Tax Planning – Semantic Taxgen Pvt Ltd

Tax Planning

Tax Planning In India

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About Tax Planning In India

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.

KEY TAKEAWAYS

  • Tax planning is the analysis of finances from a tax perspective, with the purpose of ensuring maximum tax efficiency.
  • Considerations of tax planning include timing of income, size, timing of purchases, and planning for expenditures.
  • Tax planning strategies can include saving for retirement in an IRA or engaging in tax gain-loss harvesting.

Understanding what is tax planning is one of the most important aspect of financial planning. It is a practice where one analyzes his financial situation based on tax efficiency point of view so as to invest and utilize the resources optimally. Tax planning means reduction of tax liability by the way of exemptions, deductions and benefits.

Tax planning in India allows a taxpayer to make the best use of the various tax exemptions, deductions and benefits to minimize his tax liability every financial year. As responsible citizens of the country, paying Income Tax on time, on your income is mandatory for the country to grow.

Tax planning is a pivotal part of financial planning. Through effective tax planning all elements of the financial plan falls in place in the most efficient manner. This results in channelization of taxable income to different investment avenues thus relieving the individual of tax liability. The investment amount post lock-in can be utilized for fulfilling needs and act as the retirement corpus in most cases. All in all, the objective of tax planning is to reduce tax liability and attain economic stability.

Tax planning is an integral part of every individual’s financial growth story. Since paying taxes is mandatory for every individual falling under the purview of the IT bracket, why not streamline your tax payments in ways that it offers substantial returns over a period of time with minimum risk? In addition, effective planning also reduces your tax liability drastically.

The different mindset under which tax planning can be broadly classified are:

Purposive tax planning:

Planning taxes with a particular objective in mindPermissive tax planning:

Tax planning that is under the framework of law

Long range and Short range tax planning:

Planning done at the start and end of a fiscal year respectively

There are various sections in Income Tax Act, 1961, under which an individual tax payer can claim exemption, deductions and benefits. Some of the common ones for tax planning include Sec 80EE for interest on Housing Loan, Sec 80D for premium paid on mediclaim, Sec 80E for interest paid on Education Loan, etc. Amongst these, Sec 80C is the most popular offering plethora of tax saving investment options.

With various tax saving options on offer under Sec 80C, ELSS mutual funds is one which takes the cake as per financial pundits for two major reasons, (i) its equity based and (ii) it has the shortest lock-in period comparatively.

Another important parameter which makes it the most preferred investment option in India is, investments in ELSS can be made in small proportions through SIP instead of paying a heavy sum altogether. Thus an ELSS through SIP route is pragmatic and convenient for an investor who plans to save income tax in India.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

Tax planning for individuals

Tax planning is not just reserved for bug business. Private individuals can retain their wealth through careful tax planning. Individual tax strategies include:

  • Income tax
  • Gifting children
  • Gifting family members
  • Property
  • Pensions

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