29 Jan
INCOME TAX PLANNING FOR BUSINESSMEN & INDIVIDUALS & WHY IT IS IMPORTANT?
INCOME TAX PLANNING FOR BUSINESSMEN
& INDIVIDUALS & WHY IT IS IMPORTANT?
Tax is
a mandatory charge levied by the government on the hard-earned income of an
individual or a business in any financial year. Although paying taxes is
definite and unavoidable, there are various ways to reduce this burden and one
such solution is tax planning.
Tax
planning is the process of analyzing an individual's financial situation
throughout the year and bringing various concessions and deductions that reduce
the tax liability in a legal manner. Tax planning is classified into the
following types
1.
Purposeful tax
planning - Purposeful
tax planning is the process of diversifying business activities and income,
changing residential conditions and making the right choice of investments,
applying appropriate tax provisions for these purposes, etc.
2.
Permissible tax
planning: Permissible
tax planning refers to schemes permitted under the Income-tax Act, 1961. For
example, planning to claim various deductions under section 80, incentives to
avail various tax reliefs
3.
Short-term tax
planning: Short-term
tax planning for limited or specific purposes at the end of the year to reduce
taxable income in a legal manner.
4.
Long-term tax
planning: Long-term
planning is done at the beginning of the year for the long-term purpose of
long-term tax payments, for example, long-term investment in Sukanya Samriddhi
Yojana.
OBJECTIVES OF TAX
PLANNING
The
basic objective of tax planning is to reduce the burden of tax liability and to
promote tax assessment and budget efficiency insurance. Good tax planning helps
a person to get the following benefits
·
Minimal lawsuits: Effective tax planning helps
ensure that all taxable compliance avoids the risks of penalties or notices
within a given time frame and minimizes the possibility of litigation between
taxpayers and the income tax department.
·
Productivity: Effective tax planning ensures
that income from a variety of taxable sources is diverted to the most
profitable tax-saving option schemes.
·
Reduction of tax
liability: As
a taxpayer, you can save the maximum amount of tax liability and thus reduce
the tax burden as per the required provisions of law.
·
Healthy Economic
Growth: Growth
in the economy depends on the flow of money in the market. Tax planning
predicts an increase in white money in the free flow for the overall economic
development of the country.
THE PROCESS OF TAX
PLANNING IN INDIA
You
can plan your tax estimates by following the simple steps below
1.
Calculate your estimated total income earned in the current financial year.
2.
Assess the total taxable aspects of your income. Tax liability varies depending
on the nature of the individual, their residential status, gross income earned,
age, etc.
3.
Claim allowances under section 10 of the Income-tax Act, 1961 to reduce your
total taxable burden. The various exemptions that an individual can claim are
as follows
(i)
Housing Allowance (HRA)
(ii)
Leave Travel Allowance (LTA)
(iii)
Employee contribution to provident fund (EPF)
(iv)
Transport etc.
4. Invest in various tax-saving
instruments to claim deductions available to eligible taxpayers under sections
80C to 80U of the Income-tax Act, 1961. Investment options in mutual funds
include provident funds (PPFs), equity-linked savings schemes (ELSS). National
Savings Certificate (NSC) or 5 years bank deposits, life insurance, health
insurance premiums, home loan payments etc.
TO MAKE YOU’RE
PLANNING EFFECTIVE:
·
Claim
tax benefits you have invested in eligible instruments
·
Provide
proper information to the concerned IT officers
·
Keep
up to date with applicable tax laws and court decisions
·
Tax
planning should be done entirely within the ambit of the law
·
Planning
should take into account future developments that you are aware of
It is
hoped that this article will help you to plan your income tax. If you have any
questions you can ask our legal experts by email at santoshpatil@alltaxfin.com or call them on 9769201316
Contact
us for Tax Planning, Income Tax Return, GST Return, Company Registration,
Trademark Registration, and GST Registration
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