Taming Your Taxes With Perfection

Proper planning is highly essential to ensure appropriate tax savings

- Anagh Pal

This famous quote by J. Paul Getty, the American-British industrialist, drives home the point. However, the irony here is that Getty himself was a petrol tycoon, but most of us are not so lucky!

As dutiful citizens we are liable to pay tax on our incomes and ironically, this very act can eat away into our earnings, especially if we are salaried. The Government has provided various tax deduction methods to lower one’s income tax liability and smart tax planning implies that one does not unnecessarily end up paying more tax. Plus several tax-saving avenues are designed in such a way, that they encourage people to save and invest. Tax saving just for the sake of it, may not always be a wise thing, as long as it is not aligned to an individual’s financial goals. This is where tax planning assumes importance as opposed to mere tax savings.

Computing one’s tax liability is the very first step towards the tax planning process. Commenting on the importance of computing tax liability, Naveen Wadhwa, DGM, Taxmann, explained, “Income-tax is levied on the total income of a taxpayer. Hence, it is important to first compute the total income. Under the Income Tax Act, there are five heads of income—interalia, salary, house property, business or profession, capital gain and other sources. The aggregate income (after set-offof losses) from these five heads is termed as Gross Total Income (GTI) out of, which various deductions are allowed to a taxpayer on account of investments and savings made by him or her.”

It is thus important to factor in all sources of income when computing one’s tax liability.