Tax Planning

Tax Planning can be understood as the activity undertaken by the assessee to reduce the tax liability by making optimum use of all permissible allowances, deductions, concessions, exemptions, rebates, exclusions and so forth, available under the statute.

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 and 80D of the Income Tax Act, 1961 are the most suitable option for an individual to claim the tax deduction. There are many schemes under Sec.80C and 80D which provide 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, investment in medical insurance plan etc. But one should reduce his tax liabilities within the framework of law.

Need of Tax Planning

Tax planning is essential to point in a person’s life. As the Government imposed high tax rates so, to reduce that tax liability there is a requirement of tax planning. There are many schemes and offers provided in taxation law. One has to choose the right scheme where he can invest and avail the benefits of those schemes.

Our Tax Planning Strategies

Tax planning strategies are a plan to reduce tax liability by availing the advantages of schemes and programs offered by the government to an individual or an organization. Our motive of tax planning strategy is to use the schemes for the reduction of tax liability in the right direction and in a lawful manner. As we have discussed, there are many schemes and programs which are offered by the government. Let’s take a look

  • Deduction under Section 80C & 80D.- section 80C and 80D covers a wide area for a tax deduction which offers a number of schemes and plans where one can invest his money and save it from tax, for example- Investment in life insurance policy, Contribution to provident fund, Investment in National Savings Certificate, Public Deposit Scheme, Investment in Annuity Plans, Investment in some Mutual fund or pension fund, Tuition fee, Health insurance paid etc.
  • Deduction for HRA.- house rent allowances given under Section 10(13A) where employees are exempted from paying tax who lives in a rented room/apartment.
  • Deduction on education loan.- under section 80E one can save his tax, as per this section deduction is allowed on the loan taken by an assessee for his higher education or for the higher education of his relative.
  • Rebate for home loan.- one can save his tax on home loan principal repayment or home loan interest payment. Under section 80C assessee can claim for principal repayment and section 24b for home loan interest.
  • Planning for Long term capital gain.- under long term capital gain, one can claim for deduction on the sale of long term capital assets. Here, long term capital assets mean by for 3years or more.
  • Donation exemptions.- donation exemption can be claimed under section 80G if the assessee has donated any amount for NGOs or for any political party.