Tax Planning in India is a basic duty of every person paying
income tax, which should be followed diligently.
Tax planning in India involves the selection of the right tax saving instruments and making proper investments.
The amount of the tax to be paid is calculated on the nature of investments made, income earned, and the quantum of other incomes like salary, rent from property, interest etc. There are many deductions and exemptions applicable on the net taxable amount, depending upon the source of income. To take advantage of these facilities tax planning is necessary. Moreover, the annual budget of the government should be taken into consideration before planning as tax plans are often changed.
Steps in Tax Planning India:
There are three steps in Tax Planning India which would aid a person in making prudent tax plans to reduce their income tax liability and ensure a better tomorrow by making compulsory savings by investing in safe government schemes. These three steps in tax planning are:
Calculating taxable income.
Calculating tax payable on gross taxable income for the entire financial year.
To either pay the tax without tax planning or minimize tax through planning.
Deductions from Taxable Income:
Tax payers can avail themselves of tax incentives as furnished by the government and while making tax planning the exemptions should be taken to consideration. The exemptions are:
- Deduction under Section 80C - This section has been introduced from the FY 2005-06, under which a deduction of up to Rs. 1,00,000 is allowed from taxable income by investing in some specified schemes.
- Deduction under Section 80 CCC(1) - This section allows a deduction of up to Rs. 10,000 to an individual for making contribution to pension schemes.
- Deduction under Section 80D - This section allows a deduction up to Rs 10,000 for paying the premium for health insurance policy.
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