What is tax planning ?
Tax planning is the analysis of one’s financial situation from a tax efficiency point of view so as to plan one’s finances in the most optimised manner. Tax planning allows a taxpayer to make the best use of the various tax exemptions, deductions and benefits to minimise their tax liability over a financial year. Tax planning is a legal way of reducing income tax liabilities, however caution has to be maintained to ensure that the taxpayer isn’t knowingly indulging in tax evasion or tax avoidance.
The five simple yet effective rules of tax planning are:
- Spread the taxable income among various members in your family;
- Take full advantage of tax exemptions available under the law;
- Take full advantage of permissible tax deductions and rebates available on stipulated tax-saving investments;
- Make optimum use of tax-exempted incomes; and
- Simple tax planning is smart tax planning.
When tax planning is done inside the frameworks defined by the authorities, it is fully legal and in fact a smart decision. However, using shady techniques to avoid tax payments is illegal and you may get into trouble for doing so. Tax saving practices include tax avoidance, tax evasion and tax planning. Out of these tax planning is the only legal manner of reducing your tax liabilities. The government offers the different opportunities to save on taxes with the intention of reducing tax burden on a taxpayer through legal income tax planning methods.
Why Every Person Needs Tax Planning ?
Tax Planning is resorted to maximise the cash inflow and minimise the cash outflow. Since Tax is kind of cast, the reduction of cost shall increase the profitability. Every prudence person, to maximise the Return, shall increase the profits by resorting to a tool known as a Tax Planning.