Tax* planning is an important financial activity. It can help you save a lot of money! The Government of India has introduced several tax provisions that help you invest in financial instruments to secure your life while saving on tax. Therefore, it is necessary to be aware of the different tax laws to maximise the related benefits. You can take the help of financial experts who can exclusively guide tax planning for new businesses and individuals to be prompt and financially secure. Here is a detail to understand why tax planning is crucial.
Tax Planning In India
Taxpayers in India have to pay their income tax and file their Income Tax Returns (ITR) every year regularly. And, every taxpayer will have a definite method of paying taxes based on their income tax slab.
For example, salaried individuals will get their relevant income tax deducted at the source by their employers. Tax planning refers to planning your finances for tax payment by calculating the amount of tax you need to pay every year based on your income sources. The Government of India has introduced tax provisions to help individuals reduce their tax liability.
Why is Tax Planning Crucial?
Tax planning in India is crucial for many reasons. It can help you be a responsible citizen while saving money for your future commitments. Here is a detail to help you understand why it is essential.
Smooth financial planning - You can engage in a smooth financial planning process when you plan to pay your taxes regularly. You can also adequately allocate the funds required for the expenses in your family now and in the future. Without adequate planning, you might end up paying a lot of money as tax or as a penalty that can lead to a financial crisis.
Compliance with tax provisions - When you plan for your tax payment regularly and take the necessary steps timely, you comply with the country's tax laws effectively. It will help prevent you from getting involved in legal hassles that can affect your integrity. For instance, if the Income Tax Department knows that you have not paid your taxes regularly based on your income, they can call you for an enquiry or issue show cause notices.
Tax planning lets you allocate funds for investment plans - The Government of India has introduced several tax provisions to encourage people to invest in various financial instruments. Therefore, you will start looking for different tax saving plans to channelise your income sources for saving money and plan for future financial commitments. When you engage in effective tax planning, you will be able to compare different solutions that can reduce your tax liability and also provide the necessary financial benefit to accomplish your financial goals based on your income and needs.
Tax planning helps save money - The tax deduction and exemption benefits help you reduce the taxable income and save money in the long term. Here are a few provisions to help you understand the benefits:
Section 80C of the Income Tax Act, 1961 offers a tax deduction for investments made in financial instruments such as life insurance plans, Public Provident Fund, Equity Linked Savings Scheme, Senior Citizen Savings Scheme, National Pension Scheme, etc.
Section 80D provides a tax deduction for investments made in purchasing health insurance plans for self and family.
Section 80G provides tax deduction benefits to donations made towards charity funds.
Section 80E allows for a tax deduction on the interest paid towards an education loan.
Apart from the tax deduction, there are also exemption benefits related to House Rent Allowance, Leave Travel Allowance, etc., that reduces your net taxable income.
Also, when you invest in life insurance plans such as term life insurance, you can secure your family by availing of the death benefit during your absence while saving on tax. The premium amount paid towards the term plan and the payout benefits will qualify for a tax deduction and tax* exemption under Section 80C and Section 10(10D) of the Indian Income Tax Act, 1961.
Different types of term life insurance solutions enhance the financial benefits while helping you save on tax. For example, our Tata AIA term insurance plan provides customisable solutions that help you top up the sum assured at different stages in your life based on increasing family commitments. We also offer online services to help purchase the term plan and avail the claim benefit effortlessly and cost-effectively.
Contributes towards economic growth - With effective tax planning, you start paying taxes regularly as an individual or corporate. It will help promote the country's economic stability and financial growth when it is a mass decision. Therefore, every individual must consider it a responsibility to pay taxes regularly.
Tax planning for individuals and businesses is important to strengthen economic growth. It is crucial because it aids in smooth financial planning processes, complies with tax provisions, avoids legal penalties, invests in tax saving plans, saves money, and creates a responsible citizen of India. Moreover, while investing in tax-saving plans can help you accumulate funds in the long term, it can help you reduce your tax liability by using the tax deduction and exemption provisions. Therefore, choose to invest in financial instruments and stay invested through the policy term to get the financial benefits under the plan while saving on tax* in the long term. You can always seek expert advice to help you best in this regard!