What’s Tax Planning? A Full Information

With each paycheck you obtain comes taxes. It’s pure to wish to save as a lot of your hard-earned cash as attainable, and tax planning enables you to just do that inside the constraints of the legislation. Not solely do you keep compliant by doing all of your tax planning, however you additionally additional the nation’s financial development 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 will you save your taxes? Properly 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 also can intentionally conceal their revenue or present false info on function. That is known as tax evasion. The third manner of minimising your tax liabilities is by arranging your funds in such a manner that may reap the benefits of obtainable tax deductions, advantages, and exemptions given by the federal government to scale 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, injury their status, and destroy the monetary stability of their household. That’s why you must all the time plan in your taxes. It makes certain you’re compliant with the legislation 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 include many deductions, exemptions, and advantages which are utilized in tax planning in revenue tax. Maximising these deductions and exemptions helps one cut back taxable revenue, which results in tax financial savings. Lawmakers typically evaluate tax legal guidelines to verify they continue to be related, honest, and efficient in reaching their meant objectives, so amendments are launched. However tax planning in india noticed a twist with the introduction of the brand new tax regime within the Union Price range 2020. This new system affords decrease tax charges, however one should additionally forgo the numerous tax advantages such because the 80C investments by adopting the brand new regime. These advantages nevertheless 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 scenario. By considering whole revenue, bills, investments, and different belongings you will get a giant image of your monetary well being. Revenue is a very powerful side to judge right here. Take into account each supply of revenue similar to wage, revenue from promoting belongings like mutual funds or shares, curiosity from financial institution mounted deposit, freelance work, or revenue from a enterprise. 

Step 2. Then, you need to work out which facets of your revenue are taxable and which aren’t. For instance, for a salaried worker, the Home Lease Allowance is part of the general package deal and is a element exempt from tax as much as a sure restrict. Doing so may also help you’re employed out your taxable revenue and work out your present tax burden. Solely then are you able to proceed to scale back it. 

Step 3. Subsequent, it’s worthwhile to determine methods in which you’ll be able to cut back your taxable revenue. The Revenue Tax Act offers numerous exemptions and deductions that can be utilized to decrease your taxable revenue, similar 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) means that you can earn a average return on funding whereas permitting you to assert a deduction of as much as Rs. 1.5 lakh underneath Part 80C.
  • When you’ve got a house mortgage, it’s also possible to declare deductions underneath Part 80C of as much as Rs. 1.5 lakh for the annual revenue spent on compensation of the principal quantity. On prime of that, as much as Rs. 2 lakh may be availed in deductions for curiosity funds on residence loans underneath Part 24.
  • If you happen to purchase a medical insurance coverage for your self, you will get a advantage of Rs. 25,000 on premiums paid underneath Part 80D. Masking your dad or mum’s well being may also help you get an extra 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 means that you can 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 similar 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 affords some exemptions, however they aren’t as substantial because the outdated tax regime. That’s why it’s necessary to evaluate which regime may also help you save extra earlier than you file your taxes. 

Step 4. Based mostly in your monetary scenario, objectives, and preferences, develop and implement your technique. This will imply investing in submit workplace schemes, getting insured, or investing in ELSS. A tax planner may also help you determine the optimum alternatives that cut back your tax legal responsibility whereas staying hand-in-hand together with your general monetary plan. 

Step 5. After you could have applied your technique, you need to evaluate it commonly. Tax legislation adjustments typically, which suggests new alternatives and dangers may come up. Keep up to date and reassess your plan yearly so you can also make certain it stays aligned together with your monetary objectives and continues to maximise tax financial savings successfully. For instance, people have the choice to change between the outdated and the brand new tax regimes each monetary yr. If you happen to calculate and examine the tax implications underneath each regimes beforehand, you can also make an knowledgeable choice on which one is extra useful in your particular monetary scenario in a selected monetary yr.

So in case you are questioning The way to Make a tax Plan, you possibly can comply with the above steps and get began. Keep in mind, the sooner you begin the higher as a result of that manner you received’t should make hasty choices and make investments a big lump sum someplace to decrease your taxable revenue. It should can help you 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 general monetary plan. With correct tax planning, you possibly can obtain the next:

  • It could possibly make it easier to minimise your tax liabilities legally. That is the principle goal of tax planning. That is performed by lowering one’s internet taxable revenue by utilizing the assorted 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 aren’t solely ethically unsuitable but in addition unlawful. Participating in these practices exposes people to extreme authorized penalties, similar to hefty fines and even imprisonment. With correct tax recommendation from a tax advisor, one can guarantee compliance with tax legal guidelines and laws and keep away from litigation.
  • Tax planning also can assist people create wealth. Because the fashionable methods to get deductions within the Revenue Tax Act are the 80C investments, one doesn’t simply cut back their taxable revenue, however the average returns from long-term financial savings devices such because the Public Provident Fund and ELSS may also help you get monetary savings for retirement or some other long-term monetary objectives.

