Tax planning activity warrants optimisation of your tax savings and minimising your tax outgo yet within the framework of laws of the land
Do you like paying taxes? Well, the answer to this question would be mostly negative. This trait leads to people searching ways and options to avoid paying taxes and while planning that, it may end up you follow a way which is not a legal or unlawful way of savings taxes. So how do you make sure that your intensity of savings taxes is not compromised either by you out of ignorance or by someone else but you still save taxes, legally? Let us understand in detail:
So, whenever you take any action of say investing money or spending, on the other hand, to claim it against your income to save taxes, you need to be careful in checking it first that whether that particular transaction is within the radar. And in no way, it leads to any unlawful means of saving taxes, for getting that clarity in terms of making sure that all your actions to save taxes are within the scope of legally saving taxes, you need to understand these three important terms:
- Tax Planning
- Tax Avoidance
- Tax Evasion
Although the intention of doing any of the above-mentioned exercises is to save taxes and many times, these terms are assumed to be a synonym. But no, that is not right, these are three different terms and cannot be used in relation to each other.
Tax Planning
Tax planning is nothing but an art which helps you save taxes by using every possible income tax provision defined under income tax act. Tax planning activity warrants optimisation of your tax savings and minimising your tax outgo yet within the framework of laws of the land. You must have heard of some of the most popular income tax provisions. For example section 80C which allows you a tax benefit for your investment and some specified expense also, then there is your medical premium u/s 80D or HRA benefit for your monthly rental. One should never miss a single item of tax saving and I would strongly suggest you do your effective and comprehensive tax planning and save taxes in every possible legal way.
Tax avoidance
Now as compared to the tax planning, tax avoidance is an activity taken up by a taxpayer by using the gaps i.e. loopholes embodied in our income tax laws which helps them reduce their tax outgo. Even though this kind of exercise is within the legal framework but it essentially kills the main intent behind any rules and regulations. These activities are against the spirit of any law. So if you look at both these terms and analyse it, you won’t find any difference except the fact that tax planning is something which our government wants us to take benefits from as compared to tax avoidance which they don’t want us to pursue. Though government keeps filling these gaps from time to time and I would strongly suggest you stay away from activities leading to tax avoidance.
Tax Evasion
Tax evasion is something which is totally against our national interest, illegal and outside the legal framework. When someone takes action which helps them reduce their tax liability either by way of increasing their deductions or exemptions or reducing their taxable income by not reporting it at all. All these sorts of activities are nothing but evading taxes, illegal means of saving taxes and our Income Tax Laws have been made stringent by incorporating many penalty provisions leading to prosecution as well.
What should you do to save taxes legally?
Always follow legal ways of saving taxes and follow the right ways of doing your tax planning. And for that, you need to educate yourself about many tax provisions like deductions or exemptions, reliefs or rebates as given under our income tax act. Make the most of it, Do a smart planning and rearrange your tax matters in a way which helps you maximise the benefits without breaking the law. Many times, we see taxpayers end up paying more tax and especially the salaried class which do not use all the possibilities given tax saving options. They delay their tax planning right till the end of a financial year and ends up investing in wrong financial products or using unlawful ways of savings taxes knowingly or unknowingly. Hence it is extremely important for you to make this whole exercise a part of your overall financial planning invest in a financial product only after doing a thorough financial planning.
MONEY MATTERS
- Tax planning activity warrants optimisation of your tax savings and minimising your tax outgo yet within the framework of laws of the land
- Always follow legal ways of saving taxes and follow the right ways of doing your tax planning
The writer is chartered accountant and chief gardener of Money Plant Consultancy
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