Tax Planning has to start early

CA Anurag Sharma | Last updated: 16 November 2021

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Tax planning isn't a last-minute task; it requires advance preparation to effectively reduce your tax liability. Unlike tax evasion, which is illegal, tax planning involves strategically investing in options like mutual funds, LIC, and donations. With increased transparency through systems like AIS and 26AS, hiding information is impossible, making early planning crucial to avoid penalties and interest on advance tax. Proactive tax management is essential for both income tax and GST compliance, and a lackadaisical approach can lead to significant future costs.

As the tax season is on, most of the clients come to CAs and say "Tax kum kar do (decrease the tax)".

There is no magical wand in hands of CAs to decrease the tax instantly. For decreasing the tax, we have to do tax planning which cant be done at the last moment. There is difference between tax planning and tax evasion. Tax evasion is nothing but theft of tax which CAs or consultants should avoid at every cost.

How often I tell such clients that lets start from today so that you have to pay lesser tax of the current financial year, but clients keep on avoiding it.

Tax planning is about planning your taxes in advance i.e how much you have to invest in mutual funds, LIC, medical insurance, donations etc. It cant be spontaneous. With new AIS that is available on the portal, no information can be hidden from the department. So its better you should start now.

Clients at times feel reluctant to even pay advance tax and then end up paying interest which is nothing but wastage of funds. This can be easily avoided.

Gone are the days when tax was planned after the end of the related financial year. Turnover information can be easily matched with 26AS. So you cant increase or decrease sales. It's good on the part of the government to take such steps but the results of these steps will be understood by the clients after 1-2 years.

However issuing AIS on 1st November is a kind of blunder which will only increase litigation. This could have been from the start of new financial year.

In my view tax filling is not that easy now as being advertised by income tax dept if you are filling return carefully. So try to file your returns through professionals so that you wont have to repent later on.

I feel coming few years will be years of litigation if habits of clients concerning tax planning are not changed. Your little bit of caution can save you from heavy fines and penalties.

Application of tax planning is required for GST compliances too because due care has to be taken regarding section 17(5), 16(4). Although CA certification has been done away with in case of 9c but you have to be careful while filling it.

We often see businessmen specially in small cities not caring about Income tax, MCA and GST rules thinking they would bribe the department officials but with faceless assessment coming into fore this thing is being curtailed. A lackluster approach towards your taxes can make you pay significantly in the future.

So start your tax planning now rather than asking your CAs or consultants later.

FAQ :

No, there is no magical way to decrease tax instantly. Tax planning needs to be done in advance and cannot be done at the last moment.

Tax planning involves preparing your taxes in advance, such as deciding on investments or donations. Tax evasion, on the other hand, is considered theft of tax and should be avoided.

Starting tax planning early allows you to strategically invest in tax-saving options and avoid last-minute rushes. It helps in reducing your tax burden for the current financial year and avoids penalties or interest charges.

The Annual Information Statement (AIS) makes it impossible to hide information from the tax department, highlighting the importance of proactive tax planning rather than trying to conceal financial activities.

Given the increasing complexity of tax filing, it is advisable to file your returns through professionals to ensure accuracy and avoid potential future issues or litigation.

Yes, tax planning is also required for GST compliances, particularly concerning specific sections like 17(5) and 16(4), requiring careful attention to rules.