Today tax liability is a major area of concern for both individuals and organizations. Introduction to taxation management tells you about the legal way to minimize the tax liability of an assessee. As a first step towards understanding income tax law in India, it would be appropriate to begin with acquiring knowledge about structure of tax regime in the country. Taxes are the basic source of revenue to the government as well as to carry out development works. Therefore tax planning is required by every assessee whether individual or companies. The three basic steps to be performed for the tax planning are as follows.
1. Calculate your taxable income under all heads i.e., Income from Salary, House Property, Business & Profession, Capital Gains and Income from other Sources.
2. Calculate tax payable on gross taxable income for financial year (i.e., from 1st April to 31st March) using a simple tax rate table, given on
3. after you have calculated the amount of your tax liability you have two options to choose from:
(a) Pay your tax (No tax planning required)
(b) Minimize your tax through prudent ta planning.
Most people rightly choose second option. Here you have to compare the advantages of several taxes saving schemes deepening upon the factors depicted in figure… and then finally deciding upon a right mix of investments. This would reduce your tax liability to zero or the minimum possible.
Every citizen has a fundamental right to avail all the tax incentives provided by the Government. Therefore, through prudent tax planning not only income-tax liability is reduced but also a better future is ensured due to compulsory saving in highly safe Government schemes.
Types of Taxes
There are two types of taxes, Direct and Indirect taxes.
1. Direct taxes are collected by the government directly from the tax payer through levies such as income tax, wealth tax and interest tax, In this person has direct obligation towards the government and has no option of the avoidance of tax.
2. Indirect taxes are collected indirectly as a part of prices of goods and services on which there are levied. In India these comprise of excise duty, sales tax, costumes duty, and value added tax. These are not mandatory. For e.g. if the person does not purchase the goods, he is not liable for any tax but in case of direct ta, expenditure is not base of deciding tax liability.
While direct taxes from 30% of governments revenue, indirect taxes contribute a large chunk of 70 percent. Gift tax and estate duty were part of the direct tax revenue. As an ongoing process of simplification and rationalization of the direct tax structure in India, the government repealed the Gift Tax Act in 1998 and the Estate Duty Act in the late eighties.