tax planning Corporate tax by plybz18

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									CORPORATE TAXATION

COVERAGE
• • • • • • • • • • Concept of Tax planning Tax evasion Tax avoidance Tax Planning Tax Management Distinction between them Objective of Tax Planning Types of tax planning Factors on the basis of which Tax planning is done Areas of Tax Planning

Tax planning Introduction
• Taxes are what even an honest citizen despises (hate) the most as human being by very nature of selfish Every businessman tries to maximise his profits by reducing cost, he should also arrange his affairs in such a way ,that he pays the least amount of tax The primary objective of tax planning is to save the hard labours of the taxpayer in enjoying the fruits of his income and wealth to maximum possible extent

Methods commonly used by the tax payers to minimize tax liability
• The Goal of the tax payer is to minimise his tax liability • To achieve this goal three methods are commonly used by the tax payer • 1.Tax evasion • 2.Tax Avoidance • 3.Tax Planning

THREE METHODS-RATING
• 1.Tax evasion VERY BAD

• 2.Tax Avoidance – OK • 3.Tax Planning VERY GOOD

TAX EVASION
• Tax evasion means avoiding of tax liability illegally. • It is evading tax by dishonest means • Examples are • 1.Concealment of income • 2.Inflation of expenses to suppress income • 3.Falsification of accounts • 4.Conscious violation of rules

TAX EVASION-contd
• Tax evasion is unethical and have to be condemned • The courts also do not favour such means • Evasion, once proved, not only attracts heavy penalties but may also leads to prosecution • Such an evader of tax is not a good citizen • Tax evasion as a means to reduce tax liability cannot be advocated by any one.

TAX AVOIDANCE
• Tax avoidance is the art of dodging (evading) tax without breaking law • It is minimising the tax by taking advantage of loopholes in the laws • It is lawful but involves the element of malafide intention • It defeats basic intention of the legislature.

TAX PLANNING
• Tax planning is the arrangement of financial activities in such away that maximum tax benefits are enjoyed by making use of all beneficial provisions in the tax laws. • It entitles the assessee to avail certain exemptions, deductions and relief so as to minimise his tax liability • Tax planning is intelligent application of expert knowledge of planning the tax • It is 100% legal

Tax planning VS Tax Evasion
Tax Planning Tax Evasion

1

It is an act within the permissible range of the Act conducted to achieve social and economic benefits
It is a legal rights to achieve social and economic objective It accelerates development of the economy of a country by generating funds for investments in desired sectors

It is an attempt to avoid tax by misrepresentation of facts and falsification of accounts
It is a legal offence which may lead to penalty and prosecution Tax evasion retards (slowdown) the development of a country by generating black money which works as a parallel economy

2

3

4

It promotes professionalism and strengthens economic and political situation of the country

It encourages bribery and weakens economic and political situation of the country

Tax avoidance VS Tax Evasion
Tax avoidance Tax Evasion

1

It means planning for minimisation of tax according to legal requirement but it defeats the basic intention of legislature It takes in to accounts various lacunas of law

It means avoiding of tax liability illegally

2
3 4

It involves use of unfair means

It is lawful but involves the element It is unlawful of mala fide intention It is planning before the actual liability for tax comes into existence It is avoidance of payment of tax after the liability of tax has arisen

TAX MANAGEMENT
• Refers to the compliance with the statutory provisions of law • Tax planning is optional but tax management is mandatory • It includes maintenance of accounts, filling of returns, payment of taxes, TDS, timely payment of advance tax • Poor tax management may lead to levy of interest ,penalty, prosecution etc

OBJECTIVE OF TAX PLANNING
• • • • • 1.Reduction of tax liability 2.Minimisation of litigation 3.Productive investment 4.Healthy growth of economy 5.Economic Stability

Types of tax planning
• Short term tax planningup to one year& it is done from year to year to achieve some objective • Long term tax planningFor longer period and it may not payoff immediately.

Factors on the basis on which tax planning is done
1.Residential status and citizenship of the assessee 2.Heads of income /Assets to be included in computing net wealth 3. Latest legal position

Areas of tax planning
• • • • 1.Location of Business 2.Nature and Size of business 3.Form of business organisation 4.Specific management decisions like make or buy, own or lease 5.Employee remuneration 6.Mergers/Amalgamation of companies 7.Double Taxation relief 8.Non-residents 9.Advance ruling

• • • • •

LOCATION OF BUSINESS
S.. N SEC PARTICULARS

1
2 3 4

10 A
10 AA 10 B 80-IAB

new industrial undertaking in free trade zones
Newly established units in special economic zones Newly established 100 % export oriented undertakings Profits& Gains of industrial undertaking engaged in development of SEZ

5 6
7 8

80-IB 80-IC
80-ID 80-IE

Profits& Gains of certain industrial undertaking engaged other than infrastructural developments in industrially backward states or districts Deductions in respect of certain industrial undertaking in certain special category states
Profits & Gains from business of hotels & convention centre in specified area Special provision for certain undertaking in North eastern states

NATURE OF BUSINESS
S..N SEC PARTICULARS

1 2 3
4
5 6 7

10 A 10 AA 10 B
80-IA
80-IAB 80-IB 80-IC

new industrial undertaking in free trade zones Newly established units in special economic zones Newly established 100 % export oriented undertakings
Profits& Gains of new industrial undertaking engaged in infrastructural developments
Profits& Gains of industrial undertaking engaged in development of SEZ Profits& Gains of certain industrial undertaking engaged other than infrastructural developments Deductions in respect of certain industrial undertaking in certain special category states

8
9 10
11

80-ID
80-IE 80JJA 80JJAA
33 AB

Profits & Gains from business of hotels & convention centre in specified area
Special provision for certain undertaking in North eastern states Profits from collecting & processing of bio degradable waste
Deduction in respect of employment of New Work man

12

Tea ,Coffee ,Rubber development Accounts

NATURE OF BUSINESS-CONTD
S..N SEC 33 ABA PARTICULARS

13 14 15
16
17 18 19 20

Site restoration Fund Amortisation of preliminary expenses Newly established 100 % export oriented undertakings
Civil construction business
Business of hiring or leasing goods carriages Retail business Shipping Business Operation of aircrafts

35D 35E
44AD
44 AE 44 AF 44 B 44 BBA

FORM OF OWNERSHIP
• • • • 1.Sole proprietorship 2.Hindu Undivided Family 3.Partnership Firm 4.Company

Specific Management decisions
• • • • 1.Capital structure 2.Lease or buy decisions 3.Make or buy decisions 4.Repair/Renewal or replacement of assets

Employee remuneration
• For employer • Salary in whatever form allowed as deduction ie expenses to be allowed For employee Tax free perquisite-medical facility, reimbursement of medical exp, free lunch, LTC, telephone at residence of employee


								
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