TAX PLANNING

Tax planning may be defined as an arrangement of one’s financial affairs in such a way that without violating in any way the legal provisions of an Act, full advantage is taken of all exemptions, deductions, rebates and reliefs permitted under the Act, so that the burden of the taxation on an assessee, as far as possible, the least. Actually the exemptions, deductions, rebates and reliefs have been provided by the legislature to achieve certain social and economic goals. For example section 80IB of the Income Tax Act, 1961 provides deduction from gross total income in respect of profits from newly established industrial undertakings in industrially backward State or industrially backward district as may be notified in this behalf. The object of the tax concession is clear, i.e. economic development of industrially backward district or state. Section 80C provides deduction from gross total income, if an individual or HUF saves the amount and invests or deposits it in the prescribed schemes. The deduction has been provided to encourage savings and investments for economic development of the country. Thus if a person takes advantage of the aforesaid deduction, he not only reduces his tax liability but also helps in achieving the objective of the legislature, which is lawful, social and ethical. Thus tax planning is an act within the four corners of the Act and it’s not a colorable device to avoid the tax.