NEWS & ADVICE : FIXED DEPOSITS
Plan your tax, don’t evade it
By Neelima Shankar
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The incidence of tax is a priority concern for every tax payer. Every tax payer wishes to save his hard earned money to the utmost possible level. The validity as well as justified logic behind this thought of the tax payer led to the government in coming up with a variety of reliefs, deductions as well as allowances which could help a person save tax under the Income Tax Act.

The act of arranging financial resources by a person in such a way that he is able to take full benefits of all the deductions, allowances and exemptions offered under Income Tax Act to reduce the incidence of tax is known as tax planning.

Effective and efficient tax planning helps the taxpayer in reducing his tax burden while continuing to remain in the limits of legal provisioning being offered by the government. The reliefs and deductions offered to the tax payer have been designed in such a way so as to benefit certain socio-economic targets.

The government does so by offering provisions for taxpayers to invest in particular schemes which can lead to social benefits. Exemption from being taxed encourages the habit of saving in people thereby aiding to the economic wellbeing of the nation.

For example, investments in SEZ units are exempted from income tax under Section 80C. Increase in investments in such areas will also benefit socio economic health of the nation along with benefitting individual taxpayers.

Along with tax planning another term heard commonly is tax avoidance. In literal terms, tax avoidance refers to the act of avoiding tax incidence by staying within limits of law by rearranging financial affairs of an individual. Such an act mainly takes benefit of certain ambiguous aspects of the Income Tax Act. All transactions thus done need to be legally valid without any added color to them.

Every person wishes to save the maximum possible amount of his income from getting taxed. But tax avoidance when done beyond legal framework is an unappreciated act. This act of breaching tax in illegal manner is called tax evasion.

Tax avoidance and tax evasion therefore stand different in the mannerism adopted to arrange financial affairs and save tax using them. Many tax payers tend to evade tax by misappropriating data related to income, expenses, and sales.

Tax avoidance and evasion are both not appreciable acts. They lead to loss of funds much needed for economic welfare of the country. Improper flow of funds in the system can prove deterrent to the inflation control measures taken by the government.


 


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