CORPORATE TAXATION

TAX PLANNING
BY
CA R.S.SIVARAMAN
M.Sc., M.Com., ACA., DISA(ICAI).,PGDCA

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

It is an act within the permissible range

of the Act conducted to achieve social
and economic benefits

It is an attempt to avoid tax by

misrepresentation
of facts and falsification of accounts

It is a legal rights to achieve social and

economic objective

It is a legal offence which may lead to

penalty and prosecution

It accelerates development of the

economy of a country by generating
funds for investments in desired
sectors

Tax evasion retards (slowdown) the

development of a country by generating
black money which works as a parallel
economy

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

It means planning for minimisation

of tax according to legal
requirement but it defeats the
basic intention of legislature

It means avoiding of tax liability

illegally

It takes in to accounts various

lacunas of law

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

10 A

new industrial undertaking in free trade zones

10 AA

Newly established units in special economic zones

10 B

Newly established 100 % export oriented undertakings

80-IAB

Profits& Gains of industrial undertaking engaged in development of SEZ

80-IB

Profits& Gains of certain industrial undertaking engaged other than

infrastructural developments in industrially backward states or districts

80-IC

Deductions in respect of certain industrial undertaking in certain special

category states

80-ID

Profits & Gains from business of hotels & convention centre in specified
area

80-IE

Special provision for certain undertaking in North eastern states

NATURE OF BUSINESS
S..N

SEC

PARTICULARS

10 A

new industrial undertaking in free trade zones

10 AA

Newly established units in special economic zones

10 B

Newly established 100 % export oriented undertakings

80-IA

Profits& Gains of new industrial undertaking engaged in infrastructural

developments

80-IAB

Profits& Gains of industrial undertaking engaged in development of SEZ

80-IB

Profits& Gains of certain industrial undertaking engaged other than infrastructural

developments

80-IC

Deductions in respect of certain industrial undertaking in certain special category

states

80-ID

Profits & Gains from business of hotels & convention centre in specified area

80-IE

Special provision for certain undertaking in North eastern states

10

80JJA

Profits from collecting & processing of bio degradable waste

11

80JJAA

Deduction in respect of employment of New Work man

12

33 AB

Tea ,Coffee ,Rubber development Accounts

NATURE OF BUSINESS-CONTD
S..N

SEC

PARTICULARS

13

33 ABA

Site restoration Fund

14

35D

Amortisation of preliminary expenses

15

35E

Newly established 100 % export oriented undertakings

16

44AD

Civil construction business

17

44 AE

Business of hiring or leasing goods carriages

18

44 AF

Retail business

19

44 B

Shipping Business

20

44 BBA

Operation of aircrafts

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