What is tax planning and why you need it?

What is tax planning and why you need itIt's that time of the year when your tax planning endeavours are in full swing. To start with, tax planning is a process where the tax-payer utilizes the concessions available to him under various tax laws and pays the minimum possible tax. This is done with complete adherence to the tax laws. In fact, the government encourages you to plan your taxes by investing in tax saving instruments like life insurance policies.

For many tax payers, planning is not listed in their agenda until March. This is the month wherein they run to invest their money in a plan with the sole purpose of saving tax for that financial year. As long as they get a plan that avails them tax deduction, they don't think about any other benefits. Also, most of the times, the tax saving instrument chosen is a recommendation by a colleague or something they've seen in an advertisement. This practice mostly leads people to make wrong investment choices.

Overall tax planning benefits

Timely tax planning can reduce income tax incidence on an individual. Often, people pay more tax than what actually they would have paid by choosing investments smartly. Proper planning will help you save tax more effectively and maximize investment returns

The less tax you pay, the more money you save or have at your disposal to spend

The earlier you start with tax planning, the sooner your investment start earning returns. Also, it eliminates the situation where you may end up not having enough money to spare for a lump sum investment, at one go for 100% tax-saving

With a proper tax saving strategy you'll be able to use most of the tax benefits available under the law

An efficient tax planning is to invest throughout the year in a certain proportion such that by the end of the year you've taken advantage of most of the tax saving plans.

Since tax benefits available varies from time to time and are also subject to many conditions prevailing at that point in time, it is important that you start your tax planning early in the year and consult a professional who can advise you in this regard, if required.