What is Tax Planning?
Individuals, businesses and organizations do tax getting to assess their financial profile and save on the taxes paid on their annual income and profits earned. ‘Govt. data as per the assessment year 2014-2015 reveals that just one .5 percent of Indians actually pay their taxes. Therefore, proper tax planning is required for both first-timers and veteran taxpayers.
in order that an appropriate tax amount is paid to the government to promote economic activity and personal savings are also managed. As per the tax Act, 1961 variety of legal tax saving options are available under sections 80C&80D and beyond 80Csuch as 80 EE, including other rebates and reliefs. You can actually start the fiscal year on a safe footing if you timely evaluate your financial portfolio and then make tax-related investments.
Types of Tax Planning in India
• Short-term tax Planning- It implies planning closer to the end of the financial year and choosing the best investment options to save tax. However, you would possibly end up making hasty decisions to file your ITR in the nick of time. • Long-term tax Planning-As the saying goes, well begun is half done. So, once you start planning your tax-saving investments at the beginning of the financial year it is long-term tax planning. And a well-chalked-out plan always helps in the long run.
• Purposive Income Tax Planning- Purposive tax planning means specifically planning the taxes to avail maximum benefits by taking the right investment decisions, changing the residential status, through the correct selection of investment, replacing the assets, business expansion program, income, etc.
• Permissive tax Planning-It means making tax-saving investments to avail different tax concessions, different deductions and incentives, and other exemptions that are permissible under the law.
Here are some tips to assist you to save tax on your income:
1. Save via interest payment on the loan
If you've got a loan such as an education loan, home loan, car, or consumer loan then tax saving becomes easy. the govt allows tax benefits for individuals who are repaying loans.
Some investments that you simply may consider under Section 80C are Life insurance premium paid towards self, spouse, or child, contribution towards statutory provident fund or pension fund, contribution towards public provident fund scheme, subscription to units of open-end fund equity linked saving scheme notified by the central government, etc. It is often a better tax saving option if tax planning by payment of the loan is done wisely.
2. Buy an Insurance Policy
Premium paid on insurance policies is allowed as a deduction from your total income, consistent with Section 80D of the Income Tax Act. Deduction up to Rs 15,000 is out there for insurance of self, spouse, and dependent children. this is often one of the best options and can be part of tax planning.
3. Make a donation
Making a donation may be a good way to save tax on your income. Section 80G of the tax Act allows an individual to claim deductions up to a specified limit for contributions made to charitable organizations or NGOs. this feature will save taxes as well as bring some virtue.
4. Equity Mutual Funds
Investment in equity mutual funds may be a great way to make your profits 100% non-taxable. However, it's advisable not to sell your equity shares before a period of one year as anything less than 12 months may incur tax on profits.
5. Amount received as gifts
Any gifts received in your marriage in the form of cash or cheque are totally tax-free. you'll receive cash gifts from your relatives or friends for which you don’t have to pay any tax.
6. House Rent Allowance
You can claim House Rent Allowance (HRA) to save lots of tax on your house rent. However, this is often applicable only when you are staying in rented accommodation.
7. Medical Bills
You can keep all the medical receipts of your medical expenses to use them for tax savings at the top of the year. An amount up to Rs 15000 is non-taxable on medical expenses for yourself and your dependent relations.
8. Telephone/Internet Expenses
You can ask your employer if they have a tax saving policy on telephone or internet expenses. you'll either get telephone/internet expenses reimbursed or claim tax benefits for the same. tax planning for small amounts has an impact on total taxes. So don’t ignore it.
9. Daily Allowance
You can avail of tax benefits up to Rs 1600 per month from your company for conveyance. this may allow you to save tax on Rs 19,200 annually on conveyance allowance. Also, you are doing not have to submit any invoices or proof to avail of the same.
10. Meal Coupons
Meal vouchers or any gift vouchers including Sodexo aren't taxable up to Rs 2600 per month. you'll ask your employer to either issue your meal coupons every month to claim tax benefits or reimburse the same.
11. Leave allowance
Leave allowance (LTA) can be utilized by you for domestic vacations. you'll not be taxed on travel expenses for yourself and your dependents.
Income tax planning, if performed under the framework defined by the respective authorities, is a completely legal and smart decision. However, you would possibly land yourself in trouble for adopting shady techniques to save taxes. it's the duty and responsibility of every citizen to carry out prudent tax planning.