Tax Planning means devising strategies all the year round so as to minimize the liability of tax that one owes to the government. The Planning of Tax is done by a person so that he pays less money to the government as tax and as a result saves more money for himself.
Planning Tax reduces the burden of tax on a person and also helps him to make savings by investing in various schemes. There are certain considerations while Tax Planning for the family such as for investments selecting the correct member's fund, seeing that concessions are available on the investments that have been made initially and also on the returns, the liability of tax on such earnings, the tax that is applicable on the sums that are received at the time of maturity, the needs of capital generation of every member, and even the investor's age.
Tax Planning in India can be done under various sections of the Income Tax Act such as Section 80D, Section 80C, and Section 24(b). In India, Tax Planning can also be done by investing in various government securities and mutual funds. The various methods of Tax Planning are:
- Owning the house
- By investing on a business premises
- By making investments that are exempted from tax
- By investing in investments that enjoy treatment of concessional tax
- By buying a residential house in joint ownership
Owning the house is a method that can be used for tax planning for this will result in the fall of the person's money that he can invest and this will lessen his future liability of tax and also his future income. Another method of Planning Tax is by investing on a business premises. This investment must be made in the name of a person who is not the owner of the business and then the owner can take the office on rent. The tax that the person pays on the rent that he is earning is lesser than what the business owner would have had to pay.
Another way of Tax Planning is by making investments in such schemes that are exempt from tax. Such investments can be made even in the name of a minor, as a result of which the parents do not have to pay tax even after clubbing. A person can go for Planning Tax by investing in investments that enjoy treatment of concessional tax. Such investments get tax concessions and are taxed at 10% as a result of which a person investing in such investments is able to save money by paying less tax. Another method of Tax Planning is by buying a residential house in joint ownership. By doing so, the share of each co- owner's income that he gets from the property gets included in his sum total income when he is filing his returns. When the person takes loan then he is able to save tax on the deductions of interest. Tax Planning is important for it helps people to save their money by paying less tax to the government.
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