In this fast moving world, we all running to march with the on-going speed and pace of the generation. We all work hard to get a quality living. But, as we work hard to earn a living, it becomes imperative to act smart as well to save on taxes as well. Very few are aware of the fact that strategic tax planning can actually save them some pennies.
Basically, tax planning is an activity conducted by the tax payer, in order to drag down the tax they are liable to pay. This can be done by making maximum use of tax deduction tools like allowances, exclusions, etc. feasible under law. In simple terms, it is the process of strategic financial planning from taxation perspective. The purpose of such planning is to ensure tax efficiency.
Reduction of tax liability – A tax payer can save the maximum amount by properly planning their financial operations within the framework of the law. Following a strategic planning helps in dragging down the tax liability.
Productive investment – Investment is one of the tax saving tools, which channelizes taxable income into productive financial schemes. The primary aim of this is the maximum utilization of resources for productive causes and reducing tax liability from the assessee.
Minimization of litigation – There is always a conflicting situation between the tax payers and tax collectors. While the former wish to lower the tax liability, the later attempts to extract the maximum. Hence, a proper tax saving plan aims at meeting the requirements of the tax law in such a way that litigation situation is minimized.
Healthy economic growth and stability – The economic growth and stability greatly depends on the economic growth of the citizens. Proper tax planning brings economic stability through various strategic techniques such as mobilizing resources for national projects or availing ways for investments which are productive in nature.
Short term planning – As the name suggests, the planning is executed for a short term usually at the end of the financial year, in order to reduce taxable income following a legal way.
Long term planning – This hints towards a strategy chalked out at the beginning of the income year to be followed around the year. Though this doesn’t have immediate effect as in the case of short term planning, but it does aid in long run.
Permissive planning – This planning primarily focuses on factors permissible under different provisions of the law such as various incentives, deductions, and tax concessions.
Purposive planning – This tax planning is done to purposely ensure the availability of maximum tax benefits through opting for productive investment plans, varying the residential status, and diversifying income.
Tax planning in an integral part of every tax payer’s finances. With appropriate financial planning, one can save a considerable amount of money every year. However, to make this possible, an individual needs to know the different provisions applicable under Indian Tax Laws.
Here are some useful tips to save on tax planning:
Understand Section 80 C – When it comes to chose a tax saving plan, it is significant to first understand Section 80 C. Therefore, the primary tip for salaried individuals or tax payers is to take a close look at Section 80C of IT Act in order to legally reduce income tax rate and lower tax payout. Sec 80C has an array of options to help tax payers to minimize tax liability.
Start with Rs.150000 – Follow Rs.150000 starting point and work backwards by considering the most reliable options such as Public Provident Fund (PPF), Insurance, Tax-paying mutual funds, and National Savings Certificate). Financial planning primarily depends on the monetary goals, risk profile, and income levels. An experienced financial planner can do the job here and guide to make the most out of tax saving plans.
Consider other sections as well – While Section 80C is a significant key to hog most of the footage, but there are other sections as well that can save a bundle of finances. Here are some of the measures that can be taken into consideration to avail tax benefits.
• Rent receipts for HRA tax benefits.
• Medical bills to avail tax-free medical allowance.
• Leave travel allowance tax benefit, usually applicable twice in a block of leap years.
• Health insurance premium receipt to avail tax deductions under Section 80 D.
• Tax deductions under Section 80E for education loan.
• Proof of donation or charity to a recognized institution liable for tax benefits under Section 80G.