Tax is an amount of money that you have to pay to the government so that it can pay for public services.

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What Is Tax Planning?

Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency. Through tax planning, all elements of the financial plan work together in the most tax-efficient manner possible. Tax planning is an essential part of a financial plan. Reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for success.

How Tax Planning Works

Tax planning covers several considerations. Considerations include timing of income, size, and timing of purchases, and planning for other expenditures. Also, the selection of investments and types of retirement plans must complement the tax filing status and deductions to create the best possible outcome.

Types of tax planning

a. Short Term Tax Planning

It means the planning thought of and executed at the end of the income year to reduce taxable income in a legal way.

b. Long Term Tax Planning

It means a plan chalked out at the beginning or the income year to be followed around the year. This type of planning does not help immediately as in the case of short range planning but is likely to help in the long run

c. Permissive Tax Planning

It means making plans which are permissible under different provisions of the law, such as planning of earning income covered by Sec.10, specially by Sec. 10(1) , Planning of taking advantage of different incentives and deductions, planning for availing different tax concessions etc.

d. Purposive Tax Planning

It means making plans with specific purpose to ensure the availability of maximum benefits to the assesse through correct selection of investment, making suitable programme for replacement of assets, varying the residential status and diversifying business activities and income etc. Conclusion: Proper tax planning is the basic duty every person should carry out religiously. We help you compare the advantages of several tax saving schemes and depending upon your age, social liabilities, tax slabs and personal preferences, decide upon a right mix of investments, which shall reduce your tax liability to zero or the minimum possible.

Objectives of Tax Planning

a. Reduction of Tax Liability:

An assessee can save the maximum amount of tax, by properly arranging his/her operations as per the requirements of the law, within the framework of the statute.

b. Minimization of Litigation:

There is a war-like situation between the taxpayers and tax collectors as the former wants the tax liability to be minimum while the latter attempts to extract the maximum. So, a proper tax planning aims at conforming to the provisions of the tax law, in such a way that incidence of litigation is minimized.

c. Productive Investment:

One of the major objective of tax planning is channelisation of taxable income to different investment plans. It aims at the optimum utilization of resources for productive causes and relieving the assessee from tax liability.

d. Healthy Growth of Economy:

The growth and development of the economy greatly depend on the growth of its citizens. Tax planning measures involve generating white money that flows freely and results in the sound progress of the economy.

e. Economic Stability:

Proper tax planning brings economic stability by various techniques such as mobilizing resources for national projects or availing ways for investments which are productive in nature.

f. Tax Planning follows an honest approach, to achieve maximum benefits of tax laws, by applying the script and moral of law. Therefore the objectives do not in any way contradict the concept of tax laws.