultural revenue in India. This is a pretty intriguing paragraph. Agriculture-related income is not taxed in India. For example, if you own 50 hectares of land and plant potatoes on it, and you get Rs50 profit from it, that revenue is not taxed. So, a few years ago, Amitabh Bachchan legally saved a lot of money by claiming to be a farmer. It’s a silly thing to say, but it’s true. Big farmers, such as Mr. Amitabh Bachchan, or institutional players, such as ITC or Monsanto. These are massive corporations with revenues in the tens of millions of crores. They also avoid a ridiculous amount of tax by taking advantage of the agricultural income loophole. You let me know in the comments area. Is this correct? Isn’t this unjust? What did you enjoy the most?

Which example did you like the best out of the five examples that I illustrated?

This brings me to the final section of the blog.

What can you do to Save Tax

I’m not a Chartered accountant, but there are several basic steps you can do. Claim all of your tax breaks. There are several videos and blogs on the internet that will discuss which part you should investigate and what you should do to claim deductions. Please do so.

2. If you have a home loan, you can deduct it. Similarly, you can deduct some of your taxes by taking out a student loan. Should you take out a loan? Should you not take out a loan? That is a very other topic. However, if you have taken out a loan, you should take advantage of any tax breaks available. If you give to a non-profit organisation, you can deduct the amount from your taxes. Even if you have a job, this can help you save money. Finally, consider how to create a business because it is the most efficient approach to save taxes.

Be the first to comment

Leave a Reply

Your email address will not be published.