Anybody who pays taxes, wishes deep down that didn’t have to. Moreover, in a country like India with tax slabs based on income, earning more simply means you have to pay more taxes. However, there is an option you can use to combat this. This option is known as tax planning. A major part of tax planning is to invest in avenues that can provide you with more than just returns. However, these investments and other parts of tax planning need to be done at the right time.
Most people carry out tax planning only when they receive a notice from the Income Tax Department about filing their returns. This does not leave enough to properly get into tax planning and taking the necessary steps to save tax. As a result, many people makebad investment decisions. Where the idea was to lower the tax burden, it ends up being a tricky financial situation.
Hence, the right tax planning approach can help reduce your tax burden without the risk of being in a position that may be harmful for you. To figure out what that approach may be, you need to understand what the process of tax planning involves.
Tax planning
As you may know, the government imposes tax liability on anyone that earn above a certain limit. The more you earn, the more tax you will have to pay. The exact amount of tax liability is decided by tax slabs. To pay lesser tax, a lot of people put their money into various tax saving investment options. However, taxation is a time-sensitive process. To save tax, you have to make your investments and submit proof of them at the right time. To make sure of that, you have to plan how and when you will invest your money.
This activity done in order to lower tax liability is called tax planning. While it is a basic part of the process, it is the most crucial one to save money. When you look into investment options that you can use to lower taxes, you will find many great options. However, the ones that stand out the most are the ones that employ Section 80C of the Income Tax Act, 1961. They are the most suitable and simplest option when you want to save tax. It is present in many schemes that every individual buys in their life. Investing in mutual funds, life insurance, pension plans, etc. can give an eligible deduction within the framework of the law.
Objectives to keep in mind while tax planning
Following are some of the objectives you must keep in mind while tax planning:
Reduce tax– The first and foremost objective of tax planning is to lower the amount of payable tax. Hence, the primary focus of your tax plan should be on reducingyour tax burden. Moreover, you should plan and execute your tax saving measures beforehand so that you can enjoy the benefits to the most.
Lowering litigation–Paying the proper tax is required by law and evading it is a punishable offence. While the government allows tax deductions through provisions like Section 80C, they need to be processed in time to avoid legal trouble. Hence, you should consult your legal advisor to find the best way and time to finish the legal process related to your deductions.
Selecting the right options –Ultimately the goal of saving tax is to have more money with you. However, you should be aware of all the compliance around tax and make the right investment to lower tax. In addition, you have to invest in avenues that open up more options of saving money for you.
Nobody likes to dedicate a significant sum of their hard-earned money. So, always ensure that you follow the right approach to investing. Yourultimate goal should always be to save more money. Happy investing!