We can say that tax Planning is a arranging of financial activities in such a way that maximum tax benefits are enjoyed by making use of all beneficial provisions in the tax laws which entitle the assessee to get certain rebates and reliefs. This is permitted under the law.
We can also say that tax planning would imply compliance with the taxation provisions in such a manner that full advantage is taken of all tax exemptions, deductions, concessions, rebates and reliefs permissible under the Income Tax Act so that the incidence of tax is the least.
Tax planning can neither be equated to tax evasion nor to tax avoidance with reference to a person, it is the scientific planning of the person’s operations in such a way so as to attract minimum liability to tax or postponement or for that matter deferment of the tax liability for the subsequent period by availing various incentives, concessions, allowances, rebates and relief’s provided for in the tax laws.
Tax planning is a best way to the attainment of maximum benefits of the taxation laws within their framework. The basic objectives of tax planning are:
Successful tax planning techniques should have following attributes :
knowledge should be up to date of tax laws and assessee must also be aware of judgments made through various decisions of the courts. In addition, one must keep track of the circulars, notifications, clarifications and Administrative instructions issued by the CBDT or other tax regulatory body from time to time.
The disclosure of all material information and furnishing the same to the income-tax department is an absolute pre-requisite of tax planning as concealment in any form would attract the penalty clauses –the penalty often ranging from 100 to 300% of the amount of tax sought to be evaded.
Whatever is planned should not simply satisfy the requirements of law by complying with legal provisions as stated and meeting the tax obligations but also should be within the framework of law.
These are the important areas where planning can be attempted in an organised manner:
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