Meaning and definitions of Tax Planning

Meaning and definitions of Tax Planning
Meaning and definitions of Tax Planning

Meaning and definitions of Tax Planning:- Tax planning in simple words, means of tax planning keeping in view the rules and provisions of income tax, the person is employed in such a way that minimum income tax liability arises and minimum income tax has to be paid for doing so. After thoroughly studying the income tax rules, one has to know about the exemptions and incentives available in them, only then he can do effective tax planning.

Essential elements or features of tax planning

  • Tax planning is done under rules, provisions and notifications, so tax planning is legal.
  • Being statutory, tax planning is considered an ethical action.
  • Tax planning reduces income tax liability resulting in increase in income
  • Tax planning is a continuous process as income instruments are received over a period of time.
  • Because tax planning is a continuous process, as a result, tax planning can be done both in the short term and long term.
  • Income, expenditure and investment are planned in tax planning.
  • There are different forms of tax planning
  • The basis of tax planning is the available exemptions, relief, deductions and incentives.

Objectives of tax planning

  • Reduce tax liability
  • Reduce disputes
  • Encourage productive investment
  • Cost reduction
  • Increase employment
  • Bring economic stability
  • Health development of the economy

Importance of Tax Planning

Tax planning is not only important for the taxpayer paying tax but it is also beneficial for the society, country, business, industry etc.

For Taxpayer

Taxpayer reduces his tax liability by employing tomorrow, for this purpose he gets the benefit of exemption, relief and allowed deductions given in the Act, he invests his savings in such schemes from where he gets maximum tax benefit.

For society

Society also gets many benefits from tax planning, savings amount is invested in industry, new industrial units provide employment opportunities, this increases the demand for goods, as a result, the standard of living of the people is better.

For the country

The government has started developing schemes for the progress of the last, by encouraging individuals to save and invest, capital for the schemes can be increased, this reduces the burden on government revenue

For industry and business

By tomorrow’s schemes, the government inspires the people to do balanced development of different parts of the country, if an industrial undertaking is established in a backward district or a backward state, then some percentage of the income from it will remain in these for a particular period. can be spent for the development of the states and roots

Tax planning is a legal and ethical way to save tax, explain this statement and describe its importance, how tax planning is different from tax evasion.

The given statement Tax planning is a legal and ethical way to save tax is actually true Tax planning is a technique by which a person reduces his tax liability without violating any provision of the constitution 

Tax evasion or tax evasion

  • Tax evasion is a technique to reduce tax liability or avoid tax liability by violating the tax act. It is completely illegal. The taxpayer who evades tax can be punished with fine or with imprisonment. Tax evasion The tax evasion can be done in two ways, first by not showing illegally earned income in the tax return and secondly by wrong and wrong in the tax return and Tax evasion can be done by giving religious information, reducing taxable income or claiming wrong deductions. Thus, tax evasion consists of the following elements
  • Tax evasion is done by violating tomorrow’s provisions
  • Tax evasion is immoral and illegal, as a result, the taxpayer can be punished with both financial and criminal penalties if caught.
  • Tax evasion causes economic loss to the government and the country and the rise of black economy.

Some examples of tax evasion

  • Withholding of income i.e. non-writing of return of taxable income
  • Reducing the artificial and associated expenses by writing in the brother accounts
  • Reducing the benefit of debiting personal and family expenses as business expenses, such as personal use car petrol, etc., not billed in the telephone, no travel, practical vote, many merchants write their books as business expenses. show less profit
  • By writing off the actual bad debts and losses by reducing the valuation of the stock
  • selling goods without deducting the bill
  • Hiding benefits on Anshu Aditya Vikram Signature
  • Sale of immovable property at higher value and registration at lower value and saving tax on difference amount
  • Payment of artificial salary and interest to near relatives
  • By artificial signing of property in the name of relatives, not including income from that property in one’s own income

Shoe deduction is to be availed like some tax payers get deduction of section 80G by obtaining artificial receipt of donation without giving donation, similarly export related exemption is obtained by increasing the profit of export trade and reducing the profit of internal trade. is


Tax evasion is not only illegal, but it is immoral, anti-social and anti-national, so provisions have been made in the Direct Taxes Act to impose heavy fines and punishment on the persons who evade taxes.

Difference between tax planning and tax evasion

  • Statutory provisions are followed under tax planning, while statutory provisions are violated under tax evasion.
  • Some social and economic objectives are fulfilled through tax planning, while tax evasion is a legal offense for which financial punishment and punishment are given.
  • For tax planning, in-depth knowledge of Income Tax Act 1961, Income Tax Rules, State Notifications, decisions of courts and related Finance Act is necessary, but corruption requires audacity.
  • Economic development of the country takes place through tax planning whereas black money is generated through tax evasion.
  • Tax planning is said to be legal and ethical whereas tax evasion is immoral and illegal.
  • The adopter of tax planning remains fearless while the tax evader is surrounded by fear of students and punishment.

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