Tax Planning: An Exercise To Commence Right Away

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  • 05 Feb 2023
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Tax planning constitutes an integral aspect of personal finance, the essence of which becomes more evident at the end of the financial year. With the end of the financial year approaching in March, many taxpayers often rush to invest in tax-saving schemes. However, this is not a prudent way to take care of tax planning.

Tax has the potential to make a significant dent in your annual earnings. To minimise this potential loss, you should undertake tax planning in an organised and careful way to make the most of it.

Tax planning refers to a lawful method that an individual or corporate taxpayer can use to reduce their tax liability in a given financial year. Taxpayers can considerably save on taxes and reduce their liabilities by making use of the available tax deductions and exemptions as per the provisions of the Income Tax Act, 1961.

Proper tax planning is the key to achieving your financial goals efficiently. Tax planning helps taxpayers increase their savings, allowing them to save, invest, and otherwise utilise this money efficiently. With tax planning, you can make efficient use of income tax deductions and exemptions offered by the government, reducing your tax liability on the whole.

  • Reduces Tax Liabilities

Tax planning is essential to reducing your tax liabilities by availing yourself of the applicable tax deductions and exemptions under the Income Tax Act, 1961.

  • Increased savings

Reduced tax liability leads to increased savings and profitability for individuals and corporations. These savings can then be utilised to make prudent investments that aid individuals or businesses in further wealth creation.

  • Efficient Budgeting

Tax planning also ensures efficient budgeting. By analysing your financial situation from a perspective of tax efficiency, you will be able to allocate your expenses against your annual earnings more efficiently.

  • Economic Development

Taxpayers’ money and effective tax planning result in a better inflow of funds for the government, which can, in turn, be contributed to the country’s economic development and its citizens.

  • Minimises Legal Disputes

Tax planning also helps individuals and corporations minimise the litigation expenses that would otherwise arise because of tax disputes with income tax authorities.

  • Optimal Utilisation of Funds

Tax planning helps in systematically diversifying your funds from taxable sources towards various income-generating schemes. In this way, you can ensure more significant gains through the optimal utilisation of funds.

  • Wealth Creation

Through efficient tax planning, an individual or a corporation gets the opportunity to utilise their income towards making prudent investments. Eventually, this will result in substantial wealth creation for individuals over time.

Conclusion

The best way to save on taxes is by laying out a financial plan whenever there is a revision in your income and sticking to it. However, to undertake tax planning accurately, you should also be aware of all the relevant tax deductions and exemptions that apply to you. Working out your tax plan at the start of the financial year is an excellent way to ensure that you can make the most of tax benefits and financial planning. This way, you can be sure that you will not be surprised by any missed opportunities.

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