Introduction
Types of tax planning analyze an individual financial situation from a tax-saving point of view to plan finances most efficiently. With the help of tax planning, taxpayers can use various deductions, rebates, and benefits and minimize their liabilities over a financial year. One can plan their tax on their own but a financial planner is best suitable to plan your taxes.
Due to constant changes in tax laws and a decline in interest rates, the tax planning process has become dynamic and complicated. Tax planning should be a part of your financial planning and should not be done alone.
Various Types of tax planning
- Short-Term Tax Planning
- Long-Term Tax Planning
- Permissive Tax planning
- Purposive Tax Planning
Various types of tax planning are shown below :
Short-Term Tax Planning
Short-term tax planning is done at the end of the financial year. It is done according to the law
Suppose an individual finds that the tax amount has been too high in comparison with last year and wants to reduce his taxes. The individual can go with a tax plan by section 80, which allows the individual to get deductions and rebates. This type of tax planning does not involve long-term commitment and saves a substantial amount of money.
Long-Term Tax planning
Long-term tax planning is done at the beginning of a financial year and goes on for the whole year. This type of tax planning does not benefit the individual immediately as compared to short-term tax planning but it is beneficial in the long run.
Suppose an individual has some kind of asset and he transfers it to his minor son, in this case, the taxable income of the individual decreases but his asset is safe with his child who is a minor. When the minor child becomes an adult he will have to pay taxes. By this method, the individual gets exemptions in taxes.
Permissive Tax Planning
The tax planning done under the permissible provisions of the law is termed Permissive tax planning. Sections 80C to 80U under the Indian law system have different provisions for taxable individuals to get deductions and rebates, and using these laws for tax planning can save a good amount of money for the taxable person.
Purposive Tax Planning
Purposive tax planning is done for a particular purpose and to get maximum benefits while doing tax planning. Purposive tax planning is done on a complex level and several methods are applied to get maximum benefits such as making suitable arrangements for the replacement of assets, correct investment, varying the residential address, and diversifying business activities, and income.
Why do we need Tax Planning?
Tax planning is done according to the needs and purposes of an individual, and it is done under the provisions of the law. Some of the objectives of tax planning are:
- To reduce tax liability
- To minimize litigation
- Productive investment strategy
- To reduce cost
- To help in the healthy growth of the economy
- To achieve economic stability
- To generate employment
The above-shown list are the objectives of tax planning.
FAQs
What are the advantages and disadvantages of duty planning?
Duty planning can help to reduce your overall duty liability, which can save you plutocrats. It can also help to minimize the quantum of levies you pay on your investment income. also, duty planning can help to maximize the duty benefits of certain deductions and credits.
What problems are faced in duty planning?
Inconvenient: as they’re directly being levied to the taxpayer it pinches the taxpayer so they find ways to avoid paying duty.
Evadable: the taxpayer can submit false returns and shirk the levies.
Social conflict: direct duty encourages social conflict as not every part member of the society has to pay direct levies.