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Tax Planning

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What is tax planning?

Tax planning means analyzing your financial situation, from the point of view of tax efficiency. It helps a taxpayer employ tax exemptions, deductions and benefits to minimize tax liability and optimize finances.

Tax Planning is different from Tax Evasion. Tax Planning is legal, whereas Tax evasion is not. Tax planning aims at availing tax benefits through legitimate means on the lines of provisions and relaxations provided in tax laws.

 

Concepts & FAQ's Tax Planning

Tax Planning Tips In India

1. Defer income:

Deferring income is a good strategy to save tax. Deferring income means postponing your income to a future time. By deferring your income, you can claim deductions now, when tax rates are higher. These investments would mature in the future, when rates might be lower. So, you will gain today as well as in the future. Also, chances are:

  • New tax deductions may be introduced in the future.
  • Deduction limits under different Sections might be increased. Example: Section 80C has a limit of Rs 1,50,000 a year. The deduction limit might be increased in the future Union Budgets.
  • Standard Deduction was reintroduced in Union Budget 2018-2019. It might be increased in the coming years.

You may defer bonuses, income earned from a consultancy or freelance income, by investing this income in tax saving instruments like ELSS, NSC, PPF, and so on.

2. Pay off expenses on time:

Pay off your expenses on time. This allows you to claim tax deductions and also save tax. Remember to record all the expenses that you make, so that you do not forget to claim them. Deductions on expenses like insurance premiums can only be claimed in the previous year after the payment is made.

3. Plan your charity:

Yes, charity should be selfless, but that doesn’t mean you cannot avail tax benefits on charitable activities. If you think your taxable income is simply too much, plan to give some in charity. Then, claim a deduction on the same and save tax!

4.Make it a continuous process:

Tax planning should not be a one-time activity. You have a whole year to plan your expenses, investments and taxes. Therefore, keep monitoring your finances and tax planning strategies. If you find some aspects of your tax planning are going out of hand, you have time to fix the issue well in advance, rather than pay a fortune in tax or penalties.

5.Life Insurance Plans:

Avail Life Insurance Plans to save tax. They have dual benefits; you save tax in the form of premium payments and your life is insured. Be sure to buy a life insurance plan that suits your needs. Both life insurance plans (term or endowment), enjoy tax deductions up to Rs 1.5 Lakhs a year under Section 80C, on the premiums paid.

6.Invest in tax saving instruments:

You may invest in PPF, ELSS, NSC, 5 year Tax saver FDs and other tax saving investments to save tax. If you have a girl child, you open a Sukanya Samriddhi Yojana (SSY) Account in her name and make regular contributions to save tax.

Tax Planning Goals

The goal of tax planning is to arrange financial affairs so as to minimize one's taxes. Tax-planning is also as much about contributing to financial goals as it is about reducing ones tax liability. Few investment options that help us to save tax:

  • Employee Provident Fund (EPF)
  • Public Provident Fund
  • National Savings Certificate
  • Long Term Government Securities
  • Bank Deposits
  • Life insurance Products
  • Pension Products
  • Mutual Funds

Tax Planning Process

1. Compute your liabilities

The easiest and quickest way to go about tax-planning is to first get a fix on liabilities that earn a tax benefit. For example, the loan avenue over here that qualifies for a tax benefit is home loans (maximum limit of Rs 100,000 on repayment of principal). So if there is an outstanding home loan, one needs to isolate the principal amount from the interest (in the EMI) to calculate the tax savings under Section 80C.

2. Compute your fixed investments/contributions

The second logical step is to calculate your annual contribution to EPF (employees' provident fund) and life insurance premium. Add EPF's amount to your annual life insurance premium, if any. We have not considered PPF (public provident fund) as a fixed investment simply because it's not fixed as investors can choose to increase/decrease their contribution up to a maximum of Rs 1, 00, 000 (there is a minimum annual contribution of Rs 500 to keep the account active).

3. Invest the balance in suitable avenues

Once you have a fix on your liability (principal amount on home loan), EPF and life insurance contributions, you need to compute how much is still available under the Section 80C ceiling of Rs 100,000. The balance must be invested in avenues that suit your risk profile and help you fulfill your investment objectives. For instance, if you can take on risk and plan to set aside money for your child's education over the next 10 years, then investing in tax-saving funds (also known as ELSS - equity-linked saving schemes) could be the answer. If you can take on only moderate risk, then you could divide the money between tax-saving funds and PPF. The idea is that you should invest exactly where your risk appetite and investment objectives permit you to invest.

