By Saksham Arora See, it is true that taking care of taxes is one of the most complex things out there, especially for regular people who don’t have all the knowledge regarding taxes, rules and regulations, and things like that. So, when they hear about things such as tax planning and tax management, they end up confusing these two and thinking of them as the same thing. But that’s not factually true, you see, there are some clear differences between tax planning and tax management, and if you’re intrigued enough already, you should definitely get to know a little more about it. Today, though, we’re here specifically for that, so let’s just get to it right away, shall we?
What is Tax Planning?
Well, let’s start with the definition part first, so, if we go by the official explanation of tax planning, that would be a process that involves everything that concerns preparing in advance to save on taxes somehow. Plain and simple! Like tax planning is more about making good and smart choices, not just regarding taxes, but it is more about how you earn, what you spend, and where you invest your money to make sure the tax amount can be reduced as much as possible. And if you still don’t get it, well, for example, things like investing in certain government-approved schemes like PPF or ELSS come under tax planning, which can help you claim deductions, which lowers your total tax bill.
- Also Read this: Difference Between Tax Planning and Tax Evasion
And What is Tax Management Then?
Where tax planning is more about planning things in a way to save on taxes as much as you can, tax management is more about the technical side of things regarding taxes. How? Well, it is more about handling the taxes properly and making sure that you follow all the rules while doing so. We know, it sounds all too confusing, but just to give you perspective on things, well, this includes paying your taxes on time, filing your income tax returns, and keeping your financial records safe and correct. Plain and simple! So, in a way, tax management has nothing to do with saving on taxes; instead, it is more about you doing your part right, following all the rules, and avoiding any fines.
Key Difference Between Tax Planning And Tax Management
Well, it is pretty much possible that you are still a little confused regarding these two, so, now, let’s just get to some of the key differences between tax planning and tax management. That way, you’ll be able to understand it in a much better way. Here:
1. Nature
See, first of all, the approach is completely different, you know? Like, talking about the tax planning first, you see, it is more about thinking ahead and saving on taxes, and that’s all. When you’re doing tax planning, you’ll consider everything from how much you’re earning, what your income sources are to where you’re investing and what methods you’re going for to save on taxes as much as possible. But all of that is done by following only the legal ways and not some tricks or anything like that.
If we talk purely about the nature, well, tax management would be more like “reactive” in nature. How? Oh, well, this is what you start once your income is already earned, and now you’re figuring out how much you owe in taxes. And the next step is to just make sure you do it all right, like, filing returns, paying taxes on time, and keeping documents in order.
2. Objective
If you’re reading this post from the start, you already know the object of these two. Starting with tax planning, well, the objective here is simple, and that is to save on taxes as much as you can by following the legal ways. Plain and simple!
And sure enough, since it is a completely different thing and approach, tax management’s objective is totally different. What’s that then? Oh, well, that’s just to make sure you’re doing everything correctly and legally when filing your taxes.
3. Timing
Yes, timing is another factor where you can differentiate these two. How? Well, just to give you perspective on things, tax planning is something you do before or during the financial year. For example, you make sure that your investments and decisions give you some tax benefits. If you have given your best at it, then you can claim some deduction under Section 80C.
And tax management is, of course, the process that starts once the financial year is over, and now it is time for you to file your tax dues. You know, this includes things like filing your Income Tax Return (ITR), which usually happens after the financial year ends.
4. Scope
Scope? Oh, well, with that, we mean what things each of these covers. For example, when it comes to tax planning, you’d have to focus more on things like where to invest, what deductions to claim, which expenses to track, and how to structure your salary or business income to save taxes.
Within the tax management area, though, you focus more on the part where taxes are calculated properly, advance tax is paid, TDS is well-managed, and all the other records are in place.
5. Compliance Requirement
See, in the compliance department, well, in a way, tax planning is just optional. Like, it is totally up to the individual whether they want to do it or not. Though, if you do tax planning, it’ll be a better decision for your finances.
Unlike tax planning, tax management is purely mandatory. Like, if you earn a taxable income, then there is no way that you can avoid paying taxes, so yes, you’ll have to make sure that you involve yourself in the tax management process.
6. Strategic Importance
Oh yes, strategic importance-wise, these two are actually very different. Like, tax planning is like a habit which you can carry on for the long-term to include in your overall financial strategy. And when we talk about tax management, it is just a short term thing, like once you fill your ITR and pay taxes successfully, you’re pretty much done until the next financial year is over.