Tax planning is crucial in that it helps you from losing money by way of taxes any more than you absolutely have to. People however usually tend to put this off until the end of the year, by which time it is generally too late for them to be able to optimally minimize their tax cuts.
Tax planning is, by no means, an easy feat. And it’d certainly be an uphill task if you are to cram the majority of your tax planning into the last month. Missing out on some easy opportunities to reduce your taxable income is one regret you’d hate to have post filing of your tax returns.
Better Than Learning It The Hard Way
There’s no dearth of individuals who’ve had to commit a serious mistake until they realize how vital meticulous tax planning is. They did come out wiser on the other side but they had to pay a heavy cost. Try not to repeat what people before you have done and repented for.
The several tax saving schemes available in India can be availed for reducing your taxable income by means of deductions and exemptions. Sections 80C through 80U of the Income Tax Act, 1961, allow for these exemptions and deductions while other sections can be used to reduce your tax liabilities.
Difference Between Tax Reduction And Tax Evasion
Tax reduction by way of tax planning is completely within the confines of the law while tax evasion isn’t. The moment you employ underhanded methods to reduce your taxes, you’re no longer protected by the law and tax reduction turns into tax evasion. These legal income tax planning schemes are the best means to reduce the burden of taxes.
You’re Better Off Making Tax Planning a Year-Round Activity
There’s always a deadline to be met and the investment proofs you’d need to submit may not always reach you on time. The finance departments of most companies refuse to accept aforementioned tax investment proofs after the last week of January or the first week of February. Any delay on your part will lead to your investment not being considered for tax reduction. Imagine having to pay extra taxes simply because you didn’t care to plan ahead.
Planning ahead for your income tax returns also allows to be prepared for any money troubles you may have in the last quarter. Anticipating these can help keep you from having to borrow any money in order to keep the ship afloat.
Corporate Tax Planning
Tax planning for companies and firms is just as crucial as it is for individuals and as such requires painstaking attention to detail. A company can file for tax deductions on the various benefits it offers its employees like health insurance, child care, retirement funds, office expenses, transport etc.
Companies usually allocate enough resources on tax planning in the attempt to reduce their tax liabilities. Tax liabilities increase for a company if its profits are on the rise and with suitable tax planning option, a company can aim to bring down its tax burden by a significant margin.
Relation between tax planning and financial planning
The two aren’t mutually exhaustive and at the same time not mutually exclusive either. Financial planning means planning strategies to take care of your finances and its implementation is not nearly as easy the concept is. Tax planning is related to financial planning because taxes form a huge portion of your financial life and planning for it can greatly ease your financial planning.
Don’t Let an Opportunity Pass You By
The opportunities you now have may not remain in your grasp in the future and you’d do well to capitalize on these opportunities to make the right investments. This, in turn, would help you to notably decrease your tax liabilities.
Making an investment for the sake of making an investment is often a mistake. Tax planning helps you be circumspect about the investments you make by making you factor in the parameters you wouldn’t normally include in your consideration. These parameters include risk vs returns ratio, tax savings, cost of investment, etc.
Aggressive Tax Planning
This defines as aggressively pushing the confines of the law in order to avail tax benefits or reduce tax liabilities. Those who partake in this are on the lookout for a loop hole in the law which would help them circumvent the limitations law puts on them. If the Income Tax Office were to find out about an instance of competitive tax planning, there would most likely be a court battle to decipher the legitimacy of the situation.
If this predicament were to leave the court unclear as to the standing of the law in question or if the court were to deem its caveats to be open to interpretation, there still could be ways for the government to prosecute you.