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Tax Planning is the process of reducing tax liability on taxpayers by making the maximum use of deductions, allowances, exemptions & relief provided under the Income Tax Act. It is conducted with an object of financial planning to ensure tax efficiency.
Tax Planning is an arrangement and structuring of financial affairs in such a manner that most of the tax benefits can be availed by an assessee. This is done by applying the majority of permissible benefits, deductions, rebates & reliefs, thereby reducing the taxable income.
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In Tax Avoidance, a taxpayer arranges his financial affairs in such a way that his tax liability is reduced without going out the ambit of the law. Tax avoidance is legal. However, it is not considered ethical as the taxpayer takes undue advantage of the loopholes in the law to evade payment of tax.
Tax Avoidance is a way of avoiding tax payments in a manipulative manner. A taxpayer can avoid tax payment by indulging in different activities such as:
Practical Examples
Recommended Article: Budget 2019: Hike in the Tax Exemption Limit.
A tax is a charge that government requires from individuals and companies that fall within their jurisdictions. While tax planning is refers to legal and strategic arrangement of financial activities to reduce the tax liabilities.
Tax evasion is when an individual avoids the tax payments, while tax planning is meticulously planning the payments to taxes in order to save money, along with following the rules.
Tax planning is concerned with maximizing tax advantages while minimizing tax obligations within the bounds of law. Financial planning included a wider range of methods to achieve overall financial objectives such as budgeting, risk management, etc.
Tax planning is refers to legal and strategic arrangement of financial activities to reduce the tax liabilities. Examples of tax planning are tax credits and deductions, investing strategies etc.
Tax planning is an essential part of financial planning. Tax planning means to effectively save taxes being in the limits of tax rules.
Tax planning entails developing a strategy and setting up financial affairs to maximize tax benefits and reduce total tax burden, whereas tax saving refers to the act of lowering tax responsibility by lawful means.
Read More: Best Tax Saving Options Beyond Section 80C.
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