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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