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What is tax planning?

Tax planning starts with an analysis of your income and expenditures to determine your tax slab and current outflow. Tax Planning then moves onto the key area of

  1. Helping you invest in the most tax efficient instruments to make sure that you reap the best post-tax returns.
  2. Enabling you to utilize the tax exemption and benefits under the income tax act to ensure that you pay the least tax possible.

Tax planning enables you to plan your taxes right at the start of the year to avoid the march rush. Simply put, tax planning is the process of managing your income, expenditure and investments in a way that you reduce the amount of tax you pay – be it income tax or capital gains tax.

Here are the steps of the tax planning process:

1.Calculate total income and income sources

It involves doing an accurate and precise calculation of your monthly and thereby annual income from various income sources.

2.Find the taxable amount of salary

Your entire take-home pay is not taxable. Fractions of your salary, like allowances for house rent or travel, are not taxable. On the other hand, any profit you make from your investments could add to your taxable income. Thus, understanding your actual taxable income is a must.

3.Avail deductions to reduce your total taxable income.

This can be done through structuring your salary and planning your investments right. For example, profits from a debt fund held for over three years is taxed at 20% after indexation. Interest from a fixed deposit, on the other hand, is taxed at the same rate as your income tax. So, if you fall in the 30% bracket, debt funds are a more tax-friendly option and the better investment for you.

4.Investing in tax-saving instruments.

There are many investment instruments that offer effective tax planning like Provident Public Fund (PPF), Equity Linked Saving Schemes (ELSS) etc. Even your life insurance, health insurance and home loan payments qualify for tax exemptions and can help you reduce your taxable income and total tax paid.

Given the hustle and bustle of everyday life, most of us struggle to find the time for tax planning and proper tax filling.

We at SMFS can help you in understanding your income and your taxes. We help you take advantage of all available tax exemptions so that you reduce your taxable income. We even have tie-ups with the best CAs who can help you file your Income Tax Returns. We make sure that all your investments are made in the most tax efficient financial instruments that are suited for your goals. 

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