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What is Tax Planning?

Tax planning implies planning your financial investments and expenses in a prudent manner so that one can avail the maximum tax benefits provided by the authorities. Tax planning helps you systematically reduce your tax liability availing the maximum perquisites and benefits legally available.

Tax planning is often aligned to your long-term investment goals and should not be considered as a tool to evade taxes.

Who needs Tax Planning?

Tax planning must be done by every individual who has a taxable income. Tax planning helps in reducing your tax liability and leaving more money in your pocket.

Steps for Tax Planning

  • Add all the taxable incomes for a given financial year on. E.g. salary, capital gains, rental income, gifts, interest, and other sources.
  • Calculate the tax payable on the total gross income. To find the tax amount, you have to refer to the income slabs specified by the Tax authorities. Below are the tax slabs for a general tax payer (as per the Union Budget declared in Feb 2011)
    Income (in Rs.) Tax Rate
    0 to 1,80,000 No Tax
    1,80,001 to 5,00,000 10%
    5,00,001 to 8,00,000 20%
    Above 8,00,000 30%
    There are different tax slabs for Women and Senior Citizens.
  • There are various tax saving provisions available like
    • Exemptions - you can claim certain income as exemptions resulting in reduced net income, hence, saving taxes. For example, the dividend received on the stock you invest is exempted. Therefore, dividend is a tax-free income.
    • Deductions - certain investments that can be deducted from your income, resulting in reduction of your taxable income, hence, you have to pay less tax.

      Some deductions available as listed below

      • Life insurance plans under Sec. 80C
      • Pension plans under Sec. 80CCC
      • Health insurance plans under Section 80D
      • Interest on your Housing Loan under Section 24
      • 5-Year fixed deposits with banks and Post Office
      • Donations to specified funds/institutions under Section 80G
      • Entire interest on Loan for higher education under Section 80E

      Under Section 80C, the maximum deduction available is Rs 100,000 annually
      For a complete list of investment/contributions, please contact us.
    • Allowance - is a fixed amount that is paid in addition to the salary to meet certain expenses incurred while performing the duty. Few allowances like HRA (House Rent Allowance) and LTA (Leave Travel Allowance) can be deducted from the income to avail the tax benefit.
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