But in this world, nothing can be said to be certain, except death and taxes.

Background

While you can’t avoid either, you can try to make some tweaks about their timing. In India especially, taxes are a comprehensive subject. One that run into volumes of the law, commentary, judgments, and opinions. This is often the reason taxes are thought to be burdensome, in all ways you can think of. Let’s change that today.

By answering a couple of questions. What are the different taxes? We’ll split them into Direct Taxes, which includes Income Tax, Indirect Taxes, like GST & Customs. Now the source for these taxes is slightly different. With a quick refresher on our Interest Rates episode, income can be divided into largely 3 buckets, i.e Savings, Investments and Consumption.

Direct taxes are often routed to the government through the savings portion of our income and indirect taxes primarily through your consumption, while some may say Direct taxes are not savings, they would be if you didn’t cut the tax cheque for the government. Further, Direct taxes are largely progressive, i.e the increase in the tax you’re liable to pay is directly correlated with the increase in your income. The story is different for indirect taxes, they don’t care how much you make. You pay exactly as much as you consume and to be more specific, a prescribed percentage of the products and services you purchase are levied as Goods & Services Tax (GST). While some products and services are exempted from GST, such as food essentials, medical services etc., they remain exempted even for those that wouldn’t feel a pinch shelling that extra dollar of tax, unlike Direct Taxes (Income Tax).

How can I use tax to my advantage?

If I’ve to put this is one sentence for you. Start a business or practice a profession (Chartered Accountant, Doctor, Advocate, Architect etc.). This still remains the best way to retain most of what you make, and there’s no two ways about it. But that’s not to say that salaried individuals cannot use Tax to their benefit. In fact, there are multiple deductions available from a salaried individual’s taxable income, like those for investments in a Life Insurance Policy, Health Insurance Premiums (including for your family), Principal and interest payments on your home loan etc. (Refer Section 80 of the Income Tax Act)

Deductions for donations to political parties, income tax waivers on interest and a slightly higher quantum of benefits for Senior Citizens. But as I mentioned earlier, nothing beats incentives given to business owners and Professionals. For instance, the contrast is clear when Professionals have the ability to pay taxes only on half of their Professional Income (For annual income up to INR 75 lakh) and business owners have the ability to declare only 6% of their annual turnover (limit of INR 3 crore) as income and pay tax on that limited amount. Salaried individuals, on the other hand, must declare every penny they make, and have it ‘assessed’ by the taxman and thus pay the requisite taxes.

Mind you, this is not in anyway a critical assessment or an expert commentary on the fiscal structure of India. This is merely a bird’s eye view on the benefits a certain section of the workforce gets for providing ripple effects through their work, such as medical services by doctors, employment created by businesses etc. and the benefits aforementioned are tangible and rightly so.

One must keep in mind that staying on top of taxes, helps sleep better, and this is not a euphemism. In short, pay your advance taxes (those due at the end of every quarter), file your returns (annually, usually by 31st July for individuals), deduct taxes when required (say when you’re buying property etc.) and have them deducted in your favour (say when you’re drawing a salary etc.) for which you’ll receive a credit against the total tax payable by you at the end of the year.

“There’s a fine line between tax planning and tax evasion and often that line is blurred especially through the lens of a dishonest taxpayer”, and quite frankly, that’s where the problem begins, which then requires an unusually complicated process to restore status quo.

In terms of indirect taxes like GST, there’s barely anything you can do about it, except maybe consume less. You may ask, are there no incentives for business and professionals here? How can there not be? Like you rightly guessed, business owners and professionals also receive Indirect Tax benefits, primarily the Input Tax credit, which is credit for the taxes paid to a supplier (for those purchasing goods) and credit for services availed (for both business owners and Professionals). This means that the ultimate burden of the Indirect taxes is borne by the end consumer and intermediate players in a supply chain (manufacturer, wholesaler, retailer) if registered under GST, pay little to no Indirect Taxes (GST).

Will the government reduce income tax?

The latest word on the street is exactly this. A drop in Income Taxes expected to fuel consumption and, consequently, growth of the economy. This is slightly different from our initial assumption that a reduction in taxes would form part of our savings as opposed to increase in consumption. The way we could conclusively determine that is by studying patterns of marginal propensity to consume (which is every rupee of additional consumption for a single rupee of increased income and marginal propensity to save (which is every rupee of saving for a single rupee of increased income).

By and large, given 2025 is not election year, I’m personally inclined towards a more hawkish monetary policy (keeping interest rates high to maintain stable asset prices), at least until April 2025 combined with a neutral fiscal policy (maintaining status quo as far as Income Taxes are concerned), but with the speed of developments in both the Indian and international markets, these decisions are sometimes very similar to a coin toss and follow a more random path (often known as brownian motion) as opposed to a carefully crafted trajectory.

The newest code in town, The Direct Tax Code

There’s sufficient doubt about if taxes will reduce but there isn’t even a shred of doubt a renewed tax law for India. The Direct tax code has been in the works for over a decade, much like anything substantial in India. Although, we seem to be at the precipice of a fiscal revolution in our country, one which will see phenomenal changes to the way tax is levied, and possibly even collected.

But there isn’t much to worry, the Direct Tax Code is meant to be a simplified version of the Indian Direct Tax Law and hopefully tax is no more a complicated topic, which also happens to be the objective of this blog. So, the next time someone says tax, think of it as merely a chore, and absolutely nothing more.

I’d love to hear your thoughts, feel free to reach out on k@kreshanu.com

Thank you for reading Math&Money, I wish you an absolutely phenomenal 2025.