Tax Planning refers to the analysis of the financial position concerning the payable tax liability. Tax Planning enables the person to reduce tax liability legally. Tax Planning is an important component of Financial Planning. Financial Planning has got a larger perspective. Tax Planning is equally important for both individual and Businessmen. It helps them in rationalizing their tax liabilities.
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The following are the steps in Tax Planning
Forecasting of Total Income and Taxable Income:
The total income for the year to be estimated in advance. Based on the total income and taxable income also to be estimated. This will help in proper tax planning for the ensuing financial year.
Investment and Expenses:
Once expected total income for the year is known. The expenses and the amount available for investment can be estimated. Investment in tax savings schemes may be started at the beginning of the year. We may start investing in Equity Linked Savings Scheme of Mutual Funds through monthly SIP or start contributing to the PPF scheme. This will reduce the pressure at the fag end of the financial year.
[Assessing Tax Liability Regularly]
During the year tax liability is to be assessed regularly based on the income. This will help in keeping the tab on tax liability so that there will be no panic at the end of the year.
[Paying Advance Tax]
As per the forecast of the tax liability, if advance tax is to be paid we must pay the same within the stipulated time to avoid interest for the delayed period.
[Safekeeping of documents]
All the documents viz; Details of investments, Transactions, Bank statements, etc are to be kept safely in one place. It is advisable to maintain the same financial year wise.
[Filing of Income Tax Return(ITR)]
We must file our Income Tax Return at the end of the year within time to avoid any penalty. It’s our morel duty for our nation & help to grow nation also