About Us

Ramjanm Prajapati is the Founder Director of Ramjanm Investment & Insurance Consultancy and also authorised Life Insurance Advisor with LIC of India. He comes with extensive experience of 37 years in the Insurance & Finance domain

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+088 130 629 8615 OR ramjanmplic@gmail.com

Tax Planning

Tax Planning: What is it?

Your annual earnings can be eaten away by taxes. By utilizing tax planning, you can reduce your tax liability in any given year. Utilizing the tax exemptions, deductions, and benefits available by the government is one of the key ways to minimize your tax liability.

Tax planning can be defined quite simply. A tax efficiency analysis involves analyzing one's financial circumstances from a tax efficiency standpoint

Objectives of Tax Planning

Tax planning is an integral part of financial planning. Tax savings are assured while complying with the legal obligations and requirements of the Income Tax Act, 1961. In tax planning, the main objective is to reduce tax burdens and save money. Its sole goal isn't to reduce tax burdens.

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Tax planning has the following advantages:

  • Litigation minimization: Litigating tax disputes involves resolving disagreements with local, federal, state, or foreign tax authorities. Tax collectors and taxpayers are often at odds, since the former seeks to extract the maximum amount, while the latter wants to keep their tax liability at a minimum. Tax payers are often spared legal responsibilities by reducing litigation.
  • Tax reduction: Everyone wants to save money and reduce their tax burden. Under the Income Tax Act, 1961, you can take advantage of a variety of benefits to minimize your taxable income. A number of tax planning investment schemes are available under the Act that can significantly lower your tax burden.
  • Keeping the economy stable: Tax payers' money is spent toward improving the country. A sound economy depends on a healthy inflow of white money, which is achieved through effective tax planning and management. Citizens and the economy both benefit from this.
  • Boost productivity: Channeling funds from taxable sources to income-generating plans is one of the key objectives of tax planning. This ensures that funds are optimally allocated to productive goals.

Understanding the tax planning process

Individuals who fall into the IT bracket are required to pay taxes as part of their financial growth story. The goal of tax planning is to streamline one's tax payments in such a way to yield substantial returns over a limited period of time with minimal risk. A person's tax liability can also be reduced through tax planning.

The following tax planning categories can be identified:

  • Permissive tax planning: Planning that is permissible under the framework of the law.
  • Purposive tax planning: Tax planning directed at achieving a specific objective.
  • Long-range/short-range tax planning : Aims for a fiscal year's end and the beginning of the next.

How can I save taxes?

Taxpayers have a number of options for reducing their tax obligations. In India, there are a variety of tax exemptions and deductions available, the most popular one being Section 80C. An example of this would be investments in Public Provident Funds, 5 Year Bank Deposits, National Savings Certificates, and ELSS investments.

By laying out a financial plan whenever your income changes and sticking to it, you will be able to save taxes. Making tax-saving investment decisions at the beginning of the year is a wise habit instead of making uninformed and often incorrect decisions at the last minute. You must be aware of all the exemptions and deductions you are entitled to in order to do this.

Section 80C offers several tax savings options.

As per section 80C, one of the most prevalent provisions in the Income Tax Act, 1961, taxpayers can save up to Rs46,800 annually on their tax liabilities (assuming the highest slab of income tax at 30% plus education cess of 4%). Investing in equity-linked savings schemes, more commonly known as ELSS, can be an excellent way to save taxes under Section 80C. Capital appreciation and tax savings are two benefits of tax-planning mutual funds. Along with ELSS funds, you can invest in government-sponsored schemes such as National Savings Certificates (NSC), Public Provident Funds (PPF), and tax-saving fixed deposits. Investing in these securities in a cumulative manner can result in a deduction of up to Rs1.5 lakh.

Tax planning highlights include:

  • Tax planning is the process of analyzing finances from a tax perspective in an attempt to maximize tax efficiency.
  • Tax planning includes timing of income, timing of purchases, planning for expenses, and size considerations.
  • It is essential for small and large businesses to plan their taxes as it will help them achieve their business goals.
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