Do You Know what is tax planning?
Tax Benefit: The Indian Income Tax Act provides for several deductions that can be claimed by all classes of taxpayers to avoid tax when filing their income tax returns (i.e. Salaried Individuals, Professionals, businessmen, etc.). These tax-saving deductions can be availed to the maximum benefit only if a person prepares a good financial strategy.
If an individual has done effective tax planning to save tax, such deductions will be deducted from the total gross income, and income tax will be charged on the balance income according to the income tax slabs in effect.
What is Tax Planning?
The practice of analyzing a financial plan or a scenario from a tax standpoint is known as tax planning. The goal of tax planning is to ensure that there is tax efficiency. With the aid of tax planning, one may guarantee that all aspects of a financial plan work together as efficiently as possible.
Tax preparation is an important part of any financial plan. Reducing tax obligations and boosting the capacity to contribute to retirement programs are significant success factors.
Tax preparation entails several issues. Other types of expenses are addressed by factors such as size, the timing of income, the timing of purchases, and planning.
To get the greatest possible result, the chosen tax-saving investments and various retirement plans should work in tandem with the tax filing status and deductions.
Importance of Tax Planning
There are several primary goals of tax planning. Tax planning reduces the tax burden by saving the assessee the most amount of tax possible by organizing their financial activities under tax choices.
It also complies with taxes regulations, reducing the likelihood of lawsuits. One of the most significant advantages of tax planning is that the proceeds may be invested.
It is the most efficient approach to make wise tax-saving investments while fully leveraging the resources made available by tax breaks. Investing tax dollars produces white money, which flows through the economy and aids in the country’s economic progress. Tax planning, therefore, adds to the individual’s and the country’s economic stability.
Ways To Do Tax Planning
The easiest and most efficient approach to save taxes is to create and stick to a financial plan whenever your income changes. It is also a good practice to make tax-saving investments at the beginning of the year rather than making rushed and frequently wrong investment selections towards the end. To do so, you must be aware of all of the exemptions and deductions available to you.
1. Section 80C, Section 80CCC, Section 80CCD
To encourage the culture of saving and to direct the ordinary man’s savings into the correct resources, the government permits certain deductions if the amount saved is invested in the instruments mentioned in Sections 80C, 80CCC, and 80CCD.
The total deduction permitted under these three provisions is Rs. 1,50,000. If you have done adequate tax planning throughout the year, you can claim these deductions to save tax by investing in any of these areas alone or in combination, but the total deduction permitted is restricted to Rs. 1,50,000.
The government has identified numerous instruments via which tax planning may be done, and these tax-saving investments can be claimed as a deduction to avoid tax.
2. Section 80D, Section 80DD, Section 80DDB
The Income Tax Act also provides for tax deductions if the taxpayer spends money on insuring his or her health or the health of a family member. Depending on the kind of insurance policy, different amounts of deductions are available under each of these sections, which aid in tax savings.
3. Home Loan
If you have a house loan, you can claim a deduction for repayment of the principal amount under Section 80C.
Furthermore, under Section 24, you may deduct the interest paid on a house loan. In certain circumstances, the highest deduction permitted is Rs. 2,00,000, but in others, there is no maximum limit for claiming this deduction for house loan interest payments.
Tax planning for the goal of saving tax by taking out a house loan is strongly recommended since the deduction permitted for home loan repayment may be claimed under three distinct sections, resulting in significant tax savings for the taxpayer.
4. Education Loan Under Section 80E
If a taxpayer takes out an education loan for himself, his spouse, his children, or a student for whom he is the legal guardian, he can claim a deduction under Section 80E and save taxes.
This deduction is only available for the payments of interest on an education loan, not for the repayment of the principal amount. There is no upper limit for claiming a deduction under this provision for the repayment of student loan interest. Section 80E deductions are exclusively accessible to individual taxpayers and not to HUFs.
5. Section 80CCG
A taxpayer with an annual income of less than Rs. 12 lakhs per year is eligible for an extra deduction under Section 80CCG for investing in shares of selected firms and mutual funds. The Rajiv Gandhi Equity Saving Scheme is the name given to this deduction.
This is a fairly intricate system, and the deduction is only accessible to first-time investors; people who have previously invested in shares/mutual funds are unable to use this deduction for tax planning purposes.
6. Long Term Capital Gains arising on Sale of Property
Provided a taxpayer has a Long Term Capital Gain from the sale of Real Estate Property that was held as a Long Term Capital Asset, he can claim an exemption from paying such Capital Gain Tax if he invests the amount of gain in certain instruments.
Any asset that has been kept by the taxpayer for more than two years is called a Long Term Capital Asset. This exemption is seen to be particularly advantageous when undertaking tax planning to save a taxpayer’s income tax.
Wrapping It Up
There are a variety of tax saving investments available in India for all taxpayers. These choices provide a wide range of exclusions and deductions that aid in reducing overall tax liability. Sections 80C through 80U provide for the deductions, which can be claimed by qualifying taxpayers.
These deductions are applied to the number of tax obligations. Other portions of the Income Tax Act of 1961, such as exemptions and tax credits, might help you decrease your taxes.
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