Income tax or any other direct tax is a bitter fact that everyone has to accept. We as citizens have the duty to pay these taxes on time for the proper functioning of our government and for the economic growth of our country. One cannot avoid tax but can save or limit his tax liability through proper tax planning and management.
Tax planning is a practice where an individual tries to limit his tax liability by resorting to various available deductions, exemptions, rebates, and relief to income. These exemptions, debates, deductions, and relief is provided in the act itself. In McDowell & Co. v. CTO, the Supreme Court held that tax planning must be done in a legitimate way and should be within the framework of laws. No dubious method should be involved and encouraged in tax planning.
Tax planning yields various advantages, which are:
Tax planning can be of following types:
It involves planning on a year to year basis to achieve a particular goal.
It involves those activities which may not give benefit immediately but saves the tax in the long run.
Permissive Tax Planning:
These are mentioned under the tax laws of our country which involves various exemptions and incentives.
This carries an objective and is not specifically sanctioned in law. For example, section 60 to 65 of the Act provides for clubbing of other persons’ income with that of assess. If taxpayers could plan in such a way to avoid these provisions it would be called purpose planning.
Tax planning for Residential Status:
Tax Management in relation to Direct Tax:
In this modern society where the world is developing at a rapid rate, almost all business houses or individuals are under the obligation to pay taxes as well as to manage those taxes. Tax Management is the process of managing the finance for payment of tax, assessing the payment of the advance tax such as surcharge or cess for paying tax in time.
Efficient Tax management can be illustrated through the management of proper filing returns on time, working as per the legal provision which is applicable and to escape from any kind of penalties and levy of interest. In simple terms, tax management is the process of taking one’s safe side by setting aside the burden of penalties and going in accordance with applicable law. By doing so one can escape from penalties provision mentioned under section 44AB the Income-tax Act, 1961.
Tax management is an initial step of tax planning where the Assessee is under the obligation of fulfilling the rules and regulations of the applicable laws. However, the Assessee may fall under depressing experience and other troublesome, if not comply with the rules and regulations or the provisions of the tax laws. Such experiences and troublesome can be termed as a penalty, levy of interest, prosecution initiation, etc.
Tax management includes:
Following the other requirements properly such as tax audit, certification of transactions, etc.
Therefore, we can say tax planning is incomplete without proper tax management or when the rules and regulations will not be properly discharged. But even in the planning management of direct taxes, one should always bear in mind the law. Escaping law is never the right way to do management. So this all must be done in accordance with the law. The best way is not the avoidance of law but to mould it for own benefit.
Tax Planning, (13 August 2020), Retrieved from https://www.google.com/amp/s/cleartax.in/g/terms/tax-planning/amp
How Tax Planning & Tax Management helps in saving tax in business?, (14 July 2020),
Tax Management under Income Tax Act, 1961, (13 May 2015), Retrieved from https://taxguru.in/income-tax/tax-management-income-tax-act-1961.html