What are the tax planning factors that should be considered in formulating a good tax plan?
Tax planning can be divided into 2 broad heads which are short term planning and long term planning. They are used largely depending on the needs of taxpayer and exigencies of the sources of income. Tax planning factors that should be considered in formulating a good tax plan are:
- Residential status of tax payer.
- Financial resources of taxpayer and their locations.
- Heads of income, for example, dividends, interest, perquisites, capital and revenue gains.
- Tax laws that exist and their effect on the plans formulated.
- Form versus substance – the true nature of the transaction must be thoroughly understood.