Tax Planning and Management

TAX PLANNING AND MANAGEMENT By LECTURER MINISHA GUPTA

This subject basically deals with    



How tax is calculated How tax can be evaded How tax can be properly planned. How various situations affect the tax planning and management. What all persons or committees are involved in the management and planning of Tax and Liability.

UNIT 1 TAX PLANNING AND MANAGEMENT TAX 

 



A charge or a sum of money levied on person or property for the benefit of state. It is a payment to Government. It is a kind or charge imposed by the state upon the citizens. Profit = Revenue – Expenses.

TYPES OF TAXES 

DIRECT TAXES     

Income Tax Wealth Tax Corporate Tax Fringe Benefit Tax Dividend Decision Tax



INDIREXT TAXES     

Sales/ CST/ VAT Excise Customs Duty Service Tax Entertainment Tax



 









It is levied on Income and Assets. Tax Payer is tax Bearer. Burden of tax cannot be shifted. Slabs are applicable.



Tax planning avenues are available. Regulated under Income Tax, Companies Act, Partnership act. It is collected and monitored by CBDT.



 







It is levied upon goods and services. Tax payer is tax Bearer. Burden of tax can be shifted. There is no system of slabs No such avenues is available. Regulated under Sales Tax and Excise Duty. It is collected by Board of Excise and Customs.

TAX PLANNING 





It is arrangement of one’s financial affairs so that legal provisions wont violate. It carried out the full enjoyment of Tax Rebates, Tax Exemptions, Tax Deductions. It is within the four corners of LAW and regarded as fully legitimate.

   







Needs and Objectives of Tax Planning Tax planning is done for the reduction of Tax Burden. To avoid any sort of litigation. To avoid any type of raid and penalty. To avail the benefit of concessions and exemptions given under law. The tax planning avenues provide a financial cushion or backup for the use of contingencies in future. For preparation and maintenance of systematic records. To discharge the responsibility of a good citizen.

Perquisites of TAX Planning    

To have full usage of tax planning. To evaluate fully tax planning avenues. To consider all direct and indirect taxes. It should be done as guided by Tax Laws.

TAX MANAGEMENT  It includes maintenance of records in prescribed 







format. It includes getting audited the records, filing returns and pay taxes. Etc. It is a regular feature of business enterprises and a form of tax planning. Employees use CBDT (Central Board of Direct Taxes). Employers use TDCAN (Tax deduction and collection Account No).

MAIN AIMS OF TAX MANAGEMENT  Compliance with legal formalities.  



Saving from penalties and prosecution. Taking advantage of various tax incentives and deductions. Review of departments orders.

AREAS OF TAX Deduction of tax at source-: It can be done with MANAGEMENT

1.

respect of income from salaries, winning from lottery, horse race, etc. 1.

2. 3.

4.

Employer seek for TDCAN and employee for Pan card. TDS should be deposited in government treasury. Employer should furnish to the employee a certificate regarding TDS i.e.. Form 16. Employer should furnish quarterly and annual returns regarding TDS.

Payment of tax-:

2. 1. 2. 3.

Audit of accounts

2. 1. 2.

2. 3. 4. 5.

Advance payment of Tax. Tax on Self Assessment Payment on Demand. If business income exceeds 40 Lakh. If individual income exceeds 10 Lakh

Fulfillment of conditions to claim deductions. Furnishing return of Income. Documentation and maintenance of records. Review of Orders.

TAX AVOIDANCE  





 



An art of dodging out i.e. actually breaking law. Method of reducing tax incidence by finding out loopholes of law. A device which technically satisfies requirement of law but not in legal accordance. It includes attempt to prevent or reduce tax liability.

TYPE S Agricultural Income. Section 80-IB- Tax Holiday for setup of business in backward areas. Section 80G- Donations are tax exempted.

TAX EVASION 

 

    

To reduce tax liability when accounts are interpreted then it is Tax Evasion. It is not only illegal but also immoral and antinational. Under tax laws, tax evaders are penalized by heavy duty.

