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Income tax or any other direct tax is a bitter fact that everyone has to accept. We as citizens have the duty to pay these taxes on time for the proper functioning of our government and for the economic growth of our country. One cannot avoid tax but can save or limit his tax liability through proper tax planning and management.

Tax Planning:

Tax planning is a practice where an individual tries to limit his tax liability by resorting to various available deductions, exemptions, rebates, and relief to income. These exemptions, debates, deductions, and relief is provided in the act itself. In McDowell & Co. v. CTO, the Supreme Court held that tax planning must be done in a legitimate way and should be within the framework of laws. No dubious method should be involved and encouraged in tax planning. 

Tax planning yields various advantages, which are:

• A decrease in tax liability
• Productive investment
• Cost is reduced
• Economic stability
• Tax Saving
• The benefit of various exemptions

Tax planning can be of following types:

• Short-range planning:

It involves planning on a year to year basis to achieve a particular goal. 

• Long-range Planning:

It involves those activities which may not give benefit immediately but saves the tax in the long run.

• Permissive Tax Planning:

These are mentioned under the tax laws of our country which involves various exemptions and incentives.

• Purposive Planning: 

This carries an objective and is not specifically sanctioned in law. For example, section 60 to 65 of the Act provides for clubbing of other persons’ income with that of assess. If taxpayers could plan in such a way to avoid these provisions it would be called purpose planning.

Tax planning for Residential Status:

• Individuals visiting India should make sure they do not stay here for a period of more than 181 days or 364 days in proceeding four years
• A non-resident of India should avoid receiving income directly in India even if the company is established in India. They should first collect the tax outside India and then remit it to India to avoid taxes on income.

Tax Management in relation to Direct Tax:

In this modern society where the world is developing at a rapid rate, almost all business houses or individuals are under the obligation to pay taxes as well as to manage those taxes. Tax Management is the process of managing the finance for payment of tax, assessing the payment of the advance tax such as surcharge or cess for paying tax in time.

Efficient Tax management can be illustrated through the management of proper filing returns on time, working as per the legal provision which is applicable and to escape from any kind of penalties and levy of interest. In simple terms, tax management is the process of taking one’s safe side by setting aside the burden of penalties and going in accordance with applicable law. By doing so one can escape from penalties provision mentioned under section 44AB the Income-tax Act, 1961.

Tax management is an initial step of tax planning where the Assessee is under the obligation of fulfilling the rules and regulations of the applicable laws. However, the Assessee may fall under depressing experience and other troublesome, if not comply with the rules and regulations or the provisions of the tax laws. Such experiences and troublesome can be termed as a penalty, levy of interest, prosecution initiation, etc.

Tax management includes:

•  Proper documentation of each and every transaction and claim so that it can be used as evidence in the future
• Payment of taxes in time such as advance tax, tax on demand, and self-assessment tax, etc.
• Complying with TDS and TCS
•  Complying with the rules and regulations of tax laws.
• Proper following the guidelines and requirements with regards to payment for eg: modes of payment of tax in different slots.

Following the other requirements properly such as tax audit, certification of transactions, etc.

• Proper maintenance of tax record
• Duly reverting or responding to the notices from the authorities.
• Filing of the tax return in time.
• Proper maintenance of books of account.
• Providing PAN, TAN wherever it is required or appropriate place.
• Review the order(if any) coming from the Income Tax Department.
• Looking for tax incentives if any.

Therefore, we can say tax planning is incomplete without proper tax management or when the rules and regulations will not be properly discharged. But even in the planning management of direct taxes, one should always bear in mind the law. Escaping law is never the right way to do management. So this all must be done in accordance with the law. The best way is not the avoidance of law but to mould it for own benefit.

Webliography:

1. Tax Planning, (13 August 2020), Retrieved from https://www.google.com/amp/s/cleartax.in/g/terms/tax-planning/amp

2. How Tax Planning & Tax Management helps in saving tax in business?, (14 July 2020),

Retrieved from: https://sqrrl.in/blog/income-tax/how-to-save-tax-in-business-in-india

Tax Management under Income Tax Act, 1961, (13 May 2015), Retrieved from https://taxguru.in/income-tax/tax-management-income-tax-act-1961.html