A common type of comment that I’ve seen over the years starts with describing a situation like planning for retirement, children’s eduction, wedding etc. and ends with asking about ways to save tax.
What is this obsession with saving taxes?
For a lot of people, specially if you are starting out and don’t have a lot of tax liability or savings, it may just be better to pay off your taxes instead of lock the money in an instrument that you can’t access for very long.
For a lot of other people who are earning so much that the 1 lakh 80C deduction doesn’t cover all of their tax liability, once you are done with it then what? Why fixate on other instruments that save tax? Why not broaden your search to include everything?
I don’t know when (if at all) Direct Tax Code will be implemented but I’m fairly certain that if you compared the first draft of DTC with whatever is going to get implemented it will be a lot different in terms of simplicity.
DTC was meant to bring in simplicity because all these weird clauses about perquisites and transportation allowance and tax saving schemes were just so hard to decipher and were creating perverse incentives so they removed all of those initially, and lowered the tax rate. But then they gradually increased the tax rates in each draft so now you may have a situation where the tax savings are gone but the rates are pretty much the same.
The reason I bring up DTC is because the environment has a lot to contribute to this mentality of not looking beyond saving taxes as the government comes up with something new that saves tax every year or two and that in turn creates an anticipation that something else is on the horizon that will aid in saving taxes, and then it permeates through other investing thought process as well.
I think a lot of people need to be reminded that saving tax is not an end in itself, maximizing returns is the end, and saving tax may assist in that, but all your energy shouldn’t be focused on it.