Tax planning is a process of analysing one's financial situation logically with a view to reducing tax liability. Tax planning involves planning your income in a legal manner so to avail various exemptions and deductions. Under Section 80C, you can avail tax deduction if specific investments are made for a specific period up to a limit of 1, 50,000. The most popular methods for saving tax are investing in Mutual Funds (ELSS), NPS, Insurance, National Saving Certificate, Fixed Deposit,and Provident Funds. Tax planning involves applying various advantageous provisions which are legal and entitles the assesse to avail the benefit of deductions, credits, concessions, rebates and exemptions. Or we can say that, Tax planning is an art in which there is a logical planning of one's financial affairs in such a manner that benefits the assesse with all the eligible provisions of the taxation law. Tax planning is an honest approach of applying the provisions which comes within the framework of taxation law.
Tax Planning is an activity conducted by the tax payer to reduce the tax liability upon him/her by making maximum use of all available deductions, allowances, exclusions, etc feasible under law.In other words, it is the analysis of a financial situation from the taxation point of view
Tax planning helps you save money.
Purposive tax planning means applying tax provisions in an intellectual manner so to avail the tax benefits based on national priorities. It includes tax planning with a purpose of getting the maximum benefit by making suitable program for replacement of assets, correct selection of investment, varying the residential status and diversifying business activities and income. Also, Under Income Tax Act, Section 60 to Section 65 is related to the income of other persons included in the income of assesse. Here, assesse can plan in a way that the provisions do not get attracted so as to increase the disposable resources. This is known as purposive tax planning.
Permissive tax planning refers to the plans which are permissible under various provisions of the law, for example planning of earning income covered by Section 10, Section 10(1), planning of taking advantage of various deductions, incentives for getting benefit of different tax concessions etc. In other words, it means planning made as per provision of the taxation laws.
Short-range planning means planning made annually to fulfil the limited or specific objectives. It is executed at the end of the year to reduce taxable income legally. Also, in short-range tax planning there is no permanent commitment.
Long range tax planning refers to the practices undertaken by the assesse. Long term planning is done at the beginning or the income year to be followed around the year. Long term planning does not help immediately, for example transfer of assets without consideration to minor child. In this case, the income will be combined to transferor up to the child in minor but once the child turns 18, this will be the child's income.