Meaning of Tax Planning

Meaning of Tax Planning

 (Meaning of Tax Planning:)

 Every taxpayer wants to minimise his tax-liability and tax-incidence so that his real income after tax is the highest. But he does not want to violate the law and adopt immoral tactics. He can do so by adopting a proper tax planning technique. Tax planning is an art and the exercise of arranging financial affairs of taxpayers so as to reduce or delay the tax payment which would be necessary, if the words of tax laws were to be followed in the obvious manner. 

Tax planning may be defined as arrangement of one's financial and tax affairs in such a manner that without violating in any way of legal provisions under the tax and other laws, full advantages in taken of all tax exemption, deductions, concessions, rebates, allowances relief and benefits permitted under the tax laws so that the burden of taxation on the taxpayer is reduced to the minimum.

Essential Characteristics of Tax Planning 

V Essential element or characteristics of tax planning may be summarised as below:

 V1. Tax Planning is Legally Recognised:

A taxpayer resort to tax planning in such a way that tax làw are not violated. Avoidance of the tax through tax planning is quite legitimate provided it is done without any fraud or violation of any tax law)Violation of tax law is a criminal Act for which the taxpayer may be penalised or prosecuted tax burden must be reduced without going beyond the various provisions of tax laws. It means the tax planning must be within the framework of four comers of tax law prevalent in the country. 

2. Planning in Connection with Income, Expenditure and Investments :

Certain incomes are exempt in full, some are partially exempt while certain incomes are taxable in full. Similarly certain incomes are entitled to rebate of tax if these belong to business or business. Set-up in notified areas or businesses set-up within specified period. Such rebates and exemptions encourages assessee to arrange their economic affairs as to avail full advantage of these rebates and exemption. Thus, assesses are in a position to minimise or reduce their tax burden and thereby increase their real income after tax. An assessee may manage to receive either exempt income or income entitled to rebate of tax. He may invest in such sphers or sources, income from which is either exempt in full or taxable in part. In this way, he will rarely learn taxable income. Likewise an assessee may manage to spend on such item that full or maximum deduction is available to him in respect of such expenditure) Similarlykan assessee may plan his investments in such a way that lowest or no income tax is attracted on the income earned thereon. Assessee may invest his funds in such incentive plans which grant him the maximum tax reliefs and concessions) 

V3. Tax Planning is Moral:

(Tax planning is moral and fair as it is in accordance with the law. Tax planning is done without violating the provisions of law and therefore, it is well accepted by law, the society and the nation. Tax planning is not regarded as bad or immoral. A taxpayer who takes maximum advantage of tax laws and saves more and more taxes is a wise man. Thus, avoidance of tax liability, by so arranging commercial affairs that charge of tax is distributed, is not prohibited. A.

 Tax Planning is in 

Accordance with Government Policy : 

Policies of the government encourage tax planning (The government aimis to achieve certain social and economic goals to achieve these goals the government has provided certain exemptions, deductions, rebates and reliefs through legislation, notification, circulars and proclamations)A taxpayer can minimise tax burdens by taking full advantage of these legislations, notification, circulars and proclamations. Tax saving results in income-increase : It is therefore said' tax saved is money earned. 

VS. Basis of Tax Planning (Tax planning is primarily based on exemptions, deductions and tax reliefs provided in the Income Tax Act. Arj assessee gets savings or relief income tax if he spend or invest in such expenditures or investment as specified in the law. These exemption, deductions and taxincentives encourage an assessee for tax planning. A taxpayer reduces his tax-liability by adopting these, 

V6. Tax Planning is a Continuous Process : 

Tax planning is done regularly for every vear One year tax planning is not necessarily all year's tax planning though certain investments yield tax saving for many years, even then, tax planning is needed for each year separately. Most of the exemption, deductions, tax reliefs and tax saving are planned for every year. Separately thus tax planning is a continuous process which repeated every years so that an assessee gets the maximum benefit out of it.