Tax planning is an integral activity conducted by every person earning through salary, professional or other activities and organizations in India. Tax planning is crucial for budgetary efficiency. It facilitates the smooth functioning of the organization for corporates; a sound financial plan is a must in order to deliver maximum tax efficiency. In addition, paying taxes is a method of contributing towards the country’s development.
During every financial year assessment, be it individual or corporates files taxes and submits the same to the Income Tax Department of India.
The Government of India has provided a list of deductions which can be availed by every individual for saving taxes. It is advisable to take benefit of the following deductions:
Tax planning for corporates comprises of means for reducing companies tax liabilities. The simplest way to achieve this is by taking into account expenses made on health insurance of employees, office expenses, business transport, employee child care expenses, charitable contributions retirement planning, etc.
By taking full benefit of various tax deductions and exemptions available under the Income Tax Act, 1961 corporates can considerably bring down their tax burden. Higher the growth of the corporate firm means growing profits of the corporate house resulting in higher taxes for the corporate firm. Under such a scenario a proper corporate tax planning activity it becomes of extreme importance. Corporate firms account team must take into account all the available sections of the income tax act, 1961 to bring down their tax burden. Proper and efficient tax planning activity by a corporate house leads to a reduction in payment of their direct and indirect taxes.
Here are the key advantages of tax planning:
Here is the list of common deductions available under Section 80C:
| Section | Deduction on | Allowed Limit (maximum) FY 2018-19 |
|---|---|---|
| 80C | Rs. 1,50,000 | |
| 80CCC | For amount deposited in annuity plan of LIC or any other insurer for a pension from a fund referred to in Section 10(23AAB) | |
| 80CCD(1) | Employee’s contribution to NPS account (maximum up to Rs 1,50,000) | |
| 80CCD(2) | Employer’s contribution to NPS account | Maximum up to 10% of salary |
| 80CCD(1B) | Additional contribution to NPS | Rs. 50,000 |
The list mentioned above is not exhaustive, other sections which can be availed to save taxes are: 80TTA(1), 80TTB, 80GG, 80E, 80EE, 80CCG, 80D, 80DD, 80DDB, 80U, 80GGB, 80GGC and 80RRB.
One of the most common modes of saving income tax is by paying rent. Individuals staying in rented accommodation can avail the benefit of HRA exemption (Section 10 (13A) of the Income-tax Act, 1961). The amount eligible for deduction depends on the following criteria:
In conclusion, it is advisable to pay taxes regularly. Tax saving investments not only help in limiting the income tax but also act as a source of wealth creation over a long period of time. For corporates, proper tax planning helps in adequate management of expenses, proper allocation of the capital budget and bringing down sales and marketing costs, among others.
