Tax planning helps you analyse your financial position and find ways to lower net taxable income and overall tax outgo using various provisions available under the Income Tax Act, 1961. It become even more important to review tax planning periodically as the government frequently brings changes to income tax rules either during the Union Budget announcements or at other times.
Proper tax planning not only helps you manage your tax outgo but also enables you to meet both short-term and long-term financial objectives. Remember, tax planning is not a one-time activity; it is an ongoing process as long as your income remains stable and taxable.
Now, as the year draws to a close, it’s the perfect time to reassess your financial position and optimise your tax liability.
Niyati Shah, Vertical Head – Personal Tax at 1 Finance, emphasises that “tax planning is not just about saving taxes – it’s about creating a roadmap for financial efficiency and long-term security. With the right strategies, you can significantly reduce your tax burden while aligning your savings and investments with your financial goals.”
Also read: Identification of Tax Evaders: Taxpayers alert! Govt conducts surveys to identify evaders
Here are five essential tax planning actions to help you make the most of your hard-earned money:
- Tax Harvesting
Tax harvesting involves selling securities at a loss to offset taxable gains. Investors can strategically book long-term capital gains (LTCG) up to Rs 1.25 lakh annually, as these remain tax-free under Section 112A of the Income Tax Act, 1961. Additionally, losses can be carried forward to offset future gains. By selling and reinvesting, you can reduce future tax liabilities without impacting your overall investment portfolio.
- Donations with tax benefits
Donating to society not only creates a positive impact but also offers tax benefits. As Ms. Shah highlights, “donations made to registered charities under Section 80G of the Income Tax Act, 1961, offer deductions up to 100% or 50%, depending on the organization.” Be sure to keep receipts and confirm the charity’s eligibility for tax benefits.
- Retirement planning with tax deductions
Secure your retirement while saving on taxes. Investments in the National Pension System (NPS) allow for additional deductions up to ₹50,000 under Section 80CCD(1B),
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