Tax planning is highly individualistic in nature and no general rule can be prescribed for all situations. The tax consultant would need to study the situation, make a detailed assessment thereof and assess the environment. He would thereafter assess the needs and constraints of the assessee before devising ways of tax planning. It is possible to, however, list down some illustrative tax planning measures:
Methods of tax planning
- Choosing suitable form of business organisation (Sole Proprietor/HUF/ Partnership/Co-operative Society/Company/Trust etc.)
- selection of type of business/industry and location thereof.
- Choosing suitable method of accounting.
- Finalizing salary/perks structure of employees.
- Formation of private trusts etc.
- Designing to have multiple assessments.
- Gifting away amounts to close relatives to reduce taxable income.
- Managing with the clubbing provisions of section 64.
- Acquisition of plant and machinery and other fixed assets.
- Fixing up the setting up date and date of commencement of business.
- Maximum utilization of all the concessions, exemptions and deductions available under the Income-tax Act, 1961.
- Designing suitable capital structure.
- Proper deployment of capital gains to minimize tax liability.
- Framing appropriate foreign collaboration agreements.