Discuss the objectives, importance and types of tax planning.
Ans. Objectives of Tax Planning Tax planning, in fact, is an honest and rightful approach to the attainment of maximum benefits of the Income Tax Law within the framework. Hence, the objective of tax planning cannot be regarded as offending any concept of the law and subjected to reprehension or reducing the inflow of revenue to the Government’s offers, so long as the taxplanning measures are in cdnformity wit h the statute laws and the judicial exposition thereof. The prime objectives of tax planning are:
(i) Reduction of tax liability : Every taxpayer wishes to retain a maximum part of the earnings, rather than parting with it and facing the resource crunch. It would be in the interest of assessee to _plan the tax affairs properly and avail the deductions, exemptions and rebate admissible under the Act. Taxpayer can succeed in doing so by keeping an awareness of the implications of the various business/other transactions as well as updation of his knowledge about the various concessions of which assessee is eligible.
(ii) Minimisation of litigation : A general visualisation of the tax administration scenario depicts a tug-of-war that the tax payers are trying their maximum to pay the least tax and the tax administration attempting to extract the maximum. This also results in, sometimes, protected litigations. It is in this context that a sound tax planning pays returns. When a proper tax planning is adopted with the provisions of laws, the incidence of litigation is minimised. This saves the taxpayer from the hardships and inconveniences caused by the undesire litigations, which at times even stretches upto the High Court/ Supreme Court levels.
(iii) Productive investments : The taxation laws offer large avenues for the productive investments of the earnings granting absolute of substantial relief from the taxation. A taxpayer has to be constantly aware of such legal avenues as are designed to open floodgates of his well-being, prosperity and happiness. When earnings invested in the avenues recognised by law, they are not only relieved of the brunt of taxation but they are also converted into means of furthering earnings.
(iv) Healthy growth of economic : The growth of a nation’s economy is synonymous with the growth and prosperity of its citizens. in this context, a saving of earnings by legally sanctioned devices fosters the growth of both, because savings by dubious means lead to generation of black money, the evils of which are obvious. Conversely, tax planning measures are aimed at generating white money having a free flow and generating without reservations for the overall progress of the nation. Tax planning assumes a great significance in this context.
(v) Economic stability : According to the case law of M.V. Valliapan vs. ITO, (1988) 170 1TR 238 (Mad.), “by a proper tax planning, a smooth tax flow from the tax payer to the tax administration, without recriminations are ensured. This results in economic stability by Away of: (a) availing avenues for productive, investment by the tax payer, and (b) harnessing resources for national projects aimed at general prosperity of the national economy and reaping of benefits even by those not liable to pay tax on theer incomes. Therefore, notwithstanding the legal rulings in cases like. McDowell and its English parallels, real and genuine transactions aimed at valid tax planning cannot be turned down merely; on grounds of reduction of the tax burden.