A government provides multiple services to its citizens through the collection of taxes. It is used for the creation of public infrastructure and funding of public services, including education, health, and welfare schemes. Also, taxation is a way of maintaining a balance in society through the process of taxing* wealthy individuals and offering welfare schemes to the poor.

 

So, you must not evade taxes* because they help you contribute to the country’s development. But there are several legal methods of tax planning offered by the government through which you can efficiently reduce tax* liability.

 

So, read and know about the importance of tax planning and how it helps to significantly reduce the tax* burden of an individual or business.

 

 

What Exactly is Tax Planning?

 

Tax planning is a lawful strategy used by an individual or business to reduce the tax* burden with the help of tax* rebates, benefits, and exemptions provided by the government. It also involves the use of tax* provisions in an intellectual manner to minimise tax* liability.

 

Features of Tax Planning

 

Here is the list of features of tax* planning:

 

• It involves investment in tax-saving tools: Tax* planning includes the identification of efficient tax*-saving investment instruments and picking the ones suitable to your needs and goals. So, it is essential to analyse your risk appetite, financial goals, and liquidity needs before choosing an investment avenue.

• Tax planning is synonymous with financial planning: Tax* planning is aimed at saving taxable income and involves short-term and long-term financial goals. So, tax* planning and financial planning go hand in hand that helps meet current and future financial needs.

• It is a dynamic activity: The government changes tax* rules every year with the introduction of the budget. So, tax* planning is not a one-time task but has to be performed every year with a thorough understanding of tax* rules and exemptions. 

 

Benefits of Tax Planning

 

Tax* planning is an excellent strategy to save hard-earned money through legal methods. Apart from this, there is a need for tax planning due to its following advantages:

 

• Leads to reduced tax burden: Reduction in the tax* liability or burden is the essential feature of tax* planning. Financial growth leads to growth in taxable income. But with an efficient tax* planning method, you can significantly reduce your taxable income and save your hard-earned wealth.

• Helps identify tax-efficient investment avenues: Through tax* planning, you can identify the most tax*-efficient investment options and invest in them according to your needs and goals.

• Helps avoid legal complications and litigations: Tax* evasion can lead to legal complications. Also, you may end up paying more money than you avoided in the form of penalties. But tax* planning is a legal way to reduce tax* liability which saves you from tax* litigations or complications.

• Leads to productive economic growth: Businesses and salaried individuals can save their money through efficient tax planning. The saved taxable income can be channelised into multiple investment plans leading to the economic growth of an individual. On the other hand, businesses can use the saved money to expand their business, further generating more employment. This leads to the overall growth of the country’s economy. 

• Helps in retirement planning: With tax planning, it becomes easy to build enough personal finances, which also helps in creating a retirement corpus.

What are the Important Methods of Tax Planning?

The three main tax planning methods are:

• Purposive method
  
  This method involves the application of tax* provisions of the nation in an intellectual way to reduce tax liability. It is performed with the specific aim of getting the maximum advantage out of the tax laws. The methods may include replacement of assets, making right investments, diversification of business activity, and change in residential status.

 

• Permissive method
  
  This method of tax* planning involves using multiple tax benefits, including deductions and exemptions, to reduce tax liability. It is a simple method of tax planning as it includes taking advantage of the legal tax concessions given by the government.

 

• Short-range method
  
  Short-range planning is performed at the end of every fiscal year. It is aimed at searching for ways to reduce tax liabilities when the year comes to an end and does not involve long-term tax planning.

 

• Long-range method
  
  On the other hand, the long-range tax planning method involves planning at the beginning of the financial year keeping long-term objectives in mind. Also. the benefits of long-range tax planning are not paid off immediately.

 

Benefits of Tax Planning in India

 

The Government of India frames direct tax rules under the Income Tax Act,1961. There are many tax benefits provided under the act, including tax deductions and exemptions based on the type of investment. Following are the tax benefits under different sections of the Income Tax Act,1961:

 

• Section 80C
  
  Under Section 80C of the Income Tax Act,1961, you can reduce tax liabilities by saving in life insurance plans, Equity-linked Savings schemes (EELS), National Savings Certificates, fixed deposits, Public Provident Fund, etc. You can get tax deductions up to a maximum of ₹1.5 Lakh under these investment avenues.

 

• Section 80D
  
  Under this section, you can benefit from tax deductions on the premiums that you pay for health insurance plans.

 

• Section 80E
  
  This section offers tax benefits on the interest paid for education loans. With no upper limit on the deduction, you can claim the entire amount of interest under Section 80E of the Income Tax Act.

 

•  Section 80G
  
  The section offers tax benefits for contributing to certain relief funds and charity institutions.

 

 

Conclusion

 

With financial success comes more burden of paying taxes. So, minimising tax liability is essential for an individual or business to preserve wealth. With the employment of several tax planning strategies, you not only reduce tax liability but also saves for your future and retirement. There are multiple tax-saving options available, but you must also savein a life insurance plan to fulfil your financial goals and needs.

 

Along with the life cover and financial security, you benefit from a reduction in tax liability where you can avail of a tax deduction on premiums paid up to Rs.1.5 Lakh u/s 80C of the Indian Income Tax Act. Also, the death benefit is tax-exempt under Section 10(10D).

 

So, buy an appropriate life insurance plan with Tata AIA life insurance and secure the financial future of your loved ones today.

 

L&C/Advt/2022/Jul/1753