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What is tax planning?

As an honest citizen of the country, it is your duty to pay your taxes. However, every investor is looking to save as much tax as possible. This can be made possible through tax saving investments. The need of tax planning is absolutely necessary to save a substantial amount of your finances. This is because taxes can eat a big chunk of your total investment returns every year. Therefore, through proper tax planning, you can create a strategy that allows you to minimise your tax liability every year.

What is tax planning?

Tax planning is a process of analysing and evaluating an individual’s financial profile. The aim of this activity is to minimise the amount of taxes you pay on your personal income. In short, employing ways that the government has provided to save tax is a perfectly legal method to cut down your annual tax liability. There are a number of tax saving investments in India that are useful in saving money.

What constitutes tax planning

There are three key characteristics of tax planning—investing to reduce taxes; planning your finances in such a way that you attract the least amount of tax, and the process of tax filing. As a result, tax planning affects all aspects of your money matters.

Let’s understand this better:

Tax saving opportunities available for everyone

There is a whole range of income tax sections that allow you to legally benefit from tax-saving. A popular and easy avenue for taxpayers to avail tax deduction is to employ Section 80C of the Income Tax Act. Section 80C can allow you to claim a deduction of Rs 1.5 lakh on your taxable income.

However, there are a lot of other sections that can offer you huge tax benefits. Some of the provisions in the Income Tax Act are: Sections 80D, 80DD, 80EE, 80G and 24(b).

Not many people are not aware of all the tax-saving options available to them. For instance, did you know that under Section 80G, donations made to certain charitable organisations are eligible for tax deductions?

Taking tax-efficient decisions


There’s more to tax than investments. It affects every single aspect of your life—from salaries and income sources to expenditure to financial decisions. And this is a key aspect of tax planning—it helps you make decisions that lower your tax burden.

For example, let’s say you have to choose between two investment options. A tax planner helps you choose the best option while keeping in mind both returns as well as tax efficiency. Another example is ensuring your income is structured in the most tax-efficient way.

Tax audit and filing

The last key aspect of tax planning is the actual tax filing. This is when you take into account all aspects of your finance—income, expenses, debt, and investments—and then calculate your tax liability. Then, there’s all paperwork and documentation involved in paying your tax and filling your tax returns.

How IndiaNivesh can help

Our Wealth Management team is well equipped to help you plan your investments while keeping in mind the taxation aspects. This can help you grow your wealth and save tax at the same time. Click here to know more about our Wealth Management division.

In conclusion

As taxpayers, knowing and being aware of all kinds of taxes can help on planning the financial year well. This will not only help you save more money, you can also create a better financial plan for your family. That’s why it is very important to make sure you have a tax plan in mind whenever you plan to invest your money.

Disclaimer
Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing