I have NEVER saved tax

GADGETS, guitars, long weekends, music and his Maruti Swift are a few things technology critic Laiq Qureshi, spends most of his money on.

Laiq's mantra: Don't spend less, earn more. "I wouldn't want to cut down on comfort. It's just not me!" he exclaims.

 

The good life The 26-year old who works for an online media company in Mumbai earns Rs 25,000 per month. This amounts to approximately Rs 3 lakh (Rs 300,000) per annum.

 

Of this amount, more than half his salary goes to repay his five-year car loan from ICICI Bank. "They deduct about Rs 10,000 per month," he says. Laiq hopes to pay back the entire amount by 2010. Fuel expenses for weekend trips out of Mumbai eat up about Rs 6,000.

 

Laiq's girlfriend is based out of Bengaluru. So, STD calls and visiting her at least once a month, eats up the remaining part of his salary. "My cellphone bill is the only constant variable in my spending habit," he sighs.

 

If he has some money left over, he donates it to an NGO for children suffering from AIDS. "There was a time when money used to lay idle in my bank account," laments Laiq. Not any more.

 

Does he invest or save money ? No! Unfortunately, Laiq does not manage to save any tax, either.

 

Tax-wise

Though Laiq has been working for five years, he has NEVER saved tax. Why? He says he could simply never save enough money to invest. "But I have been thinking about it and once I enter the high income bracket I'll start saving," he says.

That's why Laiq has never bothered to fill out the investment declaration form handed out by his employers. "It totally goes above my head!" he exclaims. We do a quick calculation.

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Taking into account his annual income, Laiq pays Rs 31,620, annually, ie on an average Rs 2,635 will be deducted from his salary every month for a period of 12 months.

To reduce this figure all Laiq has to do is fill out this form and show proof of this investment. He can invest up to Rs 1 lakh to save tax. The good news: the contribution that he makes to his company Provident Fund can be included in this amount. Laiq's PF works out to Rs 20,000 this year, due to which the tax deducted automatically reduces from Rs 31,620 to Rs 25,620.

He can invest up to Rs 80,000 more to save the remaining Rs 25,620. Depending on how much he actually manages to save, this is the amount of tax he can avoid paying:

If he invests this amount per annum...	Tax he pays	Tax he saves
Rs 80,000	Rs 9,080	Rs 16,540
Rs 24,000	Rs 20,280	Rs 5,340
Rs 12,000	Rs 22,680	Rs 2,940

Where Laiq can invest

It's pretty obvious that the more he invests, the more tax he saves. So, how much can he shell out?

"With my car loan and spending habits I don't think I can keep aside a large sum of money (read Rs 7,000-8,000 per month)," says Laiq.

The good news is that he can save tax with less money by:

-Breaking up his investments into installments and investing say Rs 1,000-2,000 per month.

-Read all about low budget investing here .

-Investing this money in a tax saver mutual fund or Public Provident Fund. While these are the preferred investments, he can also choose from other options like National Saving Certificates, five-year bank deposits, insurance policies and pension policies.

Laiq must get cracking on his investment plan right away, instead of waiting till January or February of next year. Or else his money could suffer the ills of 11th-hour tax planning!

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Source: http://wealth.moneycontrol.com/profile/tax-planning/i-have-never-saved-tax-/9291/0