30 Minute TAX GUIDE

Calculate your income, find the deductions, and work out your tax. In a matter of minutes

Swami Saran Sharma and Udayan Ray


The hardest thing to understand in the world is income tax.
Albert Einstein

For most of us, Albert Einstein needs no introduction. And when the man who changed the course of mankind with his scientific thinking expresses his exasperation about a subject, you are bound to take it seriously. You are entitled to ask that if taxation confounded an intellectual colossus like Einstein, what hope would ordinary folks have. But the irony of taxation is that it is an integral part of our lives. Probably that’s why another genius, Benjamin Franklin, opined: “In this world nothing is certain but death and taxes.”

Such gloomy views on the subject obviously didn’t develop overnight for the story of taxes and the civilised man go back a long way. Taxes were levied when Pharaohs ruled Egypt 5,000 years ago. In India, a treatise on taxation existed 2,300 years ago in the form of Chanakya’s Arthashastra. It emphasised on fairness and equity, recommending that the affluent pay higher taxes as compared to the not so fortunate.

The modern system of Indian taxation started taking shape from the year 1922. After Independence, the Income Tax Act in its present form was passed in 1961. For the purpose of taxation, the total income of an individual’s income has been divided under five heads: salaries, house property, profession, capital gains and other sources. A number of deductions are allowed from the gross total income computed on the basis of individual income accruing under the five heads. The deductions allowed are usually in line with the fiscal policy of the government. For example, when the government wanted to promote investment in the housing sector, annual exemption up to Rs 1.5 lakh was allowed on interest repayment for home loans.

It is probably fair to say that the increase in the importance of taxation coincided with the enlarged role of the government, a phenomenon that came to the fore in the twentieth century, especially after the Great Depression of the 1930s. Governments across the globe had to enormously increase their spending to create employment and catalyse economic activities that would help out their citizens suffering in depressed economies. Governments were now much more than the police states of the preceding centuries, where their primary focus was on defence and maintenance of internal law and order. So, governments were setting up banks, industries, schools, universities, hospitals and, in many cases, handing out old age and unemployment doles. In the decades since then, governments may not have been as active in all the areas but they continue to spend large amounts of money raised primarily as taxes from individuals and companies. This, then, begs an important question. If taxes are for our collective good, why do most of us hate them so much? Two reasons immediately come to the mind.

First, at a subconscious level, we probably see it as diminution of our freedom—the freedom to do what we please with our hard-earned money. Second, the language of taxation is understood mostly by experts and intimidates laypersons, who see it as a complicated subject. It is this second aspect that we hope to address in this special issue on taxation. We have designed a package that will help you understand, calculate and pay your taxes with unprecedented ease—all in just 30 minutes.

We break the whole tax paying process into three parts: calculating your total income, figuring out the deductions to arrive at the taxable income and, finally, paying your taxes. Our primers and interactive worksheets will help you in comprehending the basics of taxes. We are aware that tax saving investment options are of great interest to our readers. This is more so with the deluge of equity-linked savings schemes (ELSS) from mutual funds and pension plans from life insurance companies in the recent past. We help you pick the best ELSS schemes and life insurance pension plans. We also give you insights into the two pension schemes provided by mutual funds. The tax on the earnings made by our investments can make a crucial difference in the long term, especially in retirement. We provide you a guide map to help you make your investments more tax efficient so that they provide better returns.

In sum, this special edition of Outlook Money will empower you to be better informed about taxes. You might still need expert and customised advice from a chartered accountant, but you will be aware of what he is doing for you and your tax planning would be a more participative process. Hopefully, you would have gone a long way in cracking a problem that even Einstein couldn’t.