MEANS OF TAX EVASION Falsification of Accounts. Inflation of expenses. Cautious violation of rules. Excessive payment of salary. Non-disclose of capital gain.

Assessment Year-: The period of time in which the tax liability is assessed and the payment of Tax is made upon the income earned in previous year is known as Assessment Year

Previous Year-: It is the year in which income is earned.

Financial Year-: It is the year in which new tax laws are prepared in the Finance Act are implemented.

ASSESSEE A person whose tax liability is assessed according to the provision of law.    

TYPES OF ASSESSEE Sole proprietor Hindu Undivided Family. Partnership Firm Company



SOLE MERITS PROPRIETOR  

Pay tax as per slab defined by Finance Act. Deductions that can be claimed by individual.   

Sec 80 CCC-: Contribution to Pension Fund. Sec 80 D-: Medical health insurance for family members. Sec 80 DD-: Expenditure on Medical Treatment for disable

dependant.     

Sec 80 E-: Interest paid on loan of higher studies. Sec 80 G-: Donation to approve funds. Sec 80 GGA-: Payments for scientific research. Sec 80-: Income of a disable person. Sec 80JJA-: Profit from business collecting and processing biodegradable waistes.



DEMERITS   

 



Unlimited liability. Don’t get deduction against payment of salaries. Cannot raise additional capital by way of shares and debentures issue. No money received as interest on capital. May have to liquidate assets for discharging liability of companies.

HINDU UNDIVIDED TAXFAMILY LIABILITY  

 

Similar to individual or sole proprietor. Allowed as many deductions as allowed to Sole Proprietor Salary of KARTA is fully tax deductible. Interest on capital is not allowed.



PARTNERSHIP FIRMunder Partnership Act. Firm registered

Limited to 20 person only.  If limit of person exceed then firm adopt company form of business organization. TAX LIABILITY 

    



Pay tax @30% + 10% surcharge + 3% Education cess. Tax deducted under Sec 80G, 80GGA and 80JJA. Allowed deduction similar to individuals and HUF. Interest o capital is allowed as deduction. Probability of raising additional capital can be solved by admitting a new partner. Remuneration paid is allowed as deduction.

DEMEITS  Tax liability is similar to company form of organization but cannot raise capital by issue of share.  Liability of partners is limited to the extent capital contributed.  If Provident Fund wont comply with 184 Section of Income Tax it is treated as AOP (Association of Persons).  It comes to closure if lunacy of partners is found.

  

COMPAN As per Indian’s Y Company’s Act 1956. An artificial person or entity. TAX LIABILITY 

  



 

Pay tax @30% + 10% surcharge + 3% Education cess. Maximum amount of tax as no tax slab is available. To pay FBT and DDT and Wealth Tax. Indirect taxes like custom duty, excise duty, service tax, VAT. Deduction on interest paid on debentures and borrowings. Salary paid is fully deductible. Depreciation on assets is fully deductible.

INCOME TAX EXCEMPTION LIMIT- 2009-10 Basic Slabs for Individuals :Excemption limit raised from Rs. 1,50,000 to Rs. 1,60,000 Up to Rs.1,60,000 NIL Rs. 1,60,000 to Rs.3, 00,000

10 %

Rs. 3,00,001 to Rs. 5,00,000

20 %

Above Rs. 5,00,000

30 %

Basic Slabs for Women under the age of 65 years old :Excemption limit raised from Rs. 1,80,000 to 1,90,000 Up to Rs. 1,90,000

NIL

Rs. 1, 90,000 to Rs. 3,00,000

10 %

Rs. 3,00,001 to Rs. 5,00,000

20 %

Above Rs. 5,00,000

30 %

Basic Slabs for Senior Citizen (Over 65 years):Excemption to Rs. Rs. 1,60,000 2,40,000 Excemption limit limit raised raised from from Rs. Rs. 2,25,000 1,50,000 to Up to Rs. 2,40,000 NIL Rs. 2,40,000 to Rs.3,00,000

10 %

Rs. 3,00,001 to Rs. 5,00,000

20%

Above Rs. 5,00,000

30%

Thanks