4.Monitor the process of tax planning:

Tax planning is not a one-time activity. It is a process which needs continuous monitoring and planning. Manage any surprise income like a bonus, investment maturity and emergency expenses and provide for them.

Objectives of Tax Planning:

1. Minimizing tax liability:

You (assessee) can save tax by making investments in tax-saving financial instruments, thereby saving taxes.

2. Minimizing litigation:

Proper tax planning saves you from penalties and even litigation, in case the tax department decides to take legal action against you for tax evasion.

3. Making investments productive:

Tax planning encourages tax-payers to invest in tax-saving instruments. Your money earns interest and you also enjoy the tax benefits.

4.Economic growth:

Tax planning helps pump money into the right investment avenues like tax saving financial instruments. The Government gets to use this money for infra projects and so on, leading to the growth of the economy.

Types of Tax Planning:

1.Short-term:

Short-term tax planning is made keeping in mind yearly financial goals. This helps in achieving specific, limited and short-term objectives.

2.Long-term Tax Planning:

Long-range tax planning is made for the long-term. The benefits of such tax planning are not realized immediately.

3. Permissive Tax Planning:

Permissive tax planning is done as per the provisions of tax laws.

4.Purposive Tax Planning:

Purposive Tax Planning is the exact opposite of permissive tax planning. It refers to tax planning which circumvent laws.For example, the provisions of Section 60 to 64 of the Income Tax Act, 1961, require income earned by others, to be included in an individual assessee’s total income. For example, a minor’s income is clubbed with that of the parent, who is the higher earner. As such, an assessee tries to avoid these provisions.

Importance of tax planning:

Tax planning reduces your tax liability and also offers much more.

1.Tax exemptions, deductions and a rebate can be claimed up to the date of filing income tax returns.

2. Tax planning saves you from severe penal consequences, as the law reduces the scope of tax avoidance.

3.The government provides incentives through tax laws, encouraging citizens to save tax.

4.Tax planning ensures that you plan your expenses well. For companies, it helps in capital budgeting, sales promotion and so on.

5.When interest rates are high, the amount saved in the form of taxes is as good as an interest-free loan from the Government.

6.Companies can claim repairs, renewals, depreciation on Plant and Machinery and also deduct business expenses, giving them more money to invest in the business.

7.Tax planning can reduce taxable income and capital gains. It gives you a clear picture of your savings, investments and pensions.

8.Tax planning can help with estate planning. Many investments need investors to mention a beneficiary or a nominee. This ensures that your assets pass directly to your heirs.

 

Tax Planning Articles

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How to save tax through HUF?

21 March 2020, Saturday    

HUF or the Hindu Undivided Family is an excellent way of saving tax. The HUF is taxed separately from its members. Any Hindu family and Jains, Sikhs and even Buddhists may come together and form an HUF. What’s special about the HUF? The HUF has its own PAN and can file taxes independent of mem ....

Last Minute Tips to Save Tax

04 March 2020, Wednesday    

March is coming to an end. It’s time to do tax planning in a hurry. Choose tax planning investments for maximum tax efficiency. This is nothing but after tax returns of an investment. Why tax planning? Well, if you don’t do tax planning, you end up paying more in taxes. A rupee saved ....

1 Rupee More than 5 Lakhs: Pay Tax

28 February 2020, Friday    

If you earn Rs 5,00,001 you must pay tax. Isn’t this shocking? Just Re 1 more than 5 Lakhs means no tax rebate. You end up paying tax at income tax rates applicable to your income. Why does this happen? For FY 2019-20 if your net taxable income (This is after availing all tax deductions and ....

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Tax Planning News

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CBIC extends GSTR-9 and GSTR-9C filing dates to February 5 and 7

Tuesday, February 4, 2020, 10:04 AM

The due dates for GSTR9 and 9C has been extended further in a staggered format. In a tweet CBIC says, the due dates for GSTR-9 and GSTR-9C for FY 2017-18 are being extended in a staggered manner for different groups of States to 5th and 7th February 2020. This is the second-extension in due dates since January 31, 2020, when the GSTN-portal had crashed.

ESOP tax deferred by 5 yrs to ease tax burden on startup employees

Saturday, February 1, 2020, 3:16 PM

Finance Minister Nirmala Sitharaman on Saturday announced that ESOP (employee stock ownership plan) tax will be deferred by five years from exercise or on leaving the company or at the time of sale, whichever is earlier. Tax benefits of the first three years will be extended to startups with a turnover of up to Rs.100 crore, she added.

