Are you a taxpayer in India? Do you suffer through the long procedures of tax filings? Do you have any troubles managing your taxes? Then tax planning is the answer to all your problems. But don’t just take the word for it when it comes to a tax savings plan. Read on to understand the importance of a tax-saving plan and why it is a must for you to have it.
Understanding Taxes in India
Taxes in India come under two major categories, Direct Taxes, and Indirect Taxes. Direct Taxes are the ones that you directly to the tax regulating body which created the tax rules. Levying of Direct taxes is usually on incomes generated on capital, gains, or salaries. Income Tax, Corporate Tax, Property Tax, Inheritance Tax are some examples of Direct Tax. Indirect taxes are the taxes that you pay for goods and services. Some good examples of Indirect Taxes in India are Goods and Services Tax, Value Added Tax, Customs Duty, Stamp Duty, etc.
Among all other taxes, Income Tax is easily organizable and, with effective planning, can become low or even nil. The total number of ITRs filed for the assessment year 2020-21 was a whopping 7.38 crores by December 2021. This huge increase is from the previous assessment year’s total number of 5.65 crores. The comparison itself is enough for anyone to understand how Income tax is becoming popular day by day among high-income individuals.
You can learn to file taxes and use various sections of the Income Tax Act of 1961 and other acts that reduce your tax burdens from several sources. But before paying any major taxes, tax planning is a must.
What Is Tax Planning?
Tax planning is the systematic planning of various elements of a tax and the methods of deducting the final tax amount. You can use tax planning, especially for Income tax, as it is one of the largest taxes that people often pay. Income Tax Planning will allow you to remain tension-free from any aspects of tax payments or money management.
Several people notice the vast difference between their final tax amounts before and after-tax planning. To better recognize tax planning, you must know its important features and how people benefit from it.
Modes of Efficient Tax Planning
The two major types of Tax planning are short-term tax planning and long-term planning. Both these types have their own specific goals and respective approaches to achieving those goals. But the tax planning for both is commonly done with advice from legal advisors or chartered accountants.
The modern mode of tax planning introduced by reputed financial organizations and banking establishments is Online Tax Planner. Online Tax Planners require your financial details to provide the most suitable tax savings plan for you. Several taxpayers use such online planners to create efficient tax saving plans.
Why Do You Need Tax Planning?
Tax planning is important, there is no question in it, but it also has several other features why people often choose effective tax planning over blind-sighted tax paying. An effective tax planning will help you in various stages of your personal and financial life. Given below is a brief discussion of some tax saving tips that tell why you need tax planning.
To Legally Lower Your Tax
Even though several people have taxable income, they avoid paying income tax to reduce expenses. Not only is it unethical it is illegal to avoid paying income tax. But with good tax planning, you can lower your taxes to the extent that it will only take up a nominal portion of your total expenses. Also, tax planning increases your chances of paying taxes which is the right thing to do.
Tax planning includes several methods of legal and permissible relaxations and deductions in income tax. The government has voluntarily added these provisions for the financial benefit of taxpayers. Anyone can know about every such beneficial rule and section through tax planning.
To Know Approaches That Increase Benefits
Tax planning allows you to know every detail about tax payment. It gives you the perception to create a calendar that shows important dates of tax payments. Having a wide window to pay taxes will allow you to reduce further consequences of non-payment.
Along with it, tax planning also shows you the available modes and resources for tax calculations. Knowing these calculations, you can increase your benefits while paying income tax.
To Understand Old and New Tax Regimes
The Finance Ministry of the Indian Government introduced a new tax regime with effect from 1st April 2020. This tax regime is applicable for the individual taxpayer and the Hindu Undivided Family as well. There are several differences between the old and new tax regimes. An integral part of tax planning is the knowledge of the tax regimes that it imparts. It gives you clarity of which regime is suitable and has more tax reduction according to your income and expenditure styles.
A major difference between the two regimes is that the new tax regime has an increased threshold for income tax eligibility. But at the same time, it doesn’t allow deductions for HRA and other allowances. If you want to keep deductions, you must go with the old regime. Tax planning will show the total tax amount you can pay through both regimes. After that, you can select the one you prefer or the one that shows a substantial decrease in the tax amount.
To Avoid Penalties of Tax Deadline Violations
The Income Tax Department of India sets the last date to file income tax returns every year. There are several penalties for tax evasion, including building-up interests and criminal offense charges. Tax planning allows you to manage taxes well in advance of the final tax payment date.
Tax planning gives you enough options to plan and pre-plan income tax. You can even pay advance tax with the help of tax planning. Paying advance tax increases the financial aides and rebates from the government’s side.
To Eliminate Tax Litigation
As mentioned earlier, there are several litigations against tax evasions. But apart from tax evasion, there are other errors that can attract legal actions from the income tax department. Some common errors include furnishing wrong information, mistakes in opted processes, omission of important assists and belongings in the ITR, etc. The IT department can use all these causes to file charges against you in a court of law.
Tax planning allows you to reduce documentation errors in ITRs and tax payments exceedingly. They help you go through each and every minute detail of your forms and submissions. Such measures will allow you to remain worry-free from any actions from the IT department.
To Make Use of Hard-Earned Money
The greatest use of tax planning is that it saves a lot of money. Money that you can divert towards other important family and personal requirements. Tax planning reduces extra burdens of tax payments such as consulting and paying multiple advisors, online paid tax calculators, form charges, etc.
To Ensure Financial Stability
Along with peace of mind, a good tax saving plan also gives you the financial stability required for a self-sufficient life. It will always benefit you to have a plan that also considers and manages funds for day-to-day expenses. This tax plan will allow you to set aside enough money in a savings account or investment that will take care of your present and future monetary requirements.
After reading the importance and benefits of tax planning, you must now have an understanding of why you need it. A tax saving schemes can help you during both your present and future life situations. Try to adopt tax planning today itself to decrease the trouble of paying income tax. Also, always ensure the source of tax planning advice as a nonupdated plan can backfire your intentions of tax reduction.
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