What is meant by tax shield?

Question

What is meant by tax shield?

Answer 1

Deductions that result in a reduction of income tax payments. The tax shield is computed by multiplying the deduction by the tax rate itself. For example, assume an annual depreciation deduction is $3000 and the tax rate is 40%; the tax shield, or tax savings on depreciation is $3000 x .4 = $1200. The company saves $1200 annually in taxes from the depreciation deduction. The higher the deduction, the larger the tax shield. Therefore, an accelerated depreciation method produces higher tax savings than the straight line method. Note that the term applies to other non-cash charges (e.g., amortization and depletion) as well.

All the best :)

Answer 2

Tax shield means tax savings as it does not include in taxable income which in turn doesnt attract tax on a particular amount which is an extra savings ......

Answer 3

The reduction in income taxes that results from taking an allowable deduction from taxable income.

For example, because interest on debt is a tax-deductible expense, taking on debt can act as a tax shield.

If you have Rs.1 crore, you can raise Rs.1 crore from market as Debt on which you will have to pay interest.  So, with Rs.2 crore capital you can start business.  While submitting annual accounts, you can show interest paid on Rs. 1 crore debt as Loss.  That means you have taken tax shield.

Answer 4

Friend,

Tax shield mean the money investing on the instrument can be excepted from tax under the particular section. for example, if you are investing money to tax shield mutual funds, you can claim tax reduction under 80c section of Indian incoe tax. A maximum of 100000 can be claim by investing that much amount to the tax sheild funds.

Remembr, tax shield investment should have lock in period for 3 or more years

does this make sense

Answer 5

A tax shelter, such as an IRA, investment in real property, tax deductibles, etc., or some other vehicle to lessen the tax burden.

Answer 6

Hi. The tax that is saved by some approved options which would otherwise have been payable because of high income, is known as tax shield.

Even if you are in 30% tax slab, I can show some plans which can help you save tax upto 70% !! Yes its possible.

Details:

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The same site has my contact no. You may contact me for further discussions.