Tax Planning refers to the analysis of the financial position concerning the payable tax liability. Tax Planning enables the person to reduce tax liability legally. Tax Planning is an important component of Financial Planning. Financial Planning has got a larger perspective. Tax Planning is equally important for both individual and Businessmen. It helps them in rationalizing their tax liabilities.
STEPS IN TAX PLANNING
The following are the steps in Tax Planning:Forecasting of Total Income and Taxable Income
The total income for the year to be estimated in advance. Based on the total income and taxable income also to be estimated. This will help in proper tax planning for the ensuing financial year.
Filing of Income Tax Return(ITR)
We must file our Income Tax Return at the end of the year within time to avoid any penalty.
Assessing Tax Liability regularly
During the year tax liability is to be assessed regularly based on the income. This will help in keeping the tab on tax liability so that there will be no panic at the end of the year.
Paying Advance Tax
As per the forecast of the tax liability, if advance tax is to be paid we must pay the same within the stipulated time to avoid interest for the delayed period.
Investment and Expenses
During the year tax liability is to be assessed regularly based on the income. This will help in keeping the tab on tax liability so that there will be no panic at the end of the year.
POPULAR TAX SAVINGS SCHEMES
The following are the most popular tax savings methods:
- Equity Linked Tax Savings Schemes(ELSS) of Mutual Funds
- Premium paid towards Life Insurance Policies
- Premium paid towards Health insurance Policies
- Donations to Prime Minister Relief Fund
- Five-year Tax Savings Deposits of banks
- Contribution to the National Pension Scheme(NPS)
- Pension plans of life insurance companies
- Investment in National Savings Scheme(NSC)
- Contribution to Employees Provident Fund(EPF)
- Contribution to Public Provident Fund (PPF)
