Tax Planning And Tax Evasion: Two Different Aspects

Tax planning is a crucial component in today’s life. Tax planning means that you save tax payment after complying with all the legal obligations and requirements. There should be no use of colorable tactics to avoid taxes as a part of tax planning. Here lies the difference between tax planning and tax evasion.

How to save tax is a significant part of anybody’s financial planning. Tax planning meant to defraud the revenue department should be avoided at all costs and therefore tax planning is one step above the rest. The real intention behind any transaction may remain concealed and it is this concealed planning which should not form part of tax planning.

Tax planning includes planning in such a way that payment in the form of tax is reduced to the maximum possible extent after following all legal means and procedures. How to save tax does not mean that one resorts to tax evasion. Tax evasion occurs when a person tries to reduce his or her tax liability by deliberately suppressing material facts or concealing information which would otherwise have been disclosed.

Tax planning includes no tax evasion, not putting your money blindly in section 80C investments of the Income Tax Act and organizing one’s finances. There are usually two types of tax planning and these are short and long term tax planning. When the tax planning is done on a yearly basis, it is short term tax planning and when tax planning is done in terms of activities which may not pay off immediately, it is long term tax planning.

Usually people have to invest in various instruments in order to save tax. These instruments are varied in nature and may have different types of yields.

Popular Investment Options:

How to save tax is something which every person thinks of but what are the options available to a person as an investor in order to save tax. Accordingly, the popular investment options available with an investor in order to save taxes are as follows:

  • PPF – Public provident fund which is a popular tool to open an account in post office or any nationalized bank.
  • Life insurance premium – This means that a person may buy a life insurance policy and can save payment of income tax when he or she files tax returns.
  • Unit linked insurance – This is a one time insurance option in the form of a life insurance product. It provides for risk cover to the policy holder for the level of investment made by the an individual.
  • Equity linked saving schemes – ELSS are another type of high return mutual fund with a lock in period of 3 years.
  • National Savings Certificates – This is a tax saving bond issued by the Government of India.
  • Infrastructure bonds – This is a bond with a lock in period and is secured by the government and investment can be made in any member bank.
  • Home loans – Interest saving is there under Income Tax Act.
  • Shares – A share is a share in the share capital of a company. Companies usually issue two types of shares – equity and preference.
  • Debentures and bonds – This instrument of debentures and bonds can be termed as savings for an individual.

Procedure Of Claiming Tax Refund:

Claiming income tax refund is a technique as to how to save tax. There are income tax returns filed at the end of each financial year but not all people know the procedure of claiming tax refund. It is not difficult to claim tax refund online when you have paid more tax to the department than the actual tax liability. But in order to claim refund the following conditions have to be satisfied:

  • Payment of advance tax has to be made.
  • Payment of self assessment tax has to be made.
  • TDS deducted is higher than the total tax liability of a taxpayer.

How to save tax becomes a crucial question when you file the income tax returns for a particular year. The relevant Income Tax Return (ITR) form applicable to a person determines the procedure of claim refund. How to save tax becomes a crucial aspect when you are filling up your ITR relevant to you. In order to save tax, the person has to fill up the ITR sheet, and click on the Validate tab on the Verification sheet and Taxes paid.

According to section 244A of the Income Tax Act, interest amount shall also be paid to a taxpayer if a refund is shown or reflected in his or her account. However the interest received on refund amount is also taxable. The return filed by an individual is processed by the income tax department which shows that the tax calculation of the individual person concerned matches tax calculation of the department, or there is a tax demand or the tax calculation of both the individual and the department matches and the refund claim is accepted.