WHAT IS FINANCIAL PLANNING
Financial Planning is the process of planning a person's investments and
assets to enable the person to attain his or her financial goals, keeping in mind the risk
profile of the person.
WHY FINANCIAL PLANNING
As the GDP of India has been growing, the income and savings rate of the
people has also seen an unprecedented growth in recent years. With an expansion in the number
and complexity of financial products and plethora of information available at the fingertips due
to the advent of technology, it has become increasingly difficult and crucial to pick up the
right instruments and develop an appropriate roadmap that will fulfill one’s financial needs and
secure the financial future.
In today's world of complex financial instruments and abundance of options, financial planning
offers numerous benefits, as follows:
- Systematic approach to goal fulfillment: Financial planning enables the
person to take a systematic approach to planning his or her finances and takes the person
closer to achieving his or her goals.
- Timely action on shortfalls and surpluses: The plans, when reviewed periodically, enable quick reallocation of funds to meet any deficits towards goal fulfillment while any surpluses generated can be gainfully redirected to appropriate investment channels.
- Consideration of risk profile and financial capacity: When planning one’s finances, the risk appetite of the person, along with the financial capacity of the person to tolerate risk needs to be taken into account. Financial Planning process takes these factors into account, and the investments are planned accordingly.
- Market conditions: Financial planning enables the person to make the most of the market conditions and can help him or her turn market situations to his or her advantage.
Tax Planning
Tax Planning is an activity conducted by the tax payer to reduce the tax
liable upon him/her by
making maximum use of all available deductions, allowances, exclusions, etc. feasible under law.
In other words, it is the analysis of a financial situation from the taxation point of view. The
objective behind tax planning is insurance of tax efficiency. Tax planning allows all elements
of the financial plan to function in sync to deliver maximum tax efficiency.
Tax planning is critical for budgetary efficiency. A reduced tax liability
and maximized the
ability of retirement plans.
Objectives of Tax Planning
- Minimal Litigation
- Productivity
- Reduction of Tax Liability
- Healthy Growth of Economy
- Economic Stability
Types of Tax Planning
- Short-range and long-range Tax Planning
- Permissive Tax Planning
- Purposive Tax Planning
Tax Planning in India
Indian law offers a variety of tax saving options for the taxpayers, allowing
for a large range
of options for exemptions and deductions through which you could limit your overall tax
output.
- The deductions are available from Sections 80C through to 80U and can be
utilised by eligible taxpayers.
- All these deductions happen against quantum of tax liabilities.
- There many other sections under the Income Tax Act, 1961 such as
exemptions and tax credits that can lower your tax liabilities.
Corporate Tax Planning
This is a way of lowering the liabilities on a registered company. One of the
most used methods
is by including the deductions on business transport, health insurance of employees, etc. With
tax deductions and exemptions provided under the Income Tax Act, 1961, your enterprise can
largely reduce its tax burden in a legal way.
Rising profits of an enterprise means higher liabilities of tax. In such a
situation, it is
important that they dedicate enough time on tax planning that reduces liabilities. With a tax
plan, both direct tax and indirect tax is lessened at the time of inflation. Not just this.
Tax planning means a proper planning of:
- Expenses
- Capital budget.
- Sales and Marketing costs.
A good tax planning results from the following
- All you need to do is to claim the tax benefits is invest in eligible
instruments.
- Giving correct information to relevant IT authorities.
- Being well informed of applicable tax laws and court judgements on the
same.
- Tax planning should be done completely under the purview of law.
- Planning should take into consideration business objectives and
flexibility for the incorporation of future changes.
- You could be a long-time taxpayer or a first-time payer, in case you
- Income Tax clauses seem so complex that the common man is averse of
dealing with taxes.
Generic Saving Methods in Tax Planning
- Medical expenses of disabled dependent
- Expenses for a disabled individual
- Treatment of specified diseases
- Charitable donations
- Donations for scientific research or rural development