Tax planning refers to the process of evaluation of a financial plan or circumstances w.r.t taxation to ensure the maximum tax efficiency by harmonize all the components of a financial plan to work together with tax-efficiency. Tax planning is an integral part of a financial plan that helps in the reduction of tax liability and increment of contributions towards retirement schemes. Besides, different investments and different retirement schemes must go together with the tax filing and the deductions to generate the best possible results. Tax planning lays emphasis on different considerations like the timing of income, timing of purchases, size and planning connected with different expenditures.
Role and Types of Tax Planning
Tax planning plays a key role in the financial growth of any individual because one cannot escape from tax liability if his/her income falls under the Income Tax bracket. The proper tax planning helps individuals streamline his/her tax payments and ensure returns over a particular period of time while reducing the tax liability of the person.
Tax planning can be divided into three kinds of planning which are as follows:
Importance and Advantages of Tax Planning
Paying tax is an important responsibility of an individual towards a nation, however, at the same time, with financial planning you can save your taxes while fulfilling your responsibility towards the nation by using the tax saving schemes given by the government. This can be done if you follow proper tax planning meticulously designed by a CA or CS professional. Let us deep dive into the Advantages of Tax planning.
Under Section 80C and 80CC of the IT Act, individuals and members of Hindu Undivided Family can avail benefits under deductions. Under this section, premiums paid during the policy tenure are qualified for tax savings, provided that the policy is availed in the individual’s name or in the name of his/her spouse or children.
This type of deduction is eligible only for premium amounts the values of which is not more than 10% of the sum total of the amount insured in the policy issued on or after April 1, 2012. For the policy issued before March 31, 2012, deduction will be eligible for premium payment of up to 20% of the sum insured amount.
As per Section 80C of the IT Act, these benefits are available on investments up to 1,50,000 on life insurance products.
Key Takeaways of tax planning:
A CA or CS professional can help you with efficient tax planning. So why not avail a professional service?