Tax planning is a major part of your overall financial planning, reduced tax liability means less burdens on you, which will lead you to plan your financial goal as per your dreams and needs. It also contributes to the economic stability of the individual as well as the country.
Tax planning will in minimise the tax liability by saving the maximum amount of tax by planning and organizing their financial operations according to tax decisions. It also conforms to the provisions under taxation laws, thus minimizing any litigation.
The biggest benefits of tax planning are that the returns can be directed to investments. It is the most useful and productive way to make a smart investment while completely utilizing the resources available due to tax benefits.
The investing tax money produces or generates white money to flow through the economy, aiding in the country’s economic development. Some fundamental objectives of tax planning like Productive investment, reduced tax liability, Litigation minimization, Economic stability, Growth of economy.
Tax Planning in India
A lot of tax saving options available in India for taxpayers. The various options provides exclusions and deductions that helps in reducing the overall tax burden. Under section 80C to 80U deductions are provided, and eligible taxpayers can claim them and these deductions are applied to the total taxable income.
Its a wise decision when tax planning is done within the boundaries set by the respective authorities infect It is totally legal . On the other hand, if anyone employing unprincipled or unscrupulous methods to avoid paying taxes is prohibited, and you could face penalties as well. Tax evasion, avoidance, and preparation are all ways to save money on taxes.
Types of Tax Planning
- Short & Long- Range Tax planning
Tax planning for specific objective with in the year is called short-range tax planning. On the hand,
Long range tax planning put into the practise, which is not paid off immediately.
In other words, short-range planning usually occurs towards the end of the fiscal year. Whereas long-range planning occurs in the beginning of the year.
- Permissive Tax Planning
Tax planning is estimated permissive when carried out under the provision of a country’s taxation laws.
- Purposive Tax Planning
This one is a income tax e-planning method for a specific objective. This may include diversification of income assets and business based on residential status and replacing assets if necessary.
What is Tax Planning?
Tax planning is a financial planning for tax efficiency. The aim is to reduce one’s tax liabilities and optimally utilize tax exemptions, tax rebates, and benefits as much as possible. The tax planning includes making financial and business decisions to minimise the rate or incidence of tax.
Tax planning helps you legally legitimately to avail the maximum benefit by using all beneficial provisions under tax laws. Tax planning enables to assume of finances and taxes at the beginning of the fiscal year, instead of leaving it to the end.