What’s Tax Planning? A Full Information

With each paycheck you obtain comes taxes. It’s pure to need to save as a lot of your hard-earned cash as attainable, and tax planning allows you to just do that inside the constraints of the regulation. Not solely do you keep compliant by doing all your tax planning, however you additionally additional the nation’s financial progress and assist it develop. On this tax planning information, we’ll cowl the whole lot – From the definition of tax planning to understanding its significance, exploring efficient methods, and avoiding widespread errors. Let’s go!

What’s Tax Planning?

We’ll begin with the tax planning that means. How are you going to save your taxes? Effectively broadly, there are 3 ways folks can accomplish that. First is by exploiting tax loopholes or avoiding paying taxes. That is known as tax avoidance. One may intentionally conceal their revenue or present false data on goal. That is known as tax evasion. The third method of minimising your tax liabilities is by arranging your funds in such a method that may benefit from accessible tax deductions, advantages, and exemptions given by the federal government to cut back your internet taxable revenue successfully. 

That is known as tax planning. Tax avoidance and evasion have very severe authorized penalties. Adopting these approaches will get one entangled in authorized points, they face hefty fines, harm their popularity, and destroy the monetary stability of their household. That’s why it is best to all the time plan in your taxes. It makes positive you might be compliant with the regulation and safeguards your long-term monetary well-being, whereas additionally optimising your tax financial savings.

Additionally Learn: What are Tax Planning, Avoidance and Evasion? Know Key Variations

Understanding Tax Planning

In India, the Revenue Tax Act of 1961 governs the taxation of revenue. Its numerous sections and subsections comprise many deductions, exemptions, and advantages which might be utilized in tax planning in revenue tax. Maximising these deductions and exemptions helps one scale back taxable revenue, which results in tax financial savings. Lawmakers usually evaluation tax legal guidelines to verify they continue to be related, truthful, and efficient in attaining their meant targets, so amendments are launched. However tax planning in india noticed a twist with the introduction of the brand new tax regime within the Union Finances 2020. This new system provides decrease tax charges, however one should additionally forgo the various tax advantages such because the 80C investments by adopting the brand new regime. These advantages nonetheless are nonetheless current within the outdated tax regime. 

Tax Planning Course of

Typically, tax planning includes the next steps:

Step 1. Tax planning begins by assessing one’s monetary state of affairs. By making an allowance for whole revenue, bills, investments, and different property you will get an enormous image of your monetary well being. Revenue is an important facet to judge right here. Think about each supply of revenue comparable to wage, revenue from promoting property like mutual funds or shares, curiosity from financial institution mounted deposit, freelance work, or revenue from a enterprise. 

Step 2. Then, it’s important to work out which elements of your revenue are taxable and which aren’t. For instance, for a salaried worker, the Home Lease Allowance is part of the general bundle and is a element exempt from tax as much as a sure restrict. Doing so can assist you’re employed out your taxable revenue and work out your present tax burden. Solely then are you able to proceed to cut back it. 

Step 3. Subsequent, it is advisable to establish methods in which you’ll be able to scale back your taxable revenue. The Revenue Tax Act offers numerous exemptions and deductions that can be utilized to decrease your taxable revenue, comparable to:

  • Investing in schemes just like the Public Provident Fund (PPF), Nationwide Pension Scheme (NPS), Senior Citizen Financial savings Scheme (SCSS), and Sukanya Samriddhi Yojana (SSY) permits you to earn a average return on funding whereas permitting you to say a deduction of as much as Rs. 1.5 lakh underneath Part 80C.
  • When you have a house mortgage, you too can declare deductions underneath Part 80C of as much as Rs. 1.5 lakh for the annual revenue spent on reimbursement of the principal quantity. On high of that, as much as Rs. 2 lakh will be availed in deductions for curiosity funds on house loans underneath Part 24.
  • If you happen to purchase a medical health insurance coverage for your self, you will get a advantage of Rs. 25,000 on premiums paid underneath Part 80D. Overlaying your guardian’s well being can assist you get a further deduction of Rs. 25,000, which rises to Rs. 50,000 if they’re senior residents. 
  • Life insurance policy additionally give tax advantages underneath Part 80C and Part 10 (10D). Investing in Unit Linked Insurance coverage Plan (ULIP) offers a possibility to avail tax deductions on premiums paid.
  • Part 80E permits you to declare deductions on curiosity paid on schooling loans.
  • If you happen to make a charitable donation, you will get deduction advantages underneath Part 80G. 
  • As much as a selected restrict, allowances comparable to Home Lease Allowance (HRA), conveyance allowance, and Depart Journey Allowance (LTA) are additionally exempt from tax.
  • These are just a few examples. One can recover from 70 deductions and exemptions underneath the outdated tax regime. The brand new tax regime additionally provides some exemptions, however they aren’t as substantial because the outdated tax regime. That’s why it’s essential to evaluate which regime can assist you save extra earlier than you file your taxes. 

