Corporate Tax Planning: Every Indian company registered under the 1956 Act must pay corporate tax. The purpose of tax planning is to minimize your tax liability. The purpose of a tax planning strategy is to maximize tax efficiency.
The most efficient tax plan minimizes the amount of tax a company has to pay. To maximize tax benefits, rebates, and exemptions, it is essential to take advantage of the government’s exemptions, rebates, and benefits. By making the right business and financial decisions, you will be able to reduce your tax liability. For corporations to pay less tax, corporate tax planning and analysis of a finance flow plan are essential.
By doing so, you can legally take advantage of the maximum amount of benefits under the law. A company can plan investments and expansions from the beginning of the fiscal year. As per Government laws, tax planning will assist the company in planning its investments appropriately.
Stability and growth of a company are dependent on tax planning. Tax payments are less likely to be litigated. Investments, expenditures, and income are all considered in tax planning.
How does Indian tax planning work?
With the Income Tax Act of 1961, the Government of India introduces many benefits every year in the form of exemptions, rebates, and deductions. Different sections provide the taxpayer with several options. In order to reduce your tax liability, you must use tax planning. Income tax is mandatory in India. Investments in government-approved schemes can reduce the tax liability through effective tax planning.
If you do not plan your taxes, you will end up paying too much tax. An excessive amount of tax will be deducted by your employer. Proper planning can help you avoid this. By investing within the law’s benefits, excess tax burdens are reduced and money is saved. It allows you to decide when to withdraw money from capital gains and other schemes in order to maximize your tax benefit. You can secure your future by investing your money saved through tax planning. Individuals and countries benefit from it by bringing stability and economic growth.
Corporate Tax Planning in India
Registered companies in India can benefit from various tax rebate schemes and investment plans under the Income Tax Act of 1961. Tax liabilities increase as profits increase.
A corporate tax planning strategy is very effective for reducing a company’s tax liability. It is difficult for a layperson to understand the laws governing the companies’ income earned.
Advisors and experts are appointed to take advantage of the Government’s benefits to the fullest extent possible. Tax planning is essential for corporate growth and stability. Keeping track of sales, expenses, and marketing costs will be easier with an efficient corporate tax plan. Deductions and benefits can be utilized with proper planning.
Types of Tax planning
Indian corporations can plan their taxes in three ways.
· Planning for tax purposes
The purpose of tax planning is to maximize tax benefits through the use of tax provisions. In order to maximize benefit, you must make an ideal program for asset replacement, proper investment selection, changing the residential status, and expanding business activities. Using Section 60 and Section 65 of the Income Tax Act, the taxpayer can plan so that the provisions will not be attracted and that they will increase their savings after all the tax deductions have been taken. Purposive tax planning is the name given to this plan.
· Planning permissible tax strategies
The term permissive tax planning refers to planning taxes in accordance with Income Tax Law provisions. You can take advantage of tax concessions and deductions under certain sections of the law. The planning is done in accordance with the taxation laws.
· Long-term and short-term tax planning
Short-range planning refers to plans made for a specific and limited goal. Reduce the tax legitimately by implementing this plan at the end of the fiscal year. We will not commit to investing regularly on a permanent basis. A one-time investment in NSCs (National Saving Certificates) or PPFs (Public Provident Funds) is possible when income increases.
During the beginning of the fiscal year, long-range tax planning is done. It has to be followed throughout the year. Long-term tax savings will result from these investments, although they will not help immediately.