Are you a taxpayer in India, feeling overwhelmed by the complexities of the tax filing process? Tax planning is the solution to your woes. Discover the importance of tax planning and the benefits of a tax-saving plan in this comprehensive guide. With this article, you'll be able to understand the advantages and features of tax management.
Understanding Taxes in India
In India, taxes fall into two primary categories: Direct Taxes and Indirect Taxes. Direct Taxes encompass taxes paid directly to the government, such as Income Tax, Corporate Tax, Property Tax, and Inheritance Tax. Indirect Taxes, on the other hand, are levied on goods and services, including Goods and Services Tax (GST), Value Added Tax (VAT), Customs Duty, and Stamp Duty.
Among these taxes, Income Tax is the most manageable and can be significantly reduced or even eliminated with effective tax planning and management. The total number of ITRs for AY 2023-24 filed till 31st July 2023 is more than 6.77 crore, which is 16.1% more than the total ITRs for AY 2022-23 (5.83 crore) filed till 31st July 2022. This surge underscores the growing popularity of Income Tax planning, especially among high-income individuals.
Before you embark on significant tax payments, it's crucial to engage in tax planning.
What Is Tax Planning?
Tax planning is a systematic approach to managing various aspects of taxation, including methods to minimize the final tax liability. It is especially pertinent for Income Tax, one of the most substantial taxes for individuals. Effective Income Tax Planning can relieve you of tax-related stress and financial burdens.
Many people witness a considerable difference in their tax liability before and after engaging in tax planning. To grasp the concept of tax planning better, it's essential to understand its key features and the benefits of tax planning.
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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. However 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 the 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.
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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. 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 also 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 payments. 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 to 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 for 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 aid and rebates from the government’s side.
To Eliminate Tax Litigation
As mentioned earlier, there are several litigations against tax evasion. But apart from tax evasion, there are other errors that can attract legal action 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.
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Conclusion
After reading the importance and benefits of tax planning, you must now have an understanding of why you need it. A tax saving scheme 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 on your intentions of tax reduction.
Disclaimer:
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.