{"id":1428,"date":"2016-12-06T09:01:51","date_gmt":"2016-12-06T03:31:51","guid":{"rendered":"http:\/\/www.infipark.com\/articles\/?p=1428"},"modified":"2023-05-06T11:10:28","modified_gmt":"2023-05-06T05:40:28","slug":"discuss-objectives-importance-types-tax-planning","status":"publish","type":"post","link":"https:\/\/www.infipark.com\/articles\/discuss-objectives-importance-types-tax-planning\/","title":{"rendered":"Discuss the objectives, importance and types of tax planning."},"content":{"rendered":"

Discuss the objectives, importance and types of tax planning. <\/strong><\/h4>\n

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:<\/p>\n

(i) Reduction of tax liability :<\/strong> 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.<\/p>\n

(ii) Minimisation of litigation :<\/strong> 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.<\/p>\n

(iii) Productive investments :<\/strong> 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.<\/p>\n

(iv) Healthy growth of economic :<\/strong> 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.<\/p>\n

(v) Economic stability :<\/strong> 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.<\/p>\n

Importance of Tax Planning <\/strong><\/h5>\n

One cannot deny the fact that tax planning is important to curtail or reduce the tax liability. Tax planning is also important because of the following factors:<\/p>\n

(i) Assessee can avail the benefit of relief, deductions, rebate upto the date of submission of return. These cannot be claimed at the time of appeal. As decided in the case “CIT V. Gurjargavures Ltd. (1972) 84 ITR 723” that if there is no tax planning and there are lapses on the part of the assessee, the benefit would be the least.<\/p>\n

(ii) Tax planning exercise is more reliable since the Companies Law and other laws narrow down the scope for tax avoidance and tax evasion and driving the tax payers to a situation where the person will be free from all severe penal consequences.<\/p>\n

(iii) In order to encourage the programmes of public interest and good for civilised society, the Government provides incentives in the tax laws. Hence, a planner has to be well versed with the law concerning incentives.<\/p>\n

(iv) Because of progressive rate of tax to an individual and Hindu Undivided Family assessee is supposed to pay more tax, if income is increased and it necessitates the devotion of adequate time on tax planning.<\/p>\n

(v) Tax planning enables companies to make proper expenses planning, capital budgeting planning, sales promotion planning etc. to reduce the tax planning specially during inflation.<\/p>\n

(vi) Now-a-days when credit squeeze and dearmoney conditions, even a rupee of tax decently saved may be taken as an interest free loan from the Government, which perhaps, an assessee need not repay.<\/p>\n

(vii) An organisation always requires repairs, renewals, modernisation and replacement of plants and machineries for continuous growth and to fight with competition. Any decisions of these kind would involve huge capital expenditure, in which is financed generally by ploughing back of profits, reserves. Availability of profits, reserves and surplus and claiming such expenses as revenue expenditure are possible through proper implementation of tan planning techniques.<\/p>\n

Thus, any legitimate steps taken by assessee directed towards maximising tax benefits, keeping in view the intention of law, will not only help to assessee but also to society.<\/p>\n

Types of Tax Planning\u2014<\/strong><\/h5>\n

The tax planning exercise ranges from devising a model for specific transaction as well as systematic planning.<\/p>\n

These are: <\/strong><\/p>\n

(1) Short range tax planning:<\/strong> Short range tax planning refers to year to year planning to achieve some specific or limited objective. “In such type of planning, there will not be a permanent commitment. An individual may invest in PPF\/NSCs within prescribed limit when income is increased It is not suggested to take LIC\/ULIP\/Pension plan etc.<\/p>\n

(2) Long range planning :<\/strong> Long range planning involves entering into activities, which may not pay off immediately, e.g. transfer of assets without consideration to minor child. The income will be clubbed to transferror upto the child in minor but afterward, this will be an income of child.<\/p>\n

(3) Permissive tax planning:<\/strong> Permissive tax planning is a planning for tax under the express provisions of tax laws. Indian tax laws offer many exemptions, rebates, deductions and incentives.<\/p>\n

(4) Purposive tax planning :<\/strong> This planning is based on the measures which circumvent the law. The permissive tax planning has to express sanction of the Statute while the purposive tax planning does not carry such sanction. Sections 60 to 65 of the Income Tax Act are related to the income of other persons is included in the income of assessee. Here, assessee may plan in such a way that these provisions do not get attracted. Such plan will increase the disposable resources of assessee This is known as “Purposive tax planning.”<\/p>\n

Precautions in Tax Planning <\/strong><\/h5>\n

Assessment must keep the following points in mind to plan for the tax. At the on hand assessee is benefited by the proper planning but on the other hand he may be in trouble:<\/p>\n

(i) Before tax planning for finance, assessee has to interpret other related rules and provisions and has to select better option.<\/p>\n

(ii) Assessee is to consider the economic factors before tax plan. For example, to get benefit of establishment of industrial undertaking by establishing in the rural area. But this is possible that, no proper conveyance, road, efficient labour are available. Assessee has to spend on these items more than by the amount of tax saved.<\/p>\n

(iii) Tax planning should not be based on tax avoidance because and when the shortcomings of law is in the notice of the Government, these will be amended and planning will be fail<\/p>\n

(iv) Tax planning should not be based on the judgement of court of justice because these may be amended by the Government in such are not favourable to the nation.<\/p>\n

(v) Assessee has to read all provisions of related deduction, exemption, rebate etc. and must follow. For example, if assessee is interested to get benefit of donation then Section 80G of tht Income Tax Act must be cleared in the mind. Say, assessee donates furniture then no deduction will be allowed. There are several donations on which 100% deduction is allowed but on other only 50%. In such a case assessee must be careful.<\/p>\n

(vi) Tax planning plans must be flexible so that it can be changed according to the amendment done by the authority.<\/p>\n","protected":false},"excerpt":{"rendered":"

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 […]<\/p>\n","protected":false},"author":7,"featured_media":1430,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[50],"tags":[],"class_list":["post-1428","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-law-taxation"],"_links":{"self":[{"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/posts\/1428","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/comments?post=1428"}],"version-history":[{"count":4,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/posts\/1428\/revisions"}],"predecessor-version":[{"id":8128,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/posts\/1428\/revisions\/8128"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/media\/1430"}],"wp:attachment":[{"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/media?parent=1428"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/categories?post=1428"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/tags?post=1428"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}