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Planning your tax helps you in many ways. We have explained those benefits in detail
The taxation system in India traces its parent roots to ancient texts such as Manusmriti and Arthashastra. As prescribed by the texts, artisans, farmers, and traders hundreds of years ago paid taxes in the form of gold, silver, and agricultural products. Taking the vital evidence from these texts and with some added tweaks, the basis for the modern tax system in India was laid by the British when Sir James Wilson revealed income tax in the year 1860. During the independence, the newly-formed Indian Government does the formation of the system to catalyze the economic progress of the country.
Since that time, the tax structure in India has undergone a revival with abolitions and amendments as well as additions of new reforms. Here we have mentioned some of the current aspects of the taxation system in India.
Highlights of Tax Plan in India
As per the revised Income Tax Slabs:
According to the Union Budget that was represented in the year 2019, it is a significant relief to low-income individuals to revamp the tax rate for different brackets.
- A person who has a total income of up to Rs.2.5 Lakhs is entirely tax-free.
- 5% of the total income exceeding Rs.2.5 will be applicable if the income is within Rs.2.5 Lakhs & Rs.5 Lakhs.
- From Rs.5 Lakhs to Rs.10 Lakhs, 20% of the total income exceeding Rs.5 Lakhs + Rs.12,500 will be applicable.
- In the same way, Rs.1,12,500 + 30% of total income exceeding Rs.10 Lakhs will be levied as income tax.
Goods and Service Tax (GST):
The GST was passed in 2016 but came under operation in July 2017. GST brings various indirect taxes levied by the Central and the State Governments under a single comprehensive indirect tax.
Central Board of Indirect Taxes and Customs (CBIC):
CBIC was previously known as CBEC, which comes under the newly-levied GST.
Here are the benefits of tax planning
1. The Benefit of Regular Investment
The requirement and importance of tax planning warrants the research and planning. By creating the plan, one can avoid a huge lump sum being taken away from your income or can allow the same amount to recede in smaller monthly bites. Investing in a staggered manner as opposed to a one-time investment is fairly easier on your pockets.
2. Making real-time informed decisions
Tax planning at the start of the financial year helps organizations in making vital and right decisions throughout the year. One can choose from the list of plans and pick the one that merely fits your plan of things.
The essential of tax planning lies in taking prudent decisions as opposed to the creation of hurried choices that can hamper your financial objectives and eventually be an obstacle to long-term wealth creation.
3. Choosing the right tax-saving instrument
Tax saving is a long-term exercise, and both tax plans and investments for taxation go hand-in-hand.
There are several tax-saving investment avenues among which one must access the ones that ensure your holistic financial well-being. The earlier you initiate the plans, the more you can benefit from the power of compounding.
Market–linked investments are highly suitable for higher-income groups. Such investments are considered under the category of high-return and high-risk investments. Conservative investors can make the choice of fixed-income investments, but this is inclusive of a lack of liquidity. One must assess their own personal investment choices that are based on your risk appetite and liquidity needs.
4. Effectively use the tax-saving options
The Income Tax Act 1961 contains several provisions that claim deductions and make savings of taxes. Apart from the investments, there are several other expenses from which you can claim a deduction. This includes the payment of tuition fees, medical expenses for treatment of certain diseases, home loan repayment, health insurance premium, donations, and many more. Tax planning is relevant for making offers to the Government.
Being aware and updated about such provisions ensures the generation of the best use of the deductions available.
5. Efficient preparation
For employees who get the salaries and fall within the taxable limits, most companies deduct tax in the last quarter of the year. After accounting for all expenses & deductions, the tax payable is deducted from your salary before reaching you. This is the reason why early tax planning is inevitable. Thus it is wise to avail all deductions available to you for claiming them. By making plans, one can also forecast your tax liability and pay it in trenches over a longer time rather than in one single heavy transaction.
6. Optimize deductible expenses
There are several salary allowances that you are offered to reduce the amount of the tax. Employees seldom take note of salary allowances and exemptions and also keep track of all the impacts of the tax payments that will help you streamline your financial budget. They work toward optimally restructuring the components of the salary to save taxes.
Take Expert Guidance to Plan Tax Wisely!
Tax Planning is always a one-time activity. Taxpayers must use all the exemptions and benefits available to them to minimize their tax liability and strengthen their savings and investment portfolio. For this, one needs to keep track of the latest developments in the field of tax planning and also seek professional help from tax lawyers, chartered accountants, and many more. Consult Finvest India Consultants to get expert consultation for Tax plans!
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