Tax Planning
WHAT IS TAX PLANNING ?
Tax planning is an essential part of your financial planning. Efficient tax planning enables you to reduce your tax liability to the minimum. This is done by legitimately taking advantage of all tax exemptions, deductions rebates and allowances while ensuring that your investments are in line with your long term goals. Tax-planning amounts to making investments or contributions in line with prescribed guidelines that lead to reduction in tax liability. Simply put, the tax liability is computed as a percentage of the income. As per prevailing tax laws, certain investments and contributions have been earmarked for claiming tax benefits. When these investments and/or contributions are made, the same are reduced from the income while computing the tax liability. As a result, the tax liability is reduced.
For example- If Mr. X as an individual has an income of 5, 50,000 for the assessment year then the tax that he needs to pay is 70,000.
Solution: according to the tax rates of assessment year 2009-2010 the calculation is as follows; =50,000 x 30% = 15000 (Above 500000 30% Tax) =200000 x 20% = 40000 (Between 300000-500000 20% Tax) =140000 x 10% = 14000 (Between 1, 60,000 – 300000 10 %) =3% education Cess on 69,000 (15000+40000+14000) = Rs. 2070 Tax Payable = 15000 + 40000 + 14000 + 2070 = 71,070 If Mr. X decides to deposit Rs. 70,000 to the Public Provident fund then the tax liability will change because his taxable income comes down to 4,80,000 and his tax liability will come down to 51, 500 this is called the Tax planning.
What tax planning is not...
• Tax Planning is NOT tax evasion. It involves sensible planning of your income sources and investments. It is not tax evasion which is illegal under Indian laws.
• Tax Planning is NOT just putting your money blindly into any 80C investments.
• Tax Planning
Tax planning is an essential part of your financial planning. Efficient tax planning enables you to reduce your tax liability to the minimum. This is done by legitimately taking advantage of all tax exemptions, deductions rebates and allowances while ensuring that your investments are in line with your long term goals. Tax-planning amounts to making investments or contributions in line with prescribed guidelines that lead to reduction in tax liability. Simply put, the tax liability is computed as a percentage of the income. As per prevailing tax laws, certain investments and contributions have been earmarked for claiming tax benefits. When these investments and/or contributions are made, the same are reduced from the income while computing the tax liability. As a result, the tax liability is reduced.
For example- If Mr. X as an individual has an income of 5, 50,000 for the assessment year then the tax that he needs to pay is 70,000.
Solution: according to the tax rates of assessment year 2009-2010 the calculation is as follows; =50,000 x 30% = 15000 (Above 500000 30% Tax) =200000 x 20% = 40000 (Between 300000-500000 20% Tax) =140000 x 10% = 14000 (Between 1, 60,000 – 300000 10 %) =3% education Cess on 69,000 (15000+40000+14000) = Rs. 2070 Tax Payable = 15000 + 40000 + 14000 + 2070 = 71,070 If Mr. X decides to deposit Rs. 70,000 to the Public Provident fund then the tax liability will change because his taxable income comes down to 4,80,000 and his tax liability will come down to 51, 500 this is called the Tax planning.
What tax planning is not...
• Tax Planning is NOT tax evasion. It involves sensible planning of your income sources and investments. It is not tax evasion which is illegal under Indian laws.
• Tax Planning is NOT just putting your money blindly into any 80C investments.
• Tax Planning