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What are the Basics of Corporate Tax Planning in India?

Tax planning contributes to the economy of the country. It is a legal way of reducing tax in provision with the benefits allowed by the law. It secures the future by investments in tax-saving instruments and schemes.

Basics of Corporate Tax Planning : Every company registered under the Act of 1956 must pay corporate tax in India. Tax planning is a process to minimise tax liability. It is a financial plan for tax efficiency.

A tax plan is efficient when minimising the amount of tax a company has to pay. The essential part of tax planning is to utilise the maximum exemptions, rebates and benefits the Government provides. Achieve less tax liability by making proper financial and business decisions. Corporate tax planning and analysis of a finance flow plan analysis are necessary to ensure all aspects work together to pay less tax

It helps in legally availing the maximum benefits under the provisions of law. It enables a company to plan investments and expansion from the start of the fiscal year. Tax planning will help the company to plan its investment in a proper way as per Government laws.

Tax planning is essential for the stability and growth of the company. It minimises the chances of litigation on tax payments. Tax planning involves several considerations like income, expenditure, and investments.

What is Tax Planning in India?

Every year the Government of India introduces many benefits in the form of exemptions, rebates, and deductions in the Income Tax Act of 1961. Several options are available for the taxpayer under different sections. Tax planning is the only legitimate method allowed to reduce the tax payable. Payment of income tax is compulsory in India. Effective tax planning is needed to reduce the tax liability by proper investments in schemes notified by the Government.

You end up paying excess tax if you do not plan your tax. Your employer will deduct an excessive amount towards the tax. You can avoid this through proper planning. It reduces the burden of excess tax and saves money by investments within the benefits the law offers. It helps you decide when to withdraw money from capital gains and other schemes to gain maximum tax benefit. Tax planning helps to secure your future by investing your money saved. It brings stability and economic growth to an individual and country.

Corporate Tax Planning in India

The Income Tax act of 1961 offers a rebate in tax payments by introducing various schemes and investment plans to registered companies in India. An increase in profits means a higher tax liability. 

Companies adopt a very effective Corporate Tax Planning to reduce their tax liability. The laws governing the companies concerning income earned are a bit complicated to understand by a layperson. 

Financial advisors and experts are appointed to take the optimum benefits from the Government. Corporate companies must plan the tax to have stability and growth. An efficient corporate tax plan will help in good budget planning, expenses analysis, sales monitoring, and marketing costs. Planning will enable the company to use the available deductions and benefits. 


Types of Tax planning

Corporate Tax planning in India is of 3 kinds.

  • Purposive Tax planning

Purposive tax planning uses the tax provisions to avail the tax benefits. The purpose of getting maximum benefit is by making an ideal program for asset replacement, proper choice of investments, changing the residential status, and expanding business activities and income. Under Income Tax Act, Section 60 to Section 65, the taxpayer can plan so that the provisions will not get attracted and will increase the savings after all the tax deductions. This plan is called purposive tax planning.

  • Permissive tax planning

Tax planning according to the permissions given by the provisions of the Income Tax Law is known as Permissive tax planning. Take benefits from deductions and incentives for tax concessions in certain sections of the law. It means planning is as per the provision of the taxation laws.

  • Short-range tax planning and Long-range tax planning

Any plan made for a limited and particular objective is called Short-range planning. Execute this plan at the closing of the fiscal year to reduce the tax legitimately. There will be no permanent commitment to investing regularly. You may make a one-time investment in NSCs (National savings certificate) or PPF (Public Provident Fund) for a required amount when income increases. 

The tax planning made at the start of the fiscal year is called long-range tax planning. You have to follow it around the year. These investments will not help immediately but will save tax in the long run. 

Objectives of Corporate tax planning

The primary object of corporate tax planning is to owe the minimum amount as tax by efficiently managing the company affairs. 

  • Reduce Tax Liability

The main aim of tax planning is to help a corporate business reduce its tax liability by availing of tax deductions and benefit options.

  • Avoid litigation

Proper planning and the use of a tax plan can avoid tax litigation. It reduces the mistake and wrong information given due to last-minute tax filing that will have a lot of legal complications.

  • Increase productivity and financial growth

Careful and correct planning of taxation will contribute to the company’s growth. An exact plan to invest in good tax-saving schemes will help in wealth accumulation and will have a good portfolio.

  • Facilitate Economic Growth of the country

Money circulates in the market when you make investments. This benefits the economy of the country. Proper tax payments to the Government ensure good facilities for the citizens. Investment curbs illegitimate and black money to a great extent.

Paying tax at the right time is the duty of every citizen and business company. One should be well aware of the tax structure and the laws binding it. It is advisable to plan your taxes well in advance at the start of the fiscal year. It reduces the mistakes due to last-minute preparation. You will end up paying high taxes if you fail to invest on time.  

It is difficult for a layperson to understand the different sections and clauses where you can enjoy the benefits of a tax rebate. You need to employ or take advice from tax consultants and advisors for a detailed tax plan. With a tax plan, you can be sure that no illegal income is made and hidden from the Government. You will be a law-abiding citizen contributing to the economy of the country. If you need more information regarding the basics of corporate planning in India, seek assistance from VakilSearch. 

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