What is Tax Planning?
Wealth management for tax efficiency is referred to as tax planning. It aims to reduce one’s tax liabilities by maximizing the use of tax exemptions, tax rebates, and benefits. Tax planning includes making financial and business decisions to reduce the tax burden. This enables you to legally obtain the most profit by using all tax law provisions that are beneficial to you.
Why Should You Plan For Taxes?
There are a few key objectives of tax planning. Tax planning reduces the tax burden by ensuring that the assessor pays the least amount of tax possible by structuring their financial actions by tax decisions. It also complies with taxation regulations, reducing the risk of legal action. One of the most significant advantages of tax planning is that the returns are more reliable.
Tax Planning in India
There are a lot of tax-saving options available in India for taxpayers. These options provide a variety of exclusions and deductions that help to reduce the overall tax burden. Deductions are provided from Sections 80C to 80U, and eligible taxpayers can claim them. These deductions are applied to the total amount of tax owed. It is legal and, in fact, a wise decision when tax planning is done within the boundaries set by the respective authorities. However, employing unscrupulous methods to avoid paying taxes is prohibited, and you could face penalties. Tax avoidance, evasion, and preparation are all ways to save money on taxes.
What are the Types of Tax Planning?
Now that you know what tax planning is, let us look at three types of tax planning.
1.Short and Long-range Tax Planning
Tax planning done every year for specific objectives is called short-range tax planning. On the contrary, long-range tax planning refers to practices undertaken by the assessee, which are not paid off immediately. Simply put, short-range planning usually occurs towards the end of a fiscal year while long-range planning occurs in the beginning.
2.Permissive Tax Planning
Tax planning is deemed permissive when carried out under the provision of a country’s taxation laws.
3.Purposive Tax Planning
It is a tax planning method for a particular objective. It may include diversification of business and income assets based on residential status and replacing assets if necessary.
4.Objectives of Tax Planning
Tax planning is a major part of your overall financial planning. A reduced tax liability means fewer burdens on you, which will lead you to plan your financial goal as per your dreams and needs. Here are a few objectives of tax planning:
1.Reduced tax liability
2.Productive investment
3.Growth of economy
4.Litigation minimization
5.Economic stability