File pending GSTR-1 till 10 January to avoid late fee

Friday, December 27, 2019, 4:20 PM

Taxpayers can clear their backlog of GSTR-1, pending from July 2017 to November 2019 without paying any late fees as the authorities have provided a one-time measure to clear backlogs. However, the late fee waiver will be applicable only till 10 January 2020, beyond which a late fee of at least Rs.50/day will be charged for non-filing of GSTR-1, according to the CBIC.

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Tax Planning Videos

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Income Tax फ़ाइल करने के इतने सारे फ़ाइदे! | Benefits of filing ITR (AY 2020) / Income Tax Return

Income Tax फ़ाइल करने के इतने सारे फ़ाइदे! | Benefits of filing ITR (AY 2020) / Income Tax Return

1 Month Ago

Start your Journey to Become Rich with IndianMoney's Financial Freedom App, Download here: https://indianmoney.com/ffa/FmCSZ69pHo   “Tax filing is the most tedious process”, “Why should I file taxes if I don’t make taxable income” These are some of the popular beliefs of people when it comes to the tax filing They feel that taxpaying in an unnecessary burden on their pocket and most of us don’t know that there are n number of benefits you get if you file your taxes In this video, Fayaz simplifies the tax filing process and throws light on the benefits of filing a tax return So watch the entire video to know Benefits of filing ITR AY 2020
Relief Measures on Various Govt Small Saving Scheme till July 31st 2020 - EPF | SSY | PostOffice RD

Relief Measures on Various Govt Small Saving Scheme till July 31st 2020 - EPF | SSY | PostOffice RD

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Start your Journey to Become Rich with IndianMoney's Financial Freedom App, Download here: https://indianmoney.com/ffa/FmCSZ69pHo   Considering the current economic crisis caused by covid-19, government has implemented certain relief measures on small savings schemes until July 31st,2020. Government Small savings schemes are considered as efficient tools to save, invest and enjoy tax deductions. Subscribers willing to extend their PPF and Senior citizen savings scheme can apply for it till July 31st.In case of post office RD account, installments due for the months of March, April, May and June months can be paid without any revival fees till July 31st. Many more relief measures are implemented by the government until july 31st. To know more details on these relief measures, watch the video.
Sovereign Gold Bond - Safe and Secure Gold Scheme Today! | MoneyNews Indianmoney.com

Sovereign Gold Bond - Safe and Secure Gold Scheme Today! | MoneyNews Indianmoney.com

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Start your Journey to Become Rich with IndianMoney's Financial Freedom App, Download here: https://indianmoney.com/ffa/FmCSZ69pHo   Here are the top stories of today's news episode: Series IV Sovereign gold bonds are open for subscription from today.The issue price is fixed at Rs 4852 per gram, with a further discount of Rs 50, in case of online payment. Annual Interest rate is fixed at 2.05% and will be paid twice a year. Price of Covid tests at private facilities to be further reduced by the government. EPF can help you pay insurance premiums Deadline for filing income tax returns further extended JSW to stop imports from China. Warning to insider traders: SEBI E-way bills bounce back to pre covid days Covid-19 hits IPOs in India Mutual fund investments in equity markets rise to Rs 39,500 crores! After the ban of Chinese apps, PM Modi launches Aatma Nirbhar Bharat app innovation challenge

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Tax Planning Education

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What is Tax Avoidance?

Wednesday, June 19, 2019, 3:25 PM

Tax avoidance is a method of using the loopholes existing in the laws in order to save taxes. Tax avoidance is generally used by big business houses and companies who make use of such loopholes, deductions and tax rates in order to reduce the tax burden borne by these companies. Tax avoidance is done without breaking any laws or rules under the IT act.

What is Wealth Tax?

Tuesday, June 18, 2019, 3:15 PM

Wealth tax is a tax on a person's assets, on his or her net worth. It is not a tax on income, but rather on an individual's wealth. Targeting wealthy people for taxation is popular among politicians. In other words, wealth tax is a tax on what we have, as opposed to income tax, which is a tax on what we earn.

How to check ITR-V status?

Tuesday, October 16, 2018, 2:30 PM

A user can check the status of his ITR-V receipt submitted online with Income Tax Department, by entering his PAN, e-filing acknowledgement number and assessment year. The user can also check if the Central Processing Centre (CPC) has received the ITR-V and if digital signature has been used while filing.

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