Step 4. Primarily based in your monetary state of affairs, targets, and preferences, develop and implement your technique. This will likely imply investing in publish workplace schemes, getting insured, or investing in ELSS. A tax planner can assist you establish the optimum alternatives that scale back your tax legal responsibility whereas staying hand-in-hand together with your total monetary plan. 

Step 5. After you’ve got carried out your technique, it’s important to evaluation it recurrently. Tax regulation adjustments usually, which implies new alternatives and dangers might also come up. Keep up to date and reassess your plan yearly so you may make positive it stays aligned together with your monetary targets and continues to maximise tax financial savings successfully. For instance, people have the choice to modify between the outdated and the brand new tax regimes each monetary 12 months. If you happen to calculate and evaluate the tax implications underneath each regimes beforehand, you may make an knowledgeable resolution on which one is extra useful in your particular monetary state of affairs in a selected monetary 12 months.

So in case you are questioning Make a tax Plan, you’ll be able to observe the above steps and get began. Bear in mind, the sooner you begin the higher as a result of that method you received’t should make hasty selections and make investments a big lump sum someplace to decrease your taxable revenue. It can mean you can take the SIP route and slowly construct your tax-saving investments with out harming your price range.

Goal of Tax Planning

Together with threat planning, funding planning, and emergency planning, tax planning kinds an integral a part of your total monetary plan. With correct tax planning, you’ll be able to obtain the next:

  • It could actually show you how to minimise your tax liabilities legally. That is the primary goal of tax planning. That is performed by lowering one’s internet taxable revenue by utilizing the varied exemptions, deductions, and different advantages allowed by revenue tax legal guidelines.
  • Some people use tax avoidance or tax evasion to save lots of their cash. Such strategies usually are not solely ethically unsuitable but additionally unlawful. Partaking in these practices exposes people to extreme authorized penalties, comparable to hefty fines and even imprisonment. With correct tax recommendation from a tax advisor, one can guarantee compliance with tax legal guidelines and rules and keep away from litigation.
  • Tax planning may assist people create wealth. Because the in style methods to get deductions within the Revenue Tax Act are the 80C investments, one doesn’t simply scale back their taxable revenue, however the average returns from long-term financial savings devices such because the Public Provident Fund and ELSS can assist you get monetary savings for retirement or every other long-term monetary targets.

Advantages of Tax Planning

There are numerous benefits of tax planning. Listed here are a few of them:

  • With tax planning, you’ll be able to scale back your internet taxable revenue, thus paying much less tax and saving extra.
  • It ensures that you simply keep compliant with the tax authorities and legal guidelines, so it helps you keep away from penalties and fines.
  • With extra financial savings, you’ll be able to redirect funds in direction of attaining your different monetary targets, comparable to investing for retirement, constructing an emergency fund, paying off money owed, and planning in your kids’s future.
  • Because it eliminates any concern of litigation, tax planning provides peace of thoughts.
  • Tax planning helps companies handle money circulation and optimise their operations for max tax effectivity.
  • Your trustworthy tax contribution contributes to the nation’s financial progress and helps the federal government spend money on public providers, schooling, healthcare, and infrastructure, in the end enhancing the standard of life for the residents.
  • With the assistance of a tax planner, not solely are you able to minimise your tax burden and keep away from litigation, but additionally you could find tax-saving alternatives that align together with your total monetary plan and targets. Thus, it offers you with the twin advantage of lowering your tax legal responsibility whereas concurrently optimising your monetary technique for long-term success.

Additionally Learn: Tricks to Save Revenue Tax on Wage

Forms of Tax Planning

There are various kinds of tax planning based mostly on numerous elements such because the period of the planning horizon and the character of economic targets. Right here they’re:

1. Lengthy-term Tax Planning

One begins long-term tax planning initially of the monetary 12 months. Let’s take an instance. Suppose you begin investing in a tax-saving mutual fund, additionally known as an Fairness-Linked Financial savings Scheme. ELSS offers advantages as much as Rs. 1.5 lakh underneath Part 80C. If you happen to decide to take the SIP route, you’ll commit your self to creating common and stuck funds all year long. 

You’ll not get speedy tax advantages, however on the finish of the 12 months, it can show you how to decrease your taxable revenue. That is what this kind of tax planning does. It doesn’t supply tax advantages instantly, however quite, in the long term. Different methods to do tax planning in the long run embody making contributions to devices such because the Public Provident Fund, or the Nationwide Pension Scheme. Lengthy-term tax planning helps buyers not solely save tax but additionally helps them accumulate wealth to attain targets comparable to a financially stress-free retirement.

