How To Save Maximum Tax Legally | Lab Of Rich

How To Save Maximum Tax Legally

In this blog, you will learn about How To Save Tax Legally. This information is taken from the book "Start Your Own Corporation" by Robert Kiyosaki. 

Sachin Tendulkar known as the "God Of Cricket" earned 5.92 Crore in 2011 by doing foreign sponsors and advertisements. He claimed a tax deduction of 1.77 Crore from the government. But the problem was that Sachin gets this tax deduction only when he proves that he was an actor not a cricketer under the section 80RR and to claim this tax deduction he claimed that he was an actor, not a cricketer. This case was presented in court and Sachin Tendulkar was considered an actor and he got a tax deduction of 1.77 Crore. The conclusion is everyone uses legal methods to save taxes.

Amazon earned a profit of ₹77,000 Crore in 2018 but paid ₹0 in tax.

So the question is - How can a middle-class employee or self-employee save maximum tax legally?

Answer - By starting a new company.

Before continuing let me be clear that I am not a tax advisor. All the points told here are taken from the book "Start Your Own Corporation".

So let's start by taking an example of a middle-class family.

• Let's suppose a married couple is having 2 kids.
• The name of the couple is Ram And Riya.
• Ram is a full-time employee whereas Riya is a housewife.

One day they both calculate their finances and they discover that if their life continues like this they won't be able to afford their kid's higher education and their retirement. To know the solution to their problem they got to a financial advisor. The advisor suggested 2 solutions. Either they increase their income or they start their own company.

After listening to the advice of the advisor Riya starts her own company. Riya starts doing freelancing work by sitting at home. Riya is good at her work so she starts earning more money from the clients.

Now when Riya has started her company she can get maximum tax breaks.

The first tax deduction she got is in office rent

Riya is using her bedroom as a place to work so she doesn't have to pay any rent but she signs an agreement and pays ₹10,000 to her own as rent and gets a tax deduction legally.

The second tax deduction she got is from startup expenses

Pencils, Books, Tabel, chairs, etc all the money spent here can be purchased tax-free legally.

The third tax deduction is for meals

The food she eats at lunchtime can be considered an expense and can be used to get a tax deduction. She wants to keep it legal so she only includes lunchtime meals.

The fourth tax deduction is computer assets

Riya needed a good laptop for her company so she bought a laptop and claimed a tax deduction on it. She can claim the tax deduction in 3 years. It means if the laptop cost ₹60,000 then she will get 

1. ₹20,000 tax deduction current year.
2. ₹20,000 tax deduction next year.
3. ₹20,000 tax deduction next to next year.

This is known as depreciation in law terms. This means laptops will be useless in the next 3 years.

The fifth tax deduction is telephone and internet connection

To give freelancing service Riya needs a strong internet connection and a sim card to get in touch with clients. Therefore she claims tax deduction on these things also. Riya wants to keep this legal therefore she uses the sim card only to interact with clients.

The sixth tax deduction is employee expense

When Riya's business started getting successful, she decided to get a salary from the business. If their salary is within the tax bracket (0-2,50,000) then they have to pay very less tax.

The seventh tax deduction is travel expenses

Both couples love traveling a lot therefore she aligns her business in a way that where she wants to travel they do business meetings also.

The eighth tax deduction is Health and Life Insurance

Riya sets a rule that she will give insurance to her employees with salary and as of now, she is the only one working in the company she gets a tax deduction on her insurance also.

The ninth tax deduction is education/subscription

Riya always wanted to get higher education therefore she took a tax deduction on her education.

The tenth tax deduction is a family job

Riya's business was getting big therefore she hired her family members as employees and got tax deductions on them legally.

These were the 10 legal methods to get a tax deduction from a business.

I hope this was helpful.