Tax planning is not a device to reduce tax burden. In
fact, it helps savings by investments in government securities.
Savings reduce extravagance, and correspondingly inflation.
Tax savings are permitted only for investment made i:n
government securities and bonds of priority sectors which
ultimately help the nation. Therefore, the savings in
tax help the Central and state governments to mobilizes
funds by way of investments and as such the government
earns much by way of other benefits, by sacrificing small
amount of tax. The Supreme Court in one case observed
that "Tax planning may be legitimate provided it
is within the framework of Law". By tax planning,
the government is equally benefited.
Savings and investments are interconnected. Before making
investments the person has to consider various factors
Liquidity-when he requires the amount
to meet the educational expenses of children,for marriage,
house construction or for a secure future after retirement.
Security of the investment.
The return and tax on income on such investments.
This varies from person to person. A person
by investing in NSC saves on his tax. However, the interest
on the investment is taxable. Again, if the investment is
made in PPF, he is not liable to pay the income tax on interest.
But the period of NSC is six years whereas in the case of
PPF the period of repayment is 5 years. However, a portion
can be claimed after 7years. Thus the person who makes the
investment has to consider whether he requires the amount
after 5 years or he can wait for a longer period.
To make investments there should be savings.
A lower income person also wants to save, but his gross
income and day-to-day expenses don't leave him anything
to save. For example, if he has to save Rs 20 from tax by
investmenting in NSC, he has to invest Rs 100. Sometimes
considering his financial needs he will be prepared to pay
the tax of Rs 20, so that Rs 80 is there for his other needs.
Therefore, the capacity of savings is also very relevant.
To increase savings one should make investments that give
reasonable returns. Again this return becomes a saving if
invested. This booklet talks' about the deductions available
under various head such as salary and house property and
also various modes of investments and tax deduction available
from the said investments. The rebates, concessions and-liability
of tax in this article are with reference to the assessment
year 2001-2002 (financial year April 1, 2000 to March 31
2001). The amendments made by the Budget 2001 are also touched
upon in brief.