Warren Buffett, now the world’s richest individual...

IIPM, GURGAON

Warren Buffett, now the world’s richest individual, wrote this brilliant analysis in a legendary letter to his investors in 2005, “Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea bubble, explaining later, ‘I can calculate the movement of the stars, but not the madness of men’. If he had not been traumatised by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors, as a whole, returns decrease as motion increases.” Interestingly, if you’re looking at tax planning simply for saving taxes, you’ve still not understood Buffett’s motion principles at all... For tax planning is now purely about wealth creation!
By Gyanendra Kashyap

A smart move by witty Portia had enabled Antonio to escape Shylock’s wrath in William Shakespeare’s The Merchant of Venice. Alas, that was just a play; in reality we have millions of Antonios losing pounds of their flesh every year. Bemused? If you belong to the knowledgeable suited partisan clan playing to cliched galleries that consider taxes and death as inevitable, you’re our sweet Antonio! For death might be inevitable, but in the same way as you can delay death with a healthy lifestyle, you can also reduce your taxes – and increase your wealth – with a healthy tax planning lifestyle. Surprise surprise, modern day Portias do exist to trick the modern day Shy/Taxlocks.

‘Prudent tax planning’ is an issue that, in today’s busy world, is the last thing many keep in mind when they enter a new financial year. Sadly, it’s not just that people don’t care for tax planning (at least, till the last quarter before their due date for tax payment), but that they believe they’re the smartest tax whiz kids down the block because one fine morning, they can audaciously get up from their deep slumber, go to an agent and dump Rs.1 lakh in various ‘so called’ tax saving schemes.

Looking at the masses that show such radical characteristic, it seems as if people, of late, have developed an uncanny likeness for hustle, hassle and drainage of money. They consider this ‘year end deposit’ as a mere obligation to be fulfilled. But what they fail to realise is that this ‘mere obligation’ is actually working against their wealth. Even though it seems that they are actually accumulating a so called ‘fortune’ by adding a lump sum investment every year without fail, this falsity of a fortune is damaging their future income competencies considerably. Apparently, it is this massive failure of realisation that necessitates a careful assessment of the tax payer’s investment in terms of liquidity, security of investment, return and tax on such investments.

At the start comes a Zeusian philosophical change. The tax payer, instead of considering tax planning as mere obligation, must fanatically consider this as an extremely important investment for the future. The tax payee must believe that a planning strategy is not just for saving tax, but most for actual wealth creation; a process that he must follow with an utmost visionary zeal. If that philosophical change can’t be ingrained by a payee, then woe behold those who can’t make this process a successful exercise to take full advantage of all permissible tax deductions and rebates available on stipulated tax saving investments and to make optimum use of tax-exempted incomes.

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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