TAX PLANNING

Introduction:
Tax planning is the process of analyzing a financial plan or a situation from a tax perspective.
The objective of tax planning is to make sure there is tax efficiency. With the help of tax
planning, one can ensure that all elements of a financial plan can function together with
maximum tax-efficiency. Tax planning is a significant component of a financial plan.
Reducing tax liability and increasing the ability to make contributions towards retirement plans
are critical for success.

Tax planning comprises various considerations. Considerations such as size, the timing of
income, timing of purchases, and planning are concerned with other kinds of expenditures. Also,
the chosen investments and the various retirement plans should go hand-in-hand with the tax
filing status as well as the deductions in order to create the best possible outcome.
 Objectives of Tax Planning:

Tax planning is a focal part of financial planning. It ensures savings on taxes while
simultaneously conforming to the legal obligations and requirements of the Income Tax Act,
1961. The primary concept of tax planning is to save money and mitigate one’s tax burden.

Need For Tax Planning for Individual:

Tax payments are compulsory for all individuals who fall under the IT bracket. Now a days Tax
planning is Must to reduce tax liability by investing in different investment schemes as
prescribed by income tax Act,. With tax planning, one will be able to make his/her tax payments
such that he or she will receive considerable returns over a specific period of time involving
minimum risk. Also, effective tax planning will help in reducing a person’s tax liability.

Following is given inclusive list of tax saving sections

80C allows deduction for investment made in PPF , EPF, LIC premium , Equity linked saving
scheme, principal amount payment towards home loan, stamp duty and registration charges for
purchase of property, Sukanya smriddhi yojana (SSY) , National Savings Certificate
(NSC) , Senior citizen savings scheme (SCSS), ULIP, tax saving FD for 5 years, Infrastructure
bonds.

80CCC allows deduction for payment towards annuity pension plans Pension received from the
annuity or amount received upon surrender of the annuity, including interest or bonus accrued on
the annuity, is taxable in the year of receipt

Employee’s contribution under section 80CCD (1) Maximum deduction allowed is least of the
following

• 10% of salary (in case taxpayer is employee)

• 20% of gross total income (in case of self-employed)
 Advantages of tax planning:

1. To claim excess tax paid or deducted: when we don’t do tax planning results in excess tax
payment & sometimes excess is deducted by employer that could have been saved by tax
planning.

2. To reduce tax liabilities: Every taxpayer wishes to reduce their tax burden and save money
for their future. You can reduce your payable tax by arranging your investments within the
various benefits offered under the Income Tax Act, 1961. The Act offers many tax planning
investment schemes that can significantly reduce your tax liability.

3. To plan events: It helps us to decide when to realize capital gain and when to withdraw
money from different schemes.

4. To earn tax free returns: when we invest in schemes specified in income tax act we get risk
free return or fixed rate of return which are tax free subject to conditions specified in relevant
section.

Types of Tax Planning:

Most people merely perceive tax planning as a process that helps them reduce their tax liabilities.
However, it is also about investing in the right securities at the right time to achieve your
financial goals.

Following are some of the various methods of tax planning:

1. Short-range tax planning:

Under this method, tax planning is thought of and executed at the end of the fiscal year. Investors
resort to this planning in an attempt to search for ways to limit their tax liability legally when the
financial year comes to an end. This method does not partake long-term commitments. However,
it can still promote substantial tax savings.

2. Long-term tax planning:

This plan is chalked out at the beginning of the fiscal and the taxpayer follows this plan
 throughout the year. Unlike short-range tax planning, you might not be offered with immediate
tax benefits but it can prove useful in the long run.

3. Permissive tax planning:

This method involves planning under various provisions of the Indian taxation laws. Tax
planning in India offers several provisions such as deductions, exemptions, contributions, and
incentives. For instance, Section 80C of the Income Tax Act, 1961, offers several types of
deductions on various tax-saving instruments.

4. Purposive tax planning:

Purposive tax planning involves using tax-saver instruments with a specific purpose in mind.
This ensures that you obtain optimal benefits from your investments. This includes accurately
selecting the appropriate investments, creating an apt agenda to replace assets (if required), and
diversification of business and income assets based on your residential status.