Tax Planning

Tax planning help you in rationalizing your tax liabilities!

Tax Planning refers to the analysis of the financial position concerning the payable tax liability. Tax Planning enables the person to reduce tax liability legally. Tax Planning is an important component of Financial Planning. Financial Planning has got a larger perspective. Tax Planning is equally important for both individual and Businessmen. It helps them in rationalizing their tax liabilities.

Income Tax

Income tax lies under the category of direct taxes. An individual having an annual income of more than Rs. 2.50 lakh per year is required to pay the tax. Tax is levied at various tax slabs basing on the income.

Goods and Service Tax (GST)

This tax lies under the category of Indirect Taxes. It has been introduced in place of Sales Tax. It is charged on all Goods and Services produced. It is the major source of revenue for the government.

Corporate Tax

Corporate tax is a direct tax imposed by a government on the income or capital of corporations or other legal entities. It can either be at the national level, and may be imposed at state or local levels based on size and function of companies.

Property Tax

Property tax is levied by the Local authorities Like Municipal corporations etc on the residential and commercial properties.

Capital Gain Tax

It paid on the profit made on the sale of the Fixed Assets or Shares or Stocks. In the case of fixed assets, the benefit of indexation is allowed. It is divided into long-term and short term capital gain, which attracts a different tax rate

Excise Duty

Excise duty refers to the taxes levied on the manufacture of goods within the country, as opposed to custom duty that is levied on goods coming from outside the country. For example, It is charged on food items, petrol and liquors.

Types of Tax Planning

  1. Purposive Tax Planning: It is done keeping in mind the specific purpose like a replacement of assets, change in residential status, Diversifying business activities which will result in tax savings.
  2. Permissive Tax Planning: It is done keeping in view various deductions available in income tax laws viz; Availing tax benefits under Section 80C,80DD,80G, etc.
  3. Short Term and Long Term Planning: Short Term planning is done keeping in view the specific object and is executed at the end of the year. Whereas Long Term Planning is done at the beginning of the year and is followed throughout the year.

Common Mistakes in Tax Planning

  1. Procrastination: This is the most common mistake. Any delay in planning leads to a last-minute rush and paying more taxes. Sometimes it may lead to paying penalties and litigation also.
  2. The investment made in Life Insurance products:Many times investments are made in the insurance products without an assessment of its requirement just for the sake of availing tax benefit. This results in erratic investment planning.
  3. Failing to avail the tax benefits available in other sections of Income Tax:Section 80C is the most popular section for availing tax benefits. Whereas tax benefits are available in other sections also viz; Section 80DD,80E,80G,80GGA,10(1), etc.
  4. Incorrect Estimated IncomeNot assessing the estimated income for the ensuing financial year properly. Accrued but not received income not included in the total income.

Benefits of Tax Planning

  1. Helps in assessing proper estimated income for the ensuing financial year and assessing the correct tax liable to be paid
  2. Helps in planning the proper investment plan to save the taxes
  3. Saves from the last-minute rush in assessing and paying taxes. Which may lead to paying more taxes and inappropriate investment plan
  4. It enables us to file the Income Tax Return(ITR) in time.Which may lead to paying more taxes and inappropriate investment plan
  5. It helps in avoiding imposing of penalties and payment of interest
  6. It helps in maximizing the tax relief and reducing tax liabilities