Tax planning refers to financial planning for tax efficiency. It aims to reduce one’s tax liabilities and optimally utilize tax exemptions, tax rebates, and benefits as much as possible. Tax planning includes making financial and business decisions to minimise the incidence of tax. This helps you legitimately avail the maximum benefit by using all beneficial provisions under tax laws. It enables one to think of their finances and taxes at the beginning of the fiscal year, instead of leaving it to the eleventh hour.
There are some fundamental objectives of tax planning. Tax planning diminishes tax liability by saving the assessee the maximum amount of tax by arranging their financial operations according to tax decisions. It also conforms to the provisions under taxation laws, thereby minimizing any litigation. One of the biggest benefits of tax planning is that the returns can be directed to investments. It is the most productive way to make smart investments while fully utilizing the resources available due to tax benefits. Investing tax money generates white money to flow through the economy, aiding in the country's economic development. Tax planning hence contributes to the economic stability of the individual as well as the country.
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 totally 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.
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.
Tax planning is deemed permissive when carried out under the provision of a country’s taxation laws.
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.
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: