How the Rich Save Taxes (Legally)

Dear readers

Let’s be real. You work hard, build your business, take risks — and when you finally start making good money… boom, the taxman shows up.

But here’s the catch: the richest people in the world don’t pay nearly as much tax as you’d expect.

They’re not cheating the system — they’re using it.

And today, I’m going to show you how they do it, based on real strategies used by ultra-wealthy individuals, with clear examples and simple breakdowns.

Let’s dive into:

• How tax avoidance works (legally)
  
  

• The key difference between tax evasion and tax avoidance
  
  

• The exact tools rich people use
  
  

• What you, as a founder or entrepreneur, can actually implement
  
  

First: What’s the Difference Between Tax Evasion and Tax Avoidance?

It’s important to get this straight.

• Tax evasion = illegal. Hiding income, cooking books, underreporting profits. It’ll get you in serious trouble.
  
  

• Tax avoidance = legal. Using government-approved methods to reduce your tax liability — legally.
  
  

This newsletter is all about legal strategies. The rich avoid taxes by understanding the law better than most. That’s the game.

So… How Do Rich People Actually Save on Taxes?

Let’s walk through the most common (and clever) ways.

1. They Make Their Money Work for Them (Not From a Paycheck)

Wealthy people don’t just earn income from a job. They earn it through:

• Stocks
  
  

• Real estate
  
  

• Private companies
  
  

• Investments
  
  

And here’s the kicker:

Capital gains are taxed way less than salaries.

In India, your salary can be taxed up to 30%, but long-term capital gains are taxed at just 10%.

If your income comes from growing assets instead of a paycheck, you already pay less tax.

2.  They Use Companies Instead of Personal Accounts

“Don’t earn money personally — earn it through your company.”

Why?

Because companies are taxed differently:

• You can deduct expenses: rent, laptop, internet, business travel.
  
  

• You pay tax only on the profit after deductions.
  
  

• You can reinvest inside the business and defer personal tax.
  
  

Also, India’s corporate tax rates can be lower than personal tax rates.

If you’re a freelancer or solo founder, consider registering a private limited company or LLP. It’s not just for looking professional — it’s a powerful tax tool.

3.  They Borrow Instead of Selling Assets

This is a next-level strategy — but it’s very real.

If a wealthy person owns ₹10 crore worth of stock, instead of selling it (and paying tax), they go to a bank and say:

“Give me a ₹2 crore loan using these shares as collateral.”

Boom. They now have ₹2 crore in cash tax-free, while their stocks keep growing in value.

It’s called asset-backed borrowing, and the rich use it to fund lifestyles and investments — without triggering capital gains tax.

4. They Use Depreciation (Especially in Real Estate)

In real estate, there’s a magical tax concept: depreciation.

Even though your property might be appreciating in market value, the government allows you to “depreciate” the asset — basically claim a paper loss on it every year.

That means:

• You earn rent (taxable)
  
  

• You claim depreciation (tax write-off)
  
  

• Your taxable income becomes lower, or sometimes zero
  
  

This strategy helps reduce real income taxes while holding an appreciating asset.

5.  They Donate (But Smartly)

Giving to charity is great. But the rich do it strategically.

In India, donations to eligible trusts and NGOs under Section 80G are tax-deductible — up to 100% in some cases.

That means you can:

• Support causes you care about
  
  

• Reduce your taxable income
  
  

• Save while doing good
  
  

This also helps with image, PR, and investor relations — especially for founders.

6.  They Use Offshore Entities (Legally)

Many global entrepreneurs set up companies in places like Dubai, Singapore, or Delaware (US). Why?

• Lower corporate tax
  
  

• Easier international payments
  
  

• Legal tax planning
  
  

Of course, for Indian citizens, this involves compliance with FEMA and RBI rules. But even within India, using different structures (holding companies, subsidiaries) can help optimise tax.

Just make sure you follow the law. Don’t play around here.

7.  They Split Income Strategically

A founder earning ₹50 lakh a year in salary pays high tax.

But what if:

• They take ₹12 lakh as salary
  
  

• Take the rest as dividends (taxed at a lower rate)
  
  

• Or reinvest in their company for growth?
  
  

Even small founders can plan income this way — balancing between salary, dividend, and long-term asset creation.

Also, shifting investments to a spouse or family member in a lower tax bracket is legal in some cases (just be mindful of clubbing provisions in India).

8.  They Max Out Deductions & Exemptions

This may sound basic — but the rich don’t miss anything. They:

• Deduct every eligible business expense
  
  

• Invest in tax-saving instruments (like ELSS, PPF, insurance under 80C)
  
  

• Claim home loan interest (Section 24)
  
  

• Use HRA exemptions if renting
  
  

• Use education loan interest deductions (Section 80E)
  
  

And yes — they have good CAs who track every rupee.

If you don’t track your deductions properly, you’re just giving the government extra money for free.

What You, as an Entrepreneur, Should Actually Do

Feeling overwhelmed? Don’t be. You don’t need to be ultra-rich to apply these principles.

Here’s a simple 5-step action plan:

Step 1: Structure your business smartly

Don’t operate fully as an individual if you’re earning more than ₹10–15 lakh/year. Register a company. Use it to manage income, deduct expenses, and build assets.

Step 2: Learn capital gains basics

Start investing in growth assets — mutual funds, real estate, even your own company’s equity. Income from these is taxed less and builds wealth.

Step 3: Get a CA who understands startups

Many CAs only do basic filings. Find one who can help you plan, not just react.

Step 4: Track every deduction

Use tools, spreadsheets, even Notion — but know your numbers. If you spend it for business, document it. Don’t wait till March 30.

Step 5: Think long-term, not short-term

Avoid the temptation to “save tax” at the cost of growth. Use tax strategy to fuel reinvestment and compounding.

But Wait — Is This All Only for the Ultra-Rich?

Not at all.