Tax Planning Meaning
Tax planning is an activity to reduce tax liability. Tax planning is the basic and important part of the financial plan and helps to save our capital. There are many options that provide deduction in the tax liability of the taxpayer, from which Section 80C of the Income Tax Act, 1961 is the most suitable option for an individual to claim the tax deduction. There are many schemes under Sec.80C which provided eligible deduction like under life insurance, contract for a deferred annuity, contribution by an individual provident fund, contribution by an employee to a recognized provident fund and to an approved superannuation fund, contribution in pension fund, etc. but one should reduce his tax liabilities within the framework of law.
SC held that “tax planning may be legitimate if it is within the framework of law, but the colorable device cannot be part of tax planning. It is wrong to say that it is honorable to avoid payment of tax by the dubious method. It is the obligation of every citizen to pay tax honestly without resorting to subterfuges.”
Tax Planning Objective
- Reduce Tax Liability.- The main purpose of tax planning is to reduce tax liability imposed on a person. Every individual wants to reduce their tax burden and save that money for their future plans. So an individual can do so by prior planning and can avail all the benefits to reduce his tax.
- Minimization of litigation.- Taxpayers want to minimize his legal litigations. After consulting his legal advisor and adopting proper provisions of law for tax planning can minimize the litigation. This can save taxpayers from legal harassment.
- Economic stability.- If a taxpayer paid all the taxes without legally due then it will create a more productive investment in the economy. Prior plans help taxpayers as well as the economy.
- Productivity.- If a taxpayer is aware of all the tax compliance and does productive investment planning then it will create more tax saving options for him.
- Financial Growth.- If tax planning is done in the right manner and is going in the right direction, it will help in financial growth with economic growth.
