The government takes away little of what we earn to create a working capital by imposing income tax on taxable income of individuals. The government deploys this working capital, diversifying this in various sectors as needed to run the country’s expenditure. With the money they collect, the government provides at least but not limited to police services, border security, hospitals, roads and railways, housing for the needy, cleanliness of city, service job creation, manages import and exports and creates emergency/contingency funds.
The government creates budget forecast on the budget day for the next financial year, in anticipation that they will collect enough tax revenue, so as to be meet the country’s expenses. There is always a risk involved as the government is forecasting for tomorrows needs based on today’s assumptions.
Paying income tax is obligation of every individual who earns more than the minimum taxable income as announced in the financial budget.
Income tax is levied on taxable income of the individual. The government has created instruments to stifle the taxable income, a smart investor should deploy these instruments to reduce his/her tax burden.
There are lot of instruments available like tax-saving bonds, tax saving Fixed Deposits, National Saving Certificate, Public Providend Fund, Post Office Scheme, ULIPs, ELSS, Employer's Providend Fund, Life Insurance. Each instrument have their pros and cons, so one should think it out before parking funds in any of these instruments.
In spite of its non-liquid nature, I personally am very fond of the PPF and tax saving Fixed Deposits instruments.
A rule of thumb is to plan your tax-saving instruments and never leave it for the last hour.
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