How to do Tax Planning its need and Objectives

How to do Tax Planning its need and Objectives


Tax planning is the action undertaken by a taxpayer to minimize the tax burden imposed on him or her by making full use of all available exclusions, exemptions, and deductions under the terms of the Income Tax Act, of 1961. Simply said, it is an appraisal of a financial issue from the standpoint of taxation.

One of the primary reasons for tax planning is to ensure tax efficiency. It enables all components of the financial plan to work to offer optimal tax efficiency. It is also an important factor in budgetary effectiveness. Join an online Income Tax Certification Course to further your profession.

Goals of Tax Planning:

Some of the goals of tax planning are as follows:

  • Minimal Litigation: In most cases, there is little friction between a taxpayer and a tax collector. In such instances, it is critical to adhere to tax payment compliance. To reduce friction, compliance must be employe correctly.
  • One of the most significant goals of tax planning is productivity. It aids in the channeling of taxable revenue through various investment programs.
  • Tax Liability Reduction: A taxpayer can save the greatest amount of tax payment by using correct arrangements created by the firm by the applicable legislation.
  • Growth of the Economy: Economic growth is linked to population increase. Tax planning aids in forecasting the development of money in free flow.
  • Economic stability is heavily founded on supplements while tax planning is when a firm is effectively manage.

Tax Planning Types:

Tax planning may be classified into the following categories:

  • Short-Term and Long-Term Tax Planning: Short-term tax planning is tax planning done every year to achieve certain goals. However, in the case of long-term tax planning, immediate pay-offs are not include.
  •  Permissive Tax Planning: In this situation, planning is done while confirming the tax provisions as they are.
  • Purposive Tax Planning: This is a strategy of tax planning that is based on the shortcomings of the legislation.
  • Tax planning is a word that refers to procedures for calculating applications under tax rules to effectively manage a person’s taxation. 

Tax Planning Types: Tax Planning in India:

  • The Indian tax law offers a variety of tax-saving strategies to taxpayers. With a plethora of tax deductions and exclusions available, the overall tax output might be constrain;
  • Deductions are allow under Sections 80U and 80C of the tax code and can be use by qualifying taxpayers.
  • These deductions are apply to tax obligations.
  • The provisions of the Income Tax Act of 1961 include tax credits and exclusions to reduce total tax payments.

Corporate Tax Planning

Corporate tax planning is a strategy for reducing a registered company’s responsibilities. Deductions for employee health insurance and company transport, for example, are among the most popular techniques. Using the deductions and exclusions provided by the Income Tax Act of 1961, the firm can legally decrease its tax burden significantly.

The increase in the company’s profits entails a bigger tax burden. In such instances, authorities must devote more effort to tax preparation to decrease tax payments. During an inflationary period, both direct and indirect taxes can be reduce with a smart tax plan. Aside from that, tax planning necessitates careful consideration of the following;

  • Budget for capital expenditures
  • Expenses
  • Sales and marketing expenses.

The following factors contribute to success: 

  • Tax breaks must be claim against qualifying investments.
  • Providing proper and up-to-date information to the appropriate Income Tax authorities
  •  To be well-verse in the appropriate tax legislation and court decisions.
  • Tax planning must be carry out entirely by the applicable law.
  • Planning must take into account corporate objectives as well as flexibility for future changes in incorporation.
  • If the taxes component is not correctly prepare, a person might become a first-time taxpayer or a long-time taxpayer.
  • The income tax provisions appear to be so complicated that the average person cannot deal with them.
  • The following is a taxpayer’s business operations in such a way that the tax benefit may be obtain by lawful means, resulting in a minimal tax amount.

The following are some of the most typical income tax blunders made by ordinary people:

  • Investment in insurance goods for tax savings: When the fiscal year ends, insurance companies make a lot of phone calls to taxpayers to sell insurance products. However, this is not one of the best investments to make at that time.
  • Compounding Power through Tax-Advantaged Mutual Funds: Despite all of the supporting facts, many individuals believe in the power of compounding.
  • Optimization of all available tax-saving possibilities; Many people believe that tax planning begins and stops with Section 80C of the Income-tax Act of 1961, which exclusively discusses investment instruments for tax savings.

Happy Learning and Earning!

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