Concepts of Tax Planning: The prime objectives of tax planning are as follows: Reduction of tax liability Minimization of litigation

Productive investment Healthy growth of economy Economic stability How tax payers minimize tax liability: Tax evasion Tax avoidance Tax planning Tax Evasion: This is a dishonest means which are Concealment of income Inflation of expenses and suppress income Falsification of accounts Conscious violation of rules. The above means are unethical, attracts penalties and prosecution. Tax avoidance: Minimising the incidence of tax by adjusting the affairs in such a manner that although it is within the four corners of the taxation laws but the advantage is taken by finding out loopholes in the laws. The shortest definition of tax avoidance is that it is the art of dodging tax evasion without breaking the law. Tax planning is the arrangement of financial activities in such a way that maximum tax benefits are enjoyed by making use of all beneficial provisions in the tax laws. It entitles the assessee to avail certain exemptions, deductions, rebates and reliefs, so as to minimize tax liability. This is permitted and not frowned upon. It is legitimate provided it is within the framework of law. Colourable devices (dubious methods) cannot be part of tax planning and it is wrong.

Tax Planning:

Tax Management: Refers to the compliance with the statutory provisions of law. Tax planning is optional, tax management is mandatory. It includes maintenance of accounts, payment of taxes, filing of return, deduction of tax at source, timely payment of advance taxes, etc. Tax management is first step towards tax planning.

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