Advantages of Tax Planning

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

  • With tax planning, you possibly can cut back your internet taxable revenue, thus paying much less tax and saving extra.
  • It ensures that you just keep compliant with the tax authorities and legal guidelines, so it helps you keep away from penalties and fines.
  • With extra financial savings, you possibly can redirect funds in direction of reaching your different monetary objectives, similar to investing for retirement, constructing an emergency fund, paying off money owed, and planning in your kids’s future.
  • Because it eliminates any worry of litigation, tax planning affords peace of thoughts.
  • Tax planning helps companies handle money stream and optimise their operations for max tax effectivity.
  • Your sincere tax contribution contributes to the nation’s financial development and helps the federal government put money into public companies, schooling, healthcare, and infrastructure, finally bettering 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 in addition you’ll find tax-saving alternatives that align together with your general monetary plan and objectives. 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

Sorts of Tax Planning

There are several types of tax planning based mostly on numerous facets such because the period of the planning horizon and the character of economic objectives. Right here they’re:

1. Lengthy-term Tax Planning

One begins long-term tax planning originally of the monetary yr. 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 choose to take the SIP route, you’ll commit your self to creating common and glued funds all year long. 

You’ll not get speedy tax advantages, however on the finish of the yr, it can make it easier to decrease your taxable revenue. That is what this sort of tax planning does. It doesn’t supply tax advantages instantly, however relatively, 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 in addition helps them accumulate wealth to attain objectives similar to a financially stress-free retirement.

2. Brief-term Tax Planning

However, short-term tax planning helps one avail speedy tax advantages. Since it’s performed nearer to the tip of the monetary yr, it typically requires investing a big quantity in a single go, relatively than spreading it out by way of SIP as one would possibly do in long-term planning. This may probably disrupt the price range.

3. Permissive Tax Planning

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

4. Purposive Tax Planning

Once you plan with a selected aim in thoughts, tax planning is alleged to be purposive. For instance, if you wish to cut back your tax liabilities by way of Part 80C of the Revenue Tax Act, you would possibly purposefully put money into 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 objectives and threat tolerance.

Frequent Errors to Keep away from in Tax Planning

  • When minimising their tax burden, folks typically are likely to overlook their general monetary plan. Simply since you are centered on lowering taxes doesn’t imply you must neglect different necessary monetary objectives. If you happen to make a hasty choice and put money into an instrument that doesn’t essentially align together with your long-term view solely to avoid wasting taxes instantly, it may 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 you need to consider numerous deductions and exemptions. Ensure 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 also can 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 mates and kin might not essentially give you the results you want since everybody has a singular monetary scenario. 
  • Tax-saving devices can help you declare a deduction solely as much as a sure restrict. Don’t put money into such devices any greater than it’s worthwhile to, until additionally they align together with your monetary objectives. 


As dutiful residents, we have to fulfil our tax obligations and contribute to the nation’s development. However one doesn’t have to pay any extra taxes than vital. The federal government has made provisions within the tax legal guidelines to permit us to optimise our tax liabilities by way of numerous deductions, exemptions, and different advantages. It’s our accountability to reap the benefits of these alternatives whereas guaranteeing compliance with the legislation. By tax planning, one can do all this effectively, and luxuriate in larger monetary safety and peace of thoughts. The start of the monetary yr offers an exquisite 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 assorted deductions, exemptions and advantages supplied by the tax legal guidelines. This manner, one can optimise their funds, save extra of their hard-earned cash and obtain their monetary objectives sooner. All whereas guaranteeing compliance.

Why is Tax Planning necessary?

Tax planning is necessary because it helps you cut 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 very best time to begin planning for taxes is as quickly as you presumably can. The perfect time for tax planning is the start of the monetary yr 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 necessary for any particular person or enterprise trying 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 possibly can profit lots from tax planning.

The way to rent a trusted tax marketing consultant?

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

The way to save taxes in India with the assistance of Tax Planning?

It can save you taxes by profiting from the numerous deductions and exemptions given within the Revenue Tax Act, similar 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 insurance underneath Part 80D. By claiming deductions on curiosity paid on residence loans underneath Part 24, and lots of extra.

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