The avid goal of each taxpayer is to minimize his Tax Liability. to realize this objective taxpayer may resort to the following Three Methods:
1. Tax Planning
2. Tax Avoidance
3. Tax Evasion
It is well said that “Taxpayer is not expected to arrange his affairs in such manner to pay maximum tax “. So, the assessed shall arrange the affairs in a manner to reduce tax. But the question is what method he opts for? Tax Planning, minimization, Tax Evasion! Let us see its meaning and its difference.
Tax Planning involves planning so as to avail of all exemptions, deductions, and rebates provided within the Act. The tax law itself provides for various methods for Tax Planning, Generally, it's provided under exemptions u/s 10, deductions u/s 80C to 80U, and rebates and reliefs. a number of the provisions are enumerated below:
• Investment in securities provided u/s 10(15). Interest on such securities is fully exempt from tax.
• Exemptio 10B, and 10BA
• Residential Status of the person
• Choice of Accounting
• Choice of organization.
For availing benefits, one should resort to Bonafide means by complying with the provisions of the law in letter and in spirit. When an individual buys a piece of machinery instead of hiring it, he's availing of the benefit of depreciation. it's his exclusive right either to buy or lease it. within the same manner, on, capital structure, and buying ucts are the assesses exclusive rights. One may search for various tax incentives in the above-said transactions provided in this Act, for the reduction of liabilities. All this transaction involves tax planning.
Why does everyone Need Tax Planning?
Tax Planning is resorted to maximize the cash inflow and minimize the cash outflow. Since Tax may be a kind of cost, the reduction of cost shall increase the profitability. Every prudent person,he Return, shall increase the profits by resorting to a tool referred to as Tax Planning.
Various methods of Tax Planning could also be classified as follows:
1. Short-Term Tax Planning:
Short-range Tax Planning means the design thought of and executed at the end of the income year to reduce taxable income in a legal way.
2. Long-Term Tax Planning:
Long-range tax planning means an idea called out at the beginning of the income year to be followed around the year. this sort of planning does not help immediately as in the case of short-range planning but is likely to help in the long run;
3. Permissive Tax Planning:
Permissive Tax Planning means planning which are permissible under different provisions of the law, like planning of earning income covered by Sec.10, especially by Sec. 10(1), Planning of taking advantage of various incentives and deductions, planning for availing different tax concessions, etc.
4. Purposive Tax Planning:
It means planning with the specific purpose to ensure the availability of maximum benefits to the assesses through correct selection of investment, making suitable programs for replacement of assets, varying the residential status and diversifying business activities and income, etc.
Investors are usually in search of certain approaches which help them with tax planning. Tax saving is the main motive of an investor. Different approaches are available for tax planning. ods for tax savings. Tax planning can make easier and safer by following certain different approaches. Such methods are more appropriate for those that have higher incomes.
1. Transaction of share
Short-term loss from the share market can catch up with certain other profitable wealth. Those investors who have an urgent need for tax benefits can attain benefits by using the worst shares of them. Tax benefits won't available for shares with more than one year's time period if it is selling through brokers. balancing of loss can also do through off-market transactions. Such a balancing facility can make use from 1 year up to eight financial years. The support of oldsters can use in such situations. The transaction should be done consistently with market value. Money should tend as cheques.
2. Paying rent to deal with
Tax can save by giving rent to the house. If the house belongs to the parent rent is often given to them. Tax benefits are often demanded for the rent in such cases. the house has the equal right for both father and mother tax can save by dividing the rent amount. Tax savings are often done through sharing of house rent.
3. Support of the chief
Tax saving also can be with the support of your chief. Certain modifications within the salary can help to make maximum tax savings. Food coupons should allowance, uniform allowance, telephone allowance, etc should include together with salary.
4. Sharing of tax slab
The tax slab should be shared among couples. There may be couples with different tax slabs. House loans and tuition fees etc should use for higher tax slabs in such cases. tax savings in this category. If the house is belonging to one person the other can assure house rent allowance benefits by giving rent to the owner. In the case of rented houses, house rent allowance can share among couples. House vent allowance can also take in the name of the person with a higher tax slab.
5. Infrastructure bond
Income tax benefits are available for investments up to 1lakh rupees according to section 80c. Those persons who are in search of more tax benefits than section 80C can make use of 20,000 rupees of infrastructure bond. Tax benefits may get for such investments. Infra bond is a secure investment scheme that makes an annual profit of more than 9%.