The Golden Rules of Tax Planning
The tax filing season is upon us, and if you listen closely, you might be able to hear the collective sighs of anticipated fatigue from all taxpayers. The sheer tedium associated with filing taxes is often the reason why a lot of people overlook tiny remedies that could save them a lot on taxes. This is where tax planning comes into play.
First, let’s break down what tax planning actually means and how small practices can make a significant difference in the amount that you pay in taxes.
Tax Planning
Tax planning is the process of analysing your financial profile and discovering ways to minimise the amount of your income that is taxable. The main idea behind tax planning is to avail any and all tax exemptions and deductions in the Income Tax Act. The process of tax planning requires timing investments and expenditure. This includes the type of investment plans and retirement schemes.
India has several options that can help save taxes. The Income Tax Act itself has deductions, rebates and exemptions. Investment instruments listed in Section 80C, 80CCC and 80CCD are a good way to help decide where to invest your money and decrease the amount of your income that is taxable. Under these sections, you can claim combined tax deductions of up to 1.5 lakh.
Let us look at some of the reasons why tax planning is important:
While filing taxes can be a tedious process, the only way that you can ease some of the burdens is by starting in advance and paying close attention to your income and investments well in advance.
First, let’s break down what tax planning actually means and how small practices can make a significant difference in the amount that you pay in taxes.
Tax Planning
Tax planning is the process of analysing your financial profile and discovering ways to minimise the amount of your income that is taxable. The main idea behind tax planning is to avail any and all tax exemptions and deductions in the Income Tax Act. The process of tax planning requires timing investments and expenditure. This includes the type of investment plans and retirement schemes.
India has several options that can help save taxes. The Income Tax Act itself has deductions, rebates and exemptions. Investment instruments listed in Section 80C, 80CCC and 80CCD are a good way to help decide where to invest your money and decrease the amount of your income that is taxable. Under these sections, you can claim combined tax deductions of up to 1.5 lakh.
Let us look at some of the reasons why tax planning is important:
- Tax planning helps an individual distribute their income in a manner where the amount that can be taxed is at the bare minimum. Carrying out these tasks and keeping in mind the requirements of the law is an effective way of saving on tax payments.
- Keep all your bills and receipts handy and if possible categorise them to make it easier to submit proof of investments.
- Be aware of all the deductions that are applicable to you. Section 80C has deductions for a number of investments. Choosing the one that is best suited for you can help claim deductions under this section. As already mentioned, individuals can claim deductions up to 1.5 lakh under Section 80C. Some of the investment schemes that fall under the Section 80C deductions are National Savings Certificate (NSC), five-year Fixed Deposits from banks, insurance premiums and the National Pension Scheme (NPS).
- Be aware of income sources that are not taxable. Section 10 has a list of income sources that are free from taxation. Some of them include travel concession that employees receive, gratuity, income received from insurance policies and house rent allowances.
- Don’t leave things for the last minute. Missing deadlines often comes with a penalty of some sort.
- Be aware of the tax bracket under which you fall.
- File tax refunds well in advance
- Be aware of any tax revisions that need to be made.
While filing taxes can be a tedious process, the only way that you can ease some of the burdens is by starting in advance and paying close attention to your income and investments well in advance.