Tax planning is the most effective way to counter tax burden which ensures robust planning of financial goals. Tax planning is carried out to lower tax obligations every financial year by optimally opting for tax rebates, tax exemptions and benefits.
In order to know the ins and outs of financial planning, refer to the sections below!
What Is Tax Planning?
Tax planning refers to the practice where the financial status of an entity or an individual is analysed based on the perspective of tax efficiency. Taxes can take up the annual earnings of a business body or an individual. Besides bringing down tax liabilities, tax planning also deals with making investments in the right securities at right time.
Though it deals with the reduction of income tax obligations, taxpayers must ensure they are not indulging in tax avoidance or tax evasion. Besides reducing tax liability, tax planning also aims to boost the economy, ensure productive investment and more.
One of the best ways taxpayers can save taxes is by drafting a financial plan right after there is a revision in their income status and then following that.
Advantages of Tax Planning
Tax planning can help business bodies reap the following benefits.
It deals with channelizing funds from different taxable sources and using them in different revenue-generating plans. This ensures optimal usage of funds and boosts productivity.
Bring Economic Stability
One of its core objectives of it is to enhance a country’s economy. Proper tax planning and management result in the gradual progress of the economy, proving beneficial for citizens.
Reduce Tax Liabilities
It enables lower tax liabilities and ensures enough funds for future usage. Payable tax amounts can be reduced by optimising investments by different benefits extended under the Income Tax Act, of 1961. Several investment schemes under the act also help to lower the tax burden.
Disputes may arise between taxpayers and tax collectors. With effective tax planning, business entities or individuals can resolve tax disputes that arise with local, state, federal or foreign tax authorities.
Different Types of Tax Planning
Here are the different types of tax planning.
Permissive Tax Planning
This is chalked out as per the provisions of the Indian framework of the law. Several provisions (like tax exemptions, deductions, incentives etc.) are extended to taxpayers in India. For instance, taxpayers can claim tax deductions on different tax-saving instruments under Section 80C of the Income Tax Act.
Short-range Tax Planning
This is drafted and implemented towards the end of the fiscal year. Business bodies or investors opt for this method to limit the tax burden legally.
Long-term Tax Planning
This is drafted when the financial year commences which is then followed by the taxpayer throughout the year. This type might not aid one with instant tax benefits; however, it proves effective in the long run.
Purposive Tax Planning
As the name suggests, purposive tax planning caters to a specific objective of an individual or business body. This ensures that the taxpayers reap optimal advantages from their investment. For instance, diversification of business and earning assets that are dependent on the residential condition, creating an agenda for asset replacement and more.
How to Save Taxes?
Several options are extended to taxpayers to help them save on tax liabilities. Under various Sections of the Income Tax Act, taxpayers can reap the benefits of tax exemptions and deductions.
A notable tax-saving avenue is Section 80C of the ITA. The ELSS (equity-linked savings scheme) under Section 80C allows taxpayers to reduce tax liability. Besides ELSS funds, taxpayers can invest in PPF (Public Provident Fund), NSC (National Savings Certificate) etc.
Further under Section 80D, taxpayers can claim tax deductions on the premium that they pay towards a health insurance plan. For instance, taxpayers can avail of an amount of Rs 50,000 if their parents are receiving compensation under a health insurance plan. Under Section 80E, one can avail of tax deductions and save on the interest paid on the principal amount sanctioned under an education loan.
How RazorpayX Helps Businesses in Tax Planning?
The RazorpayX online tax payment platform allows businesses to opt for automated TDS deductions and payments. Business bodies can make advance tax payments from the platform by setting schedules or notifications.
To help startup businesses establish themselves, the platform extends the RaxorpayX Forex service. It enables startups to bring foreign capital and raise business funds. Business entities can seek expert opinions on Forex and have a clear idea of the rate quotes.
Frequently Asked Questions
Is it possible to clear multiple TDS/TCS payments at the same time?
Yes, business bodies can pay several TDS/TCS payments at once. They have to reach out to the accountant and ask them to create several TDS entries. The platform enables businesses to clear all TDS entries using a single OTP.
How to access the TDS/TCS challan afterwards?
One can easily access all the TDS/TCS challans from the dashboard incorporated in the RazorpayX TDS platform. The challans are sorted by paid date, TDS category and deduction month. One will have to click on ‘View Challan’ on the dashboard to do so.
What is corporate tax planning?
Corporate tax planning is minimising tax obligations on a registered organisation. The planning can be executed via deductions made on business transport, office expenses, charitable contributions etc. Corporate tax planning proves effective in reducing both direct and indirect tax liabilities during inflation.