Finance & Accounting
Tax Planning, TDS, PF & ESI
What is Tax Planning?
Tax planning refers to financial planning for tax efficiency. It aims to reduce one’s tax liabilities and optimally utilize tax exemptions, tax rebates, and benefits as much as possible. Tax planning includes making financial and business decisions to minimize the incidence of tax. This helps you legitimately avail the maximum benefit by using all beneficial provisions under tax laws. It enables one to think of their finances and taxes at the beginning of the fiscal year, instead of leaving it to the eleventh hour.
There are some fundamental objectives of tax planning. Tax planning diminishes tax liability by saving the assessee the maximum amount of tax by arranging their financial operations according to tax decisions. It also conforms to the provisions under taxation laws, thereby minimizing any litigation. One of the biggest benefits of tax planning is that the returns can be directed to investments.
Types of Tax Planning
1. Short and Long-range Tax Planning
Tax planning done every year for specific objectives is called short-range tax planning. On the contrary, long-range tax planning refers to practices undertaken by the assessee, which are not paid off immediately. Simply put, short-range planning usually occurs towards the end of a fiscal year while long-range planning occurs in the beginning.
2. Permissive Tax Planning
Tax planning is deemed permissive when carried out under the provision of a country’s taxation laws.
3. Purposive Tax Planning
It is a tax planning method for a particular objective. It may include diversification of business and income assets based on residential status and replacing assets if necessary.
TDS(Tax Deducted at Source)
TDS is a direct taxation mechanism that was introduced to collect taxes from the source of income itself or at the time of income payout. TDS full form is Tax Deducted at Source. Under this mechanism, if a person (deductor) is liable to make payment to any other person (deductee) will deduct tax at the source and transfer the balance to the deductee. The TDS amount deducted will be remitted to the Central Government. Deductee can check the Tax Deducted at Source (TDS) amount in Form 26AS or TDS Certificate issued by the deductor.
TDS is deducted only if your total income is taxable. However, TDS will not be deducted in case your total income is Rs. 2,50,000 and this amount is applicable for men and women below the age of 60 years. Note: TDS deduction rate on salary ranges from 5% to 30% which is equivalent to the applicable income tax slabs.
PF & ESI
Provident fund is a government-managed retirement savings scheme for employees, who can contribute a part of their savings towards their pension fund, every month. These monthly savings get accumulated every month and can be accessed as a lump sum amount at the time of retirement, or at the end of employment. Since the provident fund money is a large chunk of savings, it can be used to grow your retirement corpus easily.
ESI is a contributory fund that enables Indian employees to participate in a self-financed, healthcare insurance fund with contributions from both the employee and their employer. The scheme is managed by Employees’ State Insurance Corporation, a government entity, that is a self-financing, social security, and labor welfare organization.
List of required documents for PF Registration
- Digital Signature of Proprietor/Partner/Director
- Aadhar Card of Proprietor/Partner/Director
- PAN Card of Proprietor/Partner/Director
- Cancelled Cheque/Bank Statement of Entity
- PAN Card of entity
- Electricity Bill of the Registered Office (not older than 2 months)
- Shop and establishment Certificate/GST Certificate/ License issued by the government for factory