Types of Tax Planning—
The tax planning exercise ranges from devising a model for specific transaction as well as systematic planning.
These are:
(1) Short range tax planning: Short range tax planning refers to year to year planning to achieve some specific or limited objective. “In such type of planning, there will not be a permanent commitment. An individual may invest in PPF/NSCs within prescribed limit when income is increased It is not suggested to take LIC/ULIP/Pension plan etc.
(2) Long range planning : Long range planning involves entering into activities, which may not pay off immediately, e.g. transfer of assets without consideration to minor child. The income will be clubbed to transferror upto the child in minor but afterward, this will be an income of child.
(3) Permissive tax planning: Permissive tax planning is a planning for tax under the express provisions of tax laws. Indian tax laws offer many exemptions, rebates, deductions and incentives.
(4) Purposive tax planning : This planning is based on the measures which circumvent the law. The permissive tax planning has to express sanction of the Statute while the purposive tax planning does not carry such sanction. Sections 60 to 65 of the Income Tax Act are related to the income of other persons is included in the income of assessee. Here, assessee may plan in such a way that these provisions do not get attracted. Such plan will increase the disposable resources of assessee This is known as “Purposive tax planning.”