Every year an earning person of the country has to pay a certain amount of their earnings to the government. Hence, it is imposed on every individual and organization for the income or profit they make in a year, known as income tax.
However, there are ways to legally reduce the amount of tax that you pay on the earnings. Nonetheless, one can take advantage of the government’s schemes for their benefit.
What is Income Tax Planning?
Income Tax Planning is an integral part of the process of financial planning. Besides, the tax planning process ensures tax efficiency is present in your earnings. In layman’s language, tax planning is how a person can reduce their tax liabilities in a year. Moreover, it helps you utilize the tax exemptions, deductions, and benefits in the best way possible.
While this practice has been helpful to many people, a person should be careful and ensure that they are not indulging in tax evasion on purpose. In addition, the income tax planning process helps you manage your finances at the beginning of the year and not the end.
Income Tax Planning in India
Income Tax Planning in India is easy as the government offers taxpayers several tax-saving options. In addition, these tax-saving options allow several exemptions and deductions that help in reducing the overall tax liability on a person/organization.
The deductions are enlisted from Section 80C and go to Section 80U. Additionally, many other sections under the Income Tax Act, 1961 are there to help you reduce your tax liabilities. There are different types of income tax plannings, and these are:
- Short-range and long-range income tax planning: The plans made at the start or towards the end of the fiscal year.
- Purposive Income Tax Planning: The planning you do with an objective in mind.
- Permissive Income Tax Planning: The planning you do under the framework of the law.
Corporate Tax Planning in India
Under corporate tax planning, a registered firm gets the opportunity of reducing its tax liabilities. It includes getting deductions on business transport, employees’ health insurance, office expenses, childcare, charitable contributions, etc.
The tax deductions and exemptions provided under the Income Tax Act can help a company reduce its tax burden legally. Furthermore, a company will have higher tax liabilities if they make enormous profits for a year. It leads to more time spent by the company to build a strategy for tax planning to reduce their liabilities. Therefore, if you do the tax planning wisely, the direct and indirect tax can also reduce during inflation.
Good income tax planning can happen if:
- You present the correct information to the IT department.
- Your planning process comes under the law.
- You do not ignore the tax laws and the judgments.
- You plan with the business objective in mind, and they should be flexible so that organizations can make future changes in them.
The objective for Income Tax Planning in India
The main goals for income tax planning are:
- Reduction in tax liability
- Growth of economy
- A productive and sensible investment
- Stable growth of the economy
WealthVault is here to help you choose a wise plan for income tax planning and save money.