What is tax planning, and its different types?

What is Tax planning?

The financial planning for tax efficiency is called tax planning. Tax planning is done to reduce one’s tax liabilities and utilize tax exemptions optimally. Tax exemptions include tax rebates and other related benefits. Tax planning is done with the help of financial planning and business decisions to minimize taxes. It helps you to utilize the benefits of tax exemptions or rebates using tax laws.

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What is the purpose of tax planning?

There are several objectives of tax planning. Tax planning reduces tax liabilities by saving the maximum amount of tax. This is performed by ranging the assessee’s financial operations according to tax decisions.

Tax planning is accomplished according to the provisions under tax laws, thereby curtailing any litigation. Tax benefits from tax planning can be directed to investments. The investment of tax money also helps the economy. Tax planning helps the individual as well as the economy to flourish.

Tax planning in India

There are many tax-saving options available in India for taxpayers. Various exclusions and deductions are provided in the tax-saving plans that help to reduce the overall tax burden. Sections 80C to 80U provide deductions to the taxpayers. It is considered legal and a wise decision when tax planning is done within the boundaries set by the laws.

3 Different types of tax planning

Short and long-range

Tax planning done every year for certain objectives is called short-range tax planning. On the other hand, long-range tax planning refers to the tax planning practices performed by the assessee, which are not paid off immediately. In simple terms, short-range tax planning is performed towards the end of the fiscal year, and long-range tax planning occurs in the beginning.

Permissive

When tax planning is carried out under the provisions of a country’s taxation laws, it is deemed Permissive.

Purposive

This method of Tax planning is applied for a specific objective.

Objectives of tax planning

Tax planning is a major part of an individual’s financial planning. Tax rebates and deductions save a good amount of money and can be utilized for other expenses or investments. Some of the objectives of tax planning are

1. For reduced tax liabilities
2. For a productive investment
3. For the growth of the economy
4. For minimization of litigation
5. For economic stability

Some of the steps to start planning your taxes

1. One can start by calculating their total income. This is the first step of the process.
2. Calculation and evaluation of taxable income are performed in this step. Profits from various investments are included in taxable income, and knowing your income’s whereabouts helps plan your taxes.
3. There are various deductions available under the laws to reduce the total taxable income. There are some tax slabs issued by the concerned authorities, and if you come under a particular slab you can plan your taxes accordingly.
4. There are various provisions under 80C to 80U that help an individual get deductions and rebates in their taxable income. Using the provision with the help of a financial planner can save a great amount of money.

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