Precautions in Tax Planning
Assessment must keep the following points in mind to plan for the tax. At the on hand assessee is benefited by the proper planning but on the other hand he may be in trouble:
(i) Before tax planning for finance, assessee has to interpret other related rules and provisions and has to select better option.
(ii) Assessee is to consider the economic factors before tax plan. For example, to get benefit of establishment of industrial undertaking by establishing in the rural area. But this is possible that, no proper conveyance, road, efficient labour are available. Assessee has to spend on these items more than by the amount of tax saved.
(iii) Tax planning should not be based on tax avoidance because and when the shortcomings of law is in the notice of the Government, these will be amended and planning will be fail
(iv) Tax planning should not be based on the judgement of court of justice because these may be amended by the Government in such are not favourable to the nation.
(v) Assessee has to read all provisions of related deduction, exemption, rebate etc. and must follow. For example, if assessee is interested to get benefit of donation then Section 80G of tht Income Tax Act must be cleared in the mind. Say, assessee donates furniture then no deduction will be allowed. There are several donations on which 100% deduction is allowed but on other only 50%. In such a case assessee must be careful.
(vi) Tax planning plans must be flexible so that it can be changed according to the amendment done by the authority.