Tax Planning is an activity conducted by the tax payer to reduce the tax liable 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. The objective behind tax planning is insurance of tax efficiency. Tax planning allows all elements of the financial plan to function in sync to deliver maximum tax efficiency.
Tax planning is critical for budgetary efficiency. A reduced tax liability and maximized the ability of retirement plans.
1. Minimal Litigation: There is always friction between the collector and the payer of tax. In such a situation, it is important that the compliance regarding tax payment is followed and used properly so that friction is minimum.
2. Productivity: Among the most important objectives of tax planning is channelization of taxable income to various investment plans.
3. Reduction of Tax Liability: As a tax payer, you can save the maximum amount from payable tax amount by using a proper arrangement of your enterprise working as per the required laws.
4. Healthy Growth of Economy: The growth in an economy depends largely upon the growth of its citizens. Tax planning estimates generation of white money that is in free flow.
5. Economic Stability: Stability is supplemented when the tax planning behind a business is proper.
The deductions are available from Sections 80C through to 80U and can be utilised by eligible taxpayers.
All these deductions happen against quantum of tax liabilities.
There many other sections under the Income Tax Act, 1961 such as exemptions and tax credits that can lower your tax liabilities.