Tax Planning in India : What, How and Why?

What is Tax Planning?

Tax planning involves strategizing of income and expenses in a manner so as to reduce the tax amount within the permissions of law. There are many factors such as deductions, exemptions and benefits that can be best utilised by expert tax planning to help reduce the tax burden. However, with frequent amendments and updates being a common occurrence in the world of “tax”, it is necessary to always consult a specialist and get second opinions before acting on any plan. 

Tax Planning in India:

The Indian fiscal system offers numerous tax saving options for each and every tax payer. The said options basically help get a broad domain of exemptions and deductions which consequently helps limit the overall tax liability.  In the Section 80C through to the Section 80U of the Income Tax Act, there are mentioned the complete details of various provisions for the deduction of tax on a number of payments that can be studied and claimed by eligible taxpayers. These deductions come under the micro section of tax liabilities. There is provision for various tax credits and exemptions under the Income Tax Act to further help reduce the tax burden on the honest taxpayers. 

 

Is Tax Planning Legal? 

There is no reason to doubt the legality of tax planning as it is based on the Income Tax Act itself. In fact, if anything, tax planning is a smart approach towards building a healthy business or savings plan. However, as a taxpayer you must know that tax saving practices include tax planning, tax evasion and tax avoidance. Out of these three, only tax planning is legal and you should never knowingly or unknowingly indulge in any of the remaining two practices or else you may find yourself in trouble. 

Tax planning can be defined as an arrangement of one’s financial and economic affairs by taking complete legitimate benefit of all deductions, exemptions, allowances and rebates so that tax liability reduced to a minimum. One of the fundamental features of tax planning is that all legal obligations and transactions(both individually and as a whole) are met and the transactions never take the form of colourable devices.
Tax planning requires not just theoretical expertise in taxation laws but also a continuous professional guidance to enable you to carry out your transactions in a planned manner so as to reduce the tax burden on your pocket without committing any breach of law.
At AITA, our panel of experts consisting of CAs, CWAs and experienced Tax Gurus who plan your taxation. If you want us to plan your tax, just get registered by filling this form and our team will contact you within the next 24 hours. 

How Tax Planning Works

Tax Planning is a technical process and requires years of experience and in-depth thorough knowledge of Tax Law. Only with these two properties can a tax consultant really help you save big on tax. There are many factors that need to be considered during tax planning which include: 

  • Timing of Income
  • Size of Income
  • Timing of Purchases
  • Planning for Other Expenses

Besides the above mentioned factors, the selection of types of investment/s and the type of retirement plans depending upon the goals of every client also need to be assessed so as to complement the tax filing status and deductions to create the best possible outcome. 

 

Objectives Of Tax Planning

  • Minimal Litigation: It is an understood dynamic that a tax collector and a taxpayer will always have their differences. Keeping such conditions in mind, it is the objective of Tax Planning to ensure complete and proper execution of the compliances regarding tax payment so as to avoid conflict.
  • Tax Liability Reduction: By using planned arrangement of your company’s operations, as per the required laws, you can save a major amount from the “Payable Tax” amount. 
  • Productivity: One of the most important objectives of tax planning is to plan timely investments from taxable income and distributing it towards various investment plans. 
  • Economic Growth of the Country: A nation is economically only as strong as its citizens. Smart Tax Planning objectifies to estimate free flowing white money for generations. This promotes a healthy growth of the nation overall.
  • Financial Stability:  It is almost a given obvious that as a business invests in various plans and benefits on tax as well as return on investment it starts gaining financial stability. By following efficient tax planning business can help promote their growth as well as the nation’s.