Are you worried about paying a significant amount of your income in taxes? If you answered yes, you are not alone. Tax payments consume a significant portion of everyone’s savings, which is exacerbated when one is unaware of tax planning. With proper tax planning one can save more money every fiscal year. For this you must seek the help of a tax consultant who might give you the right advice.

Definition of tax planning

 Taxes might lessen your annual income. Tax planning is a lawful approach for lowering your tax obligations in any given fiscal year to combat this. It helps you to take advantage of the government’s tax exemptions, deductions, and privileges in order to decrease your tax liability.

The term “tax planning” is self-explanatory. It is the examination of one’s financial status from the standpoint of tax efficiency.

Benefits of tax preparation include:

To reduce the lawsuit: Litigation is the process of resolving tax issues with municipal, state, federal, or overseas tax authorities. Tax collectors and taxpayers frequently clash, as the former seeks to recover the highest amount feasible while the latter seeks to minimize their tax liability to a minimum. Litigation avoidance saves the public money in the long run.

To lower your tax bill: Every taxpayer wants to lower their tax bill and put money aside for the future. You can lower your taxable income by organizing your investments to take advantage of the many incentives provided by the Income Tax Act of 1961. Many tax-planning investment options are available under the Act, which can dramatically lower your tax bill.

To maintain economic stability: Taxpayers’ money is used to improve the country. Effective tax planning and administration provide a steady inflow of white money, resulting in the economy’s steady growth. Maintaining economic stability benefits both citizens and the economy

To increase productivity: One of the primary goals of tax planning is to direct monies from taxable sources to various income-generating schemes. This ensures that funds are spent effectively and efficiently.

Tips for Income Tax planning

The exemptions, deductions, and rebates provided by the Income Tax Act can be fully utilized. Tax planning refers to the financial strategies made to reduce taxes. It entails organizing your affairs in such a way that you can save money on taxes. Here are a few easy-to-follow tax-planning suggestions.

Section 80C: To encourage people of India to save, the government of India permits certain deductions on money invested in certain instruments under Section 80C. The following are the most popular investment tools for tax planning:

  • PPF (Personal Pension Fund) accounts
  • Deposits for a five-year tax break
  • Mutual funds that invest in stocks
  • Plans for retirement
  • Policies for life insurance

Investing intelligently in these products can help you reach your financial goals while also saving money on taxes. You can considerably reduce your taxable income and save more of your hard-earned money by investing in these assets.

Section 80D : Taxpayers can deduct the premiums they pay for health insurance policies under this clause. A taxpayer can claim the following amounts as deductions under Section 80D:

  • Get up to Rs25,000 off your health insurance premiums for yourself, your children, or your spouse.
  • If your parents are also covered under your health insurance plan, you might get up to Rs50,000.
  • A maximum deduction of Rs75,000 is permitted if either of your parents falls into the senior citizen category.

Section 80E: Allows you to deduct the interest you pay on a student loan. Starting from the date of repayment, these deductions can be claimed for up to eight years. The amount that can be deducted has no upper limit. This means that an assessee can deduct the full amount of interest paid from his or her taxable income.

Salary tax deductions: This tax deduction is primarily for non-permanent assets. Take, for example, a rented home. If a person is paying rent for the home they currently live in, they can claim tax deductions under Section 10 of the Internal Revenue Code (13A). This states that if a person is compelled to pay rent in the home they live in but must show receipts for the same, they can claim for tax deductions. HRA is a tax-saving plan that is typically provided by one’s employer. It is computed by subtracting 10% of one’s monthly wage from the actual rent paid. If a person lives in a metropolitan area, they are eligible for tax deductions on 50% of their earnings. Individuals living in other cities are eligible for 40% of the wage.

Insurance Plans: Unit ULIP Link Insurance Plans (ULIPs) are one-of-a-kind insurance plans that save you money on taxes. These plans are a type of life insurance and investment combination. When you invest in ULIPs, a portion of your money goes into a life insurance plan and the balance goes into an equity-based fund. This way, one can benefit from both tax exemptions and returns, making this one of the best tax-saving solutions available.

Charitable contributions: Under Section 80G, charitable contributions are tax deductible up to 10% of your income. However, rather than handing the donation away without acknowledgment, you must secure a receipt from the institution as well as a copy of their income-tax exemption certificate. Contributing to a good cause will only qualify you for a tax deduction if you provide receipts for the donation.

Income tax planning, when done within the framework established by the relevant authorities, is both legal and prudent. Every citizen has a duty and responsibility to arrange their taxes carefully. You can choose from a variety of tax-saving mutual funds and investment options based on your tax bracket, personal preferences, and societal obligations. However, if you make bad decisions you might land up in paying more tax. For more clarity on perfect tax planning process get in touch with a Tax consultant in Tambaram, Chennai. Best of luck!