Tax planning is the analysis of one's financial situation from a tax efficiency point of view so as to plan one's finances in the most optimized manner.
Tax planning is a legal way of reducing income tax liabilities without any intention for tax evasion or tax avoidance. Tax planning is done by availing various allowances, exemptions, and deductions under Chapter VIA of Income Tax Act, 1961.
Types of Tax Planning:
Purposive Tax Planning: Planning taxes with a particular objective in mind Permissive tax planning: Tax planning that is under the framework of law Long-range and Short-range tax planning: Planning done at the start and end of a fiscal year respectively.
- Tax Planning Objectives:
- Reduction in overall tax liability
- Economic stability
- Growth of economy
- Litigation minimization
- Productive investment.