Income Tax Planning: A Case Study of Tax Saving Instruments in Pakistan (Under Income Tax Ordinance 2001)

Abstract

The word “Tax” is derived from the Latin word called Taxove and Taxo means to value or estimate. The term income tax implies that it is a tax levied on personal earnings. Tax planning is the technique of forecasting the tax liability and reducing it to the minimum. Income Tax planning, therefore, is considered as an organization of financial matters of someone in such a way that no legal procedures or laws violated, the full benefit is taken from all tax exemptions, deductions, allowances, tax credits and other reliefs and gains allowed under the Ordinance. In this way, the tax liability of the assessee is, as far as possible, reduced. Overall findings reveal that Income Tax Ordinance, 2001 allows the different tax saving instruments like, zakat, health insurance, investment in shares and medical allowances which can be employed to effectively reduce the tax liabilities.