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 such as
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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.
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