BBNC

Tax Planning


Tax planning is the analysis of a financial condition or plan to ensure that all aspects work together to guarantee that you pay the least amount of taxes feasible. Tax planning should be an important component of every individual's financial plan.
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Overview

Most of us don’t keep the track of our spending’s which results in the situation of financial liquidity.

To overcome the situation, we should have a planning for our earnings and spending’s. The term Tax planning is the point where we can analyse our financial prediction of revenue and expenditure from the angle of tax. With the help of tax planning, we can maximize the cash flow and liquidity efficiency. Basically, tax planning means reducing tax liability by taking advantage of the exemptions provided in the Income Tax Act.

Let’s understand the definition of the below:
  • Tax Planning
  • Tax Avoidance
  • Tax Evasion
  • Tax Management
  1. Tax Planning: Tax planning means reducing tax liability by taking advantage of the exemptions provided in the Income Tax Act like investing in tax saving FDs, Mutual Funds, 80C etc.
  2. Tax Avoidance: By taking undue advantage of the provisions or drafting mistakes for reducing tax liability which results in avoiding the payment of tax which is legally payable. Most of the people avoiding payment of tax by using the provisions mentioned in the Act like Sale of assets and lease the same asset to the owner. In this case depreciation is diverted but asset remains with the owner.
  3. Tax Evasion: Evasion of tax in illegal manner like fraud or false records.
    Tax evasion is illegal and would result in penalties, fines and Interests etc.
  4. Tax Management: Managing the compliances in timely manner which results in no late fees etc.



Benefits of Tax Planning

Key Notes On Tax Planning

Some of the key notes where we can invest to save taxes:

  1. Specified Investments under Sec 80C Up to Rs.1,50,000/-
    • Life Insurance Premiums
    • Repayment of Housing loan -Principal amount
    • Mutual Funds
    • Fixed Deposits
    • Registration fee paid for purchase of house
    • PPF
  2. NPS under Section 80CCD (1B)
    • In addition to the 80C, Assessee can save the tax additionally by investing an amount of Rs.50,000/-
  3. Deduction in respect of interest on Housing loan – Section 24
    • Amount of deduction-INR 2,00,000/-
  4. Deduction in respect of interest on Housing loan – Section 80EE
    • Assessee can additionally claim the interest paid towards the house loan
    • Amount of deduction-INR 50,000/-
    • Assessee should not own any residential house before taking the loan
    • Loan amount should not exceed INR 35L
  5. Deduction in respect of interest on Housing loan – Section 80EEA
    • Assessee should not cover under section 80EE
    • Amount of deduction-INR 1,50,000/-
    • Assessee should not own any residential house before taking the loan
  6. Deduction in respect of Medical Insurance Premium -Section 80D
    • Assessee can save the tax by paying medical insurance premiums
    • Applicable to both assessee and parents of the assessee
    • He can also claim the expenses incurred for health check-up
  7. Tax Savings on repayment of Education loan – Section 80E
    • Interest can be claimed for a period of 8 years
    • Assessee and children are eligible
  8. Tax savings on rent paid in cases where HRA isn’t paid – Section 80GG
    • Amount of deduction – Max INR 60,000

TAX Planning

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