Tax planning refers to a legal way of minimizing tax liabilities in a year. This process will help an individual to use tax exemptions, deductions, and benefits in the best possible manner for minimising the burden of tax. However, it is important to keep in mind that this should be done by following a legalised way.
Tax planning is a way of analysing one's financial situation from tax efficiency viewpoint so that finances can be managed in an optimized manner. Tax planning enables taxpayer to make best use of various tax exemptions, deductions and benefits. Simply out, tax planning is legal way of reducing the liabilities of income tax. However, caution is required to be maintained to ensure that taxpayer isn't knowingly indulging in tax evasion.
In India, there are several tax saving options for the taxpayers. Such options enable wide range of exemptions and deductions which help in limiting overall tax liability. Deductions are available from Sections 80C to Section 80U. These deductions can be claimed by eligible taxpayers. Such deductions are made against quantum of tax liabilities. There are several other sections under Income Tax Act, 1961 which can help reduce tax liabilities like exemptions and tax credits.