Tax is an exercise undertaken to minimize tax liability through the best use of all available allowances, deductions, exclusions, exemptions etc., to reduce income and/or capital gain.
Tax management involves compliances of law regularly and timely as well as the arrangement of the affairs of the business in such manner that it reduces tax liability. It includes the functions filling of return payment of tax on time, appearing like before the appellate authority.
Objectives of Tax planning
- Reduction of Tax liability
- Minimization of litigation
- Productive investment
- Healthy growth of economy
- Economic stability
Necessity of Tax planning
Tax planning should be done before the income accrues or arises, i.e., at the source itself. Planning done after receipts of income is the only diversion of income and may even lead to an inference of fraud.
The tax paid is an addition to the cost. Just as every businessman tries to maximize his profit by reducing the cost, he should also arrange his affairs in such a way, that he pays the least amount of tax, so as to ensure a maximum after-tax profit. This, however, should be done within the four corners of law and there should be no element of fraud in it.
Does every person need tax planning?
Yes. A taxpayer needs a good tax planning as it smartly helps us in investment growth and helps us to reduce the amount of tax paid to the government. Tax planning would imply compliance with the taxation provisions in such a manner that full advantage is taken of all the tax exemptions, deductions, concessions, rebates and reliefs permissible under the Income tax act so that the incidence of the tax is the least.