Tax Planning


MEANING OF TAX PLANNING

Tax Planning involves planning financial affairs in such a way that without breaking up any law you avail all exemptions, deductions and rebates provided in Act so that your tax liability will be reduced. Actually Government or the Income Tax law itself provides for various methods for Tax Planning, Generally it is provided under exemptions u/s 10, deductions u/s 80C to 80U and rebates and relief’s. Some of the provisions are enumerated below :

For availing benefits, one should resort to bonafide means by complying with the provisions of law in letter and in spirit.

Where a person buys a machinery instead of hiring it, he is availing the benefit of depreciation. If is his exclusive right either to buy or lease it . In the same manner to choice the form of organization, capital structure, buy or make products are the assesse’s exclusive right. One may look for various tax incentives in the above said transactions provided in this Act, for reduction of tax liability. All this transaction involves tax planning.

WHY EVERY ONE NEEDS TAX PLANNING?
HOW IS TOOL OF TAX PLANNING EXERCISED?

Tax Planning should be done by keeping in mind following factors :

Methods Of Tax Planning


Short Term Tax Planning

Short range Tax Planning means the planning thought of and executed at the end of the income year to reduce taxable income in a legal way.

Long Term Tax Planning

Long range tax planning means a plan chaled 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

Permissive Tax Planning

Permissive Tax Planning 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.

Purposive Tax Planning

It means making plans with specific purpose to ensure the availability of maximum benefits to the assessee through correct selection of investment, making suitable programme for replacement of assets, varying the residential status and diversifying business activities and income etc.
OBJECTIVE OF TAX PLANNING:
IMPORTANCE OF TAX PLANNING: