Tax Planning
Tax Planning
Tax planning is a legal way of reducing your tax liabilities in a year. It will help you to utilise the tax exemptions, deductions, and benefits in the best possible way for minimising your tax burden. However, it should be done in a legal manner.
What is Tax Planning?
Tax planning is the analysis of one’s financial situation from a tax efficiency point of view so as to plan one’s finances in the most optimized manner. Tax planning allows a taxpayer to make the best use of the various tax exemptions, deductions and benefits to minimize their tax liability over a financial year. Tax planning is a legal way of reducing income tax liabilities, however caution has to be maintained to ensure that the taxpayer isn’t knowingly indulging in tax evasion or tax avoidance.
Tax Planning in India
In India, there are a number of tax saving options for all taxpayers. These options allow for a wide range of exemptions and deductions that help in limiting the overall tax liability. The deductions are available from Sections 80C through to 80U and can be claimed by eligible taxpayers. These deductions are made against the quantum of tax liabilities. There are various other sections under the Income Tax Act, 1961 that can reduce your tax liabilities such as exemptions and tax credits. When tax planning is done inside the frameworks defined by the respective authorities, it is fully legal and in fact a smart decision. However, using shady techniques to avoid tax payments is illegal and you may get into trouble for doing so. Tax saving practices include tax avoidance, tax evasion and tax planning. Out of these tax planning is the only legal manner of reducing your tax liabilities. The government offers the different opportunities to save on taxes with the intention of reducing tax burden on a taxpayer through legal income tax planning methods.
Corporate Tax Planning
Corporate tax planning is a means of reducing tax liabilities on a registered company. The common ways to do this includes taking deductions on business transport, health insurance of employees, office expenses, retirement planning, child care, charitable contributions etc. Through the various tax deductions and exemptions provided under the Income Tax Act, a company can substantially reduce its tax burden in a legal way. Once again, tax planning should not be confused with tax avoidance and all the planning should be done within the framework of law.
Increasing profits for a company results in higher tax liabilities. As such, it becomes imperative for them to devote enough time on tax planning to reduce the liabilities. With proper tax planning, the direct tax and indirect tax burden is reduced at times of inflation. It also assists in proper planning of expenses, capital budget and sales and marketing costs, among others. A good tax planning results out of:
- Disclosing correct information to relevant IT departments.
- Not being ignorant of applicable tax laws as well as court judgements regarding the same.
- Legal tax planning should be done which is under the purview of law.
- Planning must be done with business objectives in mind and should be flexible enough to incorporate possible changes in the future.
Types of Tax Planning
Purposive tax planning: Purposive tax planning means applying tax provisions in an intellectual manner so to avail the tax benefits based on national priorities. It includes tax planning with a purpose of getting the maximum benefit by making suitable program for replacement of assets, correct selection of investment, varying the residential status and diversifying business activities and income. Also, Under Income Tax Act, Section 60 to Section 65 is related to the income of other persons included in the income of assesse. Here, assesse can plan in a way that the provisions do not get attracted so as to increase the disposable resources. This is known as purposive tax planning.
Permissive tax planning: Permissive tax planning refers to the plans which are permissible under various provisions of the law, for example planning of earning income covered by Section 10, Section 10(1), planning of taking advantage of various deductions, incentives for getting benefit of different tax concessions etc. In other words, it means planning made as per provision of the taxation laws.
Long range and Short range tax planning: Short-range planning means planning made annually to fulfill the limited or specific objectives. It is executed at the end of the year to reduce taxable income legally. Also, in short-range tax planning there is no permanent commitment. An individual may invest in NSCs (National savings certificate) or PPF (Public Provident Fund) within the prescribed limit when income is increased. It is not advisable to take LIC/ULIP/Pension Plan etc. Long range tax planning refers to the practices undertaken by the assesse. Long term planning is done at the beginning or the income year to be followed around the year. Long term planning does not help immediately, for example transfer of assets without consideration to minor child. In this case, the income will be combined to transferor up to the child in minor but once the child turns 18, this will be the child’s income.
Tax Saving Objectives
The primary objectives of your tax planning should be the following:
- Reduction in overall tax liability
- Economic stability
- Growth of economy
- Litigation minimization
- Productive investment.
Tax Planning
Fees Start from
RS. 1000
Payment
