What is Tax planning ?

The goal of the tax payers is to minimize his tax liability. To achieve this goal the following three methods are commonly used by him:

1. Tax avoidance .
2. Tax evasion .
3. Tax planning .

   

  Tax avoidance:

          Tax avoidance can be defined as the art of dodging tax without breaking the law. Objective of tax avoidance is minimizing the incidence of tax by adjusting the affairs in such a manner that although it within the four corners of the taxation laws but the advantage is taken by finding out loopholes in the laws. But where the main purpose is to defer, reduce or completely avoid the tax payable under the law.

Tax evasion: 

         In the tax evasion, facts are deliberately misrepresented and tax liability is understand by employing the following means:
(a) concealment of income.
(b) inflation of expenses.
(c)falsification of accounts.
(d) violation of rules .

Tax Planning: 

          Tax planning is an arrangement of one's financial affairs in such a way without violating the legal provisions of the Act. Full advantage is taken of all exemptions, deductions, rebates, reliefs etc. Permitted under the Act, reducing the burden of taxation to the least.
The aim of tax planning is to minimize the incidence of tax. It is a guide in decision making. It looks at future benefits arising out of present actions.