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.
Types of Tax Planning:
- Purposive tax planning: Planning taxes with a particular objective in mind
- Permissive tax planning: Tax planning that is under the framework of law
- Long range and Short range tax planning: Planning done at the start and end of a fiscal year respectively.
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.
