Tax shelter

Tax Glossary Definition

Tax shelter

A tax shelter is a lawful arrangement or investment designed to lessen a taxpayer’s immediate tax burden. It typically works by reducing the income that is subject to tax, postponing when tax must be paid, or making use of incentives intentionally built into the tax system. While fully legal, tax shelters must comply with the spirit and conditions of the relevant tax laws.

Example: When an individual purchases infrastructure bonds that qualify under Section 80C, the amount invested is deducted from their taxable income. This reduces the person’s tax payable for the year, making the investment function as a tax shelter.

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