Tax Planning involves planning in order to avail all exemptions, deductions and rebates provided in Act. The Income Tax law itself provides for various methods for Tax Planning, Generally it is provided under exemptions under section 10, deductions under section 80C to 80U, rebates and reliefs.
Tax planning encompasses many different aspects, including the timing of both income and purchases and other expenditures, selection of investments and types of retirement plans, as well as filing status and common deductions.
For example, Following options qualify for Tax Saving under section 80c:
1. Equity Linked Savings Scheme ( ELSS)
2. Public Provident Fund (PPF)/Provident Fund(PF)
3. National Savings Certificate (NSC)
4. Insurance Policies
5. Tax saving FDs
One should invest in these being specific with their goals. If one has a goal which is to be fulfilled 3-4 years down the line, then one should opt for ELSS which has a lock in period of 3 years ; If one requires insurance cover, term plan can be opted for; Investment in PPF should be considered if one has long term goal.
However, while tax planning is an important element in any financial plan, it is important to not let the “tax” tail wag the financial “dog.” It will solely dilute the purpose.
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