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Are Financial Planning and Tax Planning the Same Thing?

Is financial planning any different than tax planning? How can tax planning help in financial planning? To know more, Visit Now

  • Mar 09, 2021

Tax planning and financial planning are two commonly used terms. Planning your taxes and finances support the fulfilment of your financial objectives. Thus, both can aid in selecting the most suitable investment option for your needs. However, there exists some difference between tax planning and financial planning. It is essential to understand this to make informed investment decisions.

How does a financial plan work?

You can plan your finances better by following the steps given below.

  • Defining your financial goals - This requires assessing your current financial position and listing the monetary goals to be achieved. Further, you may classify these goals into short-term, medium-term, and long-term.

  • Defining your financial goals - This requires assessing your current financial position and listing the monetary goals to be achieved. Further, you may classify these goals into short-term, medium-term, and long-term.
  • Implementing and reviewing - After selecting the right financial instruments as per your investment preferences, it is important to periodically review your portfolio. This aids in ensuring that the portfolio performance is in line with the planned strategies.

How does a tax plan work?

Tax planning involves assessing your investments from the viewpoint of taxation. It thus helps you in reducing your tax liability. A reduced tax burden can also contribute to your disposable income. You can make use of the tax saved towards making investments or meeting other necessary expenses. Tax planning consists of three types:

  • Purposive planning - This aims at availing the maximum benefits under the requisite sections of the Income Tax Act of 1961. These benefits include deduction from the gross total income and exemption of certain types of income.
  • Permissive planning - Under this approach, the tax planner plans within the framework of law by making use of the relevant provisions and clauses of tax benefits.

  • Short-range and long-range planning - Short-range plans are limited to a specific financial year. They include investing in a particular tax-saving instrument that can qualify for tax deductions. On the other hand, long-range plans have a wider scope. For example, transfer of an asset without consideration to a minor child requires the clubbing of income till the minor attains the age of majority, i.e. 18 years. Thereafter, it is treated as the child’s income.

Difference between tax planning and financial planning

Given below is a tabulation of the key points of differentiation between tax planning and financial planning.

Particulars Financial Plan Tax Plan
Professionals who can help Financial Advisor Tax Planner
Objective of planning To have sufficient funds for various purposes like purchasing real estate, covering the costs of higher education or children’s marriage, retirement planning, etc.
Moreover, saving tax can also be a part of financial planning. It aims to reduce your tax liability.
It aims to reduce your tax liability

Financial planning and tax planning with Kotak

Certain investment avenues aid dual planning benefits of tax and financial planning. For example, Kotak Life Insurance offers savings and investment options with multiple benefits. Here are some of the advantages

  • Life coverage that extends financial support to your family in your absence.
  • An investment component that offers non-linked or market-linked plans. This aids in creating a corpus for achieving your financial goals.
  • The premium amount is allowed as deductions subject to the compliance of Section 80C.
  • The maturity amount is tax-free on fulfilling the conditions of Section 10(10D). Besides, the death benefits are fully exempted from tax.

As you can see, buying an insurance plan benefits in financial as well as tax planning.

Download Brochure


  • Increasing Life Cover*
  • Guaranteed^ Maturity Benefits
  • Enhanced Protection Through Riders
  • Tax Benefits
  • Dual Benefits: Guaranteed^Maturity + Death benefits

Ref. No. KLI/22-23/E-BB/999


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  • Enhanced Protection Through Riders
  • Life Cover
  • Tax Savings
  • Multiple Premium Payment Terms
  • Guaranteed @ Loyalty Addion
  • Accrued Guaranteed @ Additions

Ref. No. KLI/22-23/E-BB/490


- A Consumer Education Initiative series by Kotak Life

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