Best answer: What is tax planning and why it is important?

What is tax planning and its characteristics and importance?

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.

How is tax planning done?

Tax Planning is an activity conducted by the tax payer to reduce the tax liable upon him/her by making maximum use of all available deductions, allowances, exclusions, etc. feasible under law. In other words, it is the analysis of a financial situation from the taxation point of view.

What are the precautions in tax planning?

6 Precautions To Take While Filing Tax Returns

  • Bank statement/passbook.
  • Interest certificate.
  • Investment proofs for which deductions is to be claimed( Sec. 80 C and beyond)
  • Books of account and balance sheet and P&L A/c (if applicable)
  • Rent and Lease agreements, among others.

Is tax planning necessary?

Tax planning can have some great benefits for any business, large or small. It involves evaluating the business’s current financial situation, estimating probable profit or loss for the next quarter, and drawing up strategies to minimise tax while maximising the value of the business.

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What is tax planning and types?

Tax planning: Tax planning is a process of analyzing one’s financial situation logically with a view to reducing tax liability. … Tax planning involves applying various advantageous provisions which are legal and entitles the assesse to avail the benefit of deductions, credits, concessions, rebates and exemptions.

What is true tax planning?

Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to allow you to pay the lowest taxes possible. A plan that minimizes how much you pay in taxes is referred to as tax efficient. Tax planning should be an essential part of an individual investor’s financial plan.

What is tax and its objectives?

The primary purpose of taxation is to raise revenue to meet huge public expenditure. Most governmental activities must be financed by taxation. … In other words, taxation policy has some non-revenue objectives.

What is effective tax planning?

The primary goal of effective tax planning is to reduce the total tax bill of the taxpayer. Stiglitz (1985) identifies three basic principles of tax avoidance that can be used by taxpayers in an income tax system. … The availability of these tax avoidance principles also depends on different aspects of the tax system.

Which one of these is a type of tax planning?

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.

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What is difference between tax planning and tax management?

Tax Management deals with filing of Return in time, getting the accounts audited, deducting tax at source etc. … (iv) Tax Planning helps in minimizing Tax Liability in Short-Term and in Long Term. Tax Management helps in avoiding payment of interest, penalty, prosecution etc.