Tax planning is arrangement of financial activities in such a way that maximum tax benefits, as provided in income tax act, are availed of. Usually people confuse tax planning with tax avoidance and tax evasion. But these three are different terms.
TAX AVOIDANCE: It is the act of dodging without directly breaking the law. It is done with a purpose to defraud the revenue.
TAX EVASION: Through tax evasion dishonest tax payers try to reduce their taxes by concealing income, inflation of expenses, etc.
The most important step in tax planning is divide and rule i.e. total income of family should be divided into different members. This will help in tax saving.
In my next post I will be discussing how to plan tax?
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