What is Tax Planning and its types

What is Tax Planning and its types
Tax planning is a process individuals, businesses, and organizations used to evaluate their financial profile, with the aim of minimizing the amount of taxes paid on personal income or business profit. Effective tax planning entails analyzing investment instruments, expenditures, and other factors such as filing status for their tax liability impact. Accounting, finance, banking, and insurance firms all emphasize slightly different aspects of tax planning in accordance with the types of services they provide and the laws governing their industries

Tax Planning involves planning in order to avail all exemptions, deductions and rebates provided in Act. The Income Tax law itself provides for various methods for Tax Planning, Generally it is provided under exemptions u/s 10, deductions u/s 80C to 80U and rebates and reliefs.

Various methods of Tax Planning may be classified as follows :

Short Term Tax Planning

It means the planning thought of and executed at the end of the income year to reduce taxable income in a legal way.

Long Term Tax Planning

It means a plan chalked out at the beginning or the income year to be followed around the year. This type of planning does not help immediately as in the case of short range planning but is likely to help in the long run.

Permissive Tax Planning

It means making plans which are permissible under different provisions of the law, such as planning of earning income covered by Sec.10, specially by Sec. 10(1) , Planning of taking advantage of different incentives and deductions, planning for availing different tax concessions etc.

Purposive Tax Planning

It means making plans with specific purpose to ensure the availability of maximum benefits to the assessee through correct selection of investment, making suitable programme for replacement of assets, varying the residential status and diversifying business activities and income etc. Conclusion:
Proper tax planning is the basic duty every person should carry out religiously. We help you compare the advantages of several tax saving schemes and depending upon your age, social liabilities, tax slabs and personal preferences, decide upon a right mix of investments, which shall reduce your tax liability to zero or the minimum possible.