Why is it Important !
Tax Planning is the analysis of the financial position concerning the payable tax liability. Tax Planning is an important component of Financial Planning and enables the entity to reduce tax liability legally.
Tax planning help you in rationalizing your tax liabilities!
Different Type of Taxes
Income tax lies under the category of direct taxes. An individual having an annual income of more than Rs. 2.50 lakh per year is required to pay the tax. Tax is levied at various tax slabs basing on the income.
Corporate tax is a direct tax imposed by a government on the income or capital of corporations or other legal entities. It can either be at the national level, and may be imposed at state or local levels based on size and function of companies.
Excise duty refers to the taxes levied on the manufacture of goods within the country, as opposed to custom duty that is levied on goods coming from outside the country. For example, It is charged on food items, petrol and liquors.
Benefits of Tax Planning
- Helps in assessing proper estimated income for the ensuing financial year and assessing the correct tax liable to be paid
- Helps in planning the proper investment plan to save the taxes
- Saves from the last-minute rush in assessing and paying taxes. Which may lead to paying more taxes and inappropriate investment plan
- It enables us to file the Income Tax Return (ITR) in time. Which may lead to paying more taxes and inappropriate investment plan
- It helps in avoiding imposing of penalties and payment of interest
- It helps in maximizing the tax relief and reducing tax liabilities
Common Mistakes in Tax Planning
- Procrastination: This is the most common mistake. Any delay in planning leads to a last-minute rush and paying more taxes. Sometimes it may lead to paying penalties and litigation also.
- The investment made in Life Insurance products: Many times investments are made in the insurance products without an assessment of its requirement just for the sake of availing tax benefit. This results in erratic investment planning.
- Failing to avail the tax benefits available in other sections of Income Tax: Section 80C is the most popular section for availing tax benefits. Whereas tax benefits are available in other sections also viz; Section 80DD, 80E, 80G, 80GG, A10(1), etc.
- Incorrect Estimated Income: Not assessing the estimated income for the ensuing financial year properly. Accrued but not received income not included in the total income.
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