2. Brief-term Tax Planning

Alternatively, short-term tax planning helps one avail speedy tax advantages. Since it’s performed nearer to the top of the monetary 12 months, it usually requires investing a big quantity in a single go, quite than spreading it out via SIP as one may do in long-term planning. This will doubtlessly disrupt the price range.

3. Permissive Tax Planning

This sort of tax planning contains utilizing provisions inside the tax regulation to minimise tax legal responsibility. For instance, the Revenue Tax Act of 1961 permits people to benefit from numerous deductions and exemptions by investing in choices underneath Part 80C. It additionally permits deductions on premiums paid in direction of life and medical health insurance underneath Part 80C/ 10(10)D and Part 80D respectively. Beneath Part 80G, one may even get deductions by making donations to charitable or political causes. One may get tax advantages by repaying house mortgage curiosity underneath Part 24B, and on reimbursement of schooling mortgage underneath Part 80E.

4. Purposive Tax Planning

If you plan with a selected objective in thoughts, tax planning is alleged to be purposive. For instance, if you wish to scale back your tax liabilities via Part 80C of the Revenue Tax Act, you may purposefully spend money on tax-saving devices just like the Public Provident Fund or Nationwide Financial savings Certificates. Nonetheless, these investments give advantages as much as a restrict, and their returns are average. With purposive tax planning, one will maximise the advantages given by these devices by investing as much as that restrict, and diversify their funding portfolio to incorporate different choices that complement their monetary targets and threat tolerance.

Frequent Errors to Keep away from in Tax Planning

  • When minimising their tax burden, folks usually are inclined to overlook their total monetary plan. Simply since you are centered on lowering taxes doesn’t imply it is best to neglect different essential monetary targets. If you happen to make a hasty resolution and spend money on an instrument that doesn’t essentially align together with your long-term view solely to avoid wasting taxes instantly, it will possibly show dangerous. 
  • The tax submitting course of may also be a bit complicated, particularly in case you are adopting the outdated tax regime as it’s important to consider numerous deductions and exemptions. Be sure you have all the mandatory paperwork on the time of submitting. Lack of correct documentation and incorrect reporting can result in fines and delays in tax refunds. 
  • Ready till the final minute may restrict the variety of tax-saving alternatives, so it’s advisable to begin planning in your tax as quickly as attainable.
  • When unsure, all the time seek the advice of a tax advisor. What labored in your buddies and kinfolk might not essentially give you the results you want since everybody has a novel monetary state of affairs. 
  • Tax-saving devices mean you can declare a deduction solely as much as a sure restrict. Don’t spend money on such devices any greater than it is advisable to, until additionally they align together with your monetary targets. 


As dutiful residents, we have to fulfil our tax obligations and contribute to the nation’s progress. However one doesn’t have to pay any extra taxes than needed. The federal government has made provisions within the tax legal guidelines to permit us to optimise our tax liabilities via numerous deductions, exemptions, and different advantages. It’s our duty to benefit from these alternatives whereas guaranteeing compliance with the regulation. Via tax planning, one can do all this effectively, and luxuriate in larger monetary safety and peace of thoughts. The start of the monetary 12 months offers a beautiful alternative to begin tax planning early, so get began right now!


What do you imply by tax planning?

Tax planning is the method of minimising one’s tax legal responsibility legally by making use of the varied deductions, exemptions and advantages offered by the tax legal guidelines. This fashion, one can optimise their funds, save extra of their hard-earned cash and obtain their monetary targets quicker. All whereas guaranteeing compliance.

Why is Tax Planning essential?

Tax planning is essential because it helps you scale back tax burden whereas guaranteeing authorized compliance. It optimises your financial savings and helps you realise your monetary goals.

When ought to I begin tax planning?

The perfect time to begin planning for taxes is as quickly as you probably can. The best time for tax planning is the start of the monetary 12 months because it helps you maximise tax-saving alternatives, with out straining your price range an excessive amount of.

Who wants tax planning?

Tax planning is essential for any particular person or enterprise seeking to save as a lot of their hard-earned cash as attainable legally. If you happen to earn an revenue topic to revenue tax, you’ll be able to profit rather a lot from tax planning.

rent a trusted tax advisor?

You may contact Fincart and begin your tax planning journey right now. We perceive our consumer’s wants and minimise their tax liabilities legally via customised tax plans that align with their monetary targets. We perceive and optimise your wage breakup, revenue sources, and ongoing investments, and suggest tax-saving alternatives.

save taxes in India with the assistance of Tax Planning?

It can save you taxes by making the most of the various deductions and exemptions given within the Revenue Tax Act, comparable to: Investing in tax-saving avenues such because the Public Provident Fund (PPF) and Fairness-Linked Financial savings Scheme (ELSS) to get advantages as much as Rs. 1.5 lakh underneath Part 80C. By claiming deductions on premiums paid on medical health insurance underneath Part 80D. By claiming deductions on curiosity paid on house loans underneath Part 24, and lots of extra.

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