A PROJECT REPORT

ON

“CORPORATE TAX”

Submitted in Partial fulfilment for the award of the degree of

MBA

Submitted by: Aarti

University PRN: 2028100013

BHARATI VIDYAPEETH DEEMED UNIVERSITY SCHOOL OF DISTANCE

EDUCATION

Academic Study Centre - BVIMR, New Delhi An

ISO 9001:2008 Certified Institute

NAAC Accredited Grade “A” University

 Student Undertaking Certificate Originality

I Aarti, a student of MBA 3rd Semester would like to declare that the Project report entitled
“CORPORATE TAX” submitted to Bharati Vidyapeeth University Pune, school of Distance Education
Pune, Academic study centre BVIMR New Delhi in partial fulfilment of the requirement for the award
of the degree.

It is an original work carried out by me under the guidance of Mr. Yashwant Kumar.

All respected guides, faculty member and other source have been properlyAcknowledged and
the report contains no plagiarism.

To the best of my knowledge and belief the matter embodied in this project is a genuine work
done by me and it has been neither submitted for assessment to
the University nor to any other University for the fulfilment of the requirement ofthe course of
study.

Aarti

Thankyou
 Acknowledgement

I have taken in this project. However, it would not have been possible without the kind
support and help of many individuals and organisation. I would like to extend my sincere
thanks to all of them.

I am highly indebted to Mr. Yashwant Kumar for their guidance and constant supervision
as well as for providing necessary information regarding the project & also for their
support in completing the project.

I would like to express my special gratitude and thanks to industry person for giving me
such attention and time.

My thanks and appreciation also goes to everyone who have willingly helped me out with
their abilities.

Aarti
 INDEX
Table of C O N T E N T S

Student Undertaking Certificate of Originality

Acknowledgement
Table of Contents

CHAPTER-1 : INTRODUCTION TO CORPORATE TAX

CHAPTER-2 : RESEARCH METHODOLOGY

CHAPTER-3 : FINDING & ANALYSIS

CHAPTER-4 : CONCLUSION

CHAPTER 5 : RECOMMENDATION\ SUGGESTION

CHAPTER 6 : LIMITATION OF THE STUDY

BIBLIOGRAPHY
 CHAPTER-1
INTRODUCTION TO CORPORATE TAX

A corporate tax is a levy placed on a firm's profit by the government. The money collected from
corporate taxes is used as a nation's source of income. A firm's operating earnings are calculated
by deducting expenses, including the cost of goods sold (COGS) and depreciation from revenues.
Next, tax rates are applied to generate a legal obligation that the business owes the government.

Rules surrounding corporate taxation vary greatly worldwide, but they must be voted upon and
approved by a country's government to be enacted. Some areas, such as Jersey, are considered tax
havens and, as such, are heavily prized by corporations.

Corporation tax is a direct tax imposed on the net income or profit that enterprises make from their
businesses. Companies, both public and privately registered in India under the Companies Act
1956, are liable to pay corporation tax. This tax is levied at a specific rate according to the
provisions of the Income Tax Act, 1961.

In a major move, Finance Minister Nirmala Sitharaman in September 2019 announced sharp cuts
in the corporation tax among a series of announcements. The government decided to slash
domestic corporate tax to an effective 25.17 per cent, inclusive of all surcharges and cess, in a bid
to promote growth and investments amid an economic slowdown. The move would cost the
exchequer Rs 1.45 trillion.

The government proposed to reduce the corporate tax rate from the existing 30-25 per cent
(depending on the turnover thresholds) to 22 per cent (effective rate 25.17 per cent, including
surcharge and cess) for all the domestic companies, subject to them not availing of a specified list
of exemptions. These include, among others, exemptions available to units in special economic
zones, deductions for certain scientific research expenditure, additional depreciation available on
fresh investments and the losses, if any, attributable to such deductions.

The minimum alternate tax (MAT), introduced to facilitate the taxation of zero-tax companies,
will also not be applicable to companies availing of the reduced rate of taxation.
Companies claiming exemptions could continue to avail of them and pay taxes at pre-amended
rates, that is, 25-30 per cent. They might opt to pay taxes at lower rates at a future date. However,
the option to pay taxes at the reduced rate of 22 per cent, once selected could not be changed.
Significantly, where the companies continue to avail of exemptions, the MAT rate has been
reduced from 18.5 per cent to 15 per cent.

Any new domestic manufacturing company, incorporated on or after October 1, 2019, is to be

allowed to pay corporation tax at the rate of 15% (effective rate 17.01%). No MAT is to be imposed
on these companies either.

Enhanced surcharge will not apply to capital gains on sale of any securities, including derivatives,
in the hands of Foreign Portfolio Investors (FPIs).

The finance minister also announced an expansion in the scope of corporate-social responsibility
(CSR) activities. The companies can now spend 2% of the money on state or Union govt
incubators, PSUs, state universities, IITs, public-funded entities.
Recent Changes to the Corporate Income Tax

The Tax Cuts and Jobs Act (TCJA) reduced the top corporate income tax rate from 35 percent to
21 percent and eliminated the graduated corporate rate schedule and the corporate alternative
minimum tax. Through 2022, the TCJA allows full expensing of most new investment, after which
that benefit is phased out through 2026. The TCJA also limited net interest expense deductions to
30 percent of adjusted taxable income.

The TCJA made fundamental changes to the treatment of multinational corporations and their
foreign-source income. Prior to the TCJA, dividends distributed by foreign subsidiaries to their
US parent corporations were subject to US tax with a credit for foreign income taxes paid—a so-
called “worldwide” system. Now, a ten percent return on certain qualified business asset
investment is exempt from further U.S. tax—a so-called “territorial” system. However, the
reduced-rate Global Intangible Low-Taxed Income (GILTI) minimum tax applies to returns above
that amount regardless of whether they are repatriated as dividends. The TCJA also created a new
domestic minimum tax, the Base Erosion and Anti-abuse tax (BEAT), designed to prevent cross-
border profit shifting. A deduction for certain foreign-derived intangible income (FDII) serves as
an incentive for corporations to locate intellectual property in the U.S.

SHAREHOLDER-LEVEL TAXES

Corporate profits can also be subject to a second layer of taxation at the individual shareholder
level, both on dividends and on capital gains from the sale of shares. Dividends are separated into
“qualifying dividends”, comprising most ordinary dividends of U.S. corporations, and other
dividends; capital gains are separated into long-term, for assets held at least one year, and short-
term. Non-qualifying dividends and short-term capital gains are taxed as ordinary income at
current rates of up to 40.8 percent (the top marginal individual income tax rate of 37 percent plus
the 3.8 percent tax on net investment income); by contrast, the maximum tax rate on qualifying
dividends and long-term capital gains is currently 23.8 percent.

Many US businesses are not subject to the corporate income tax but are taxed as “pass-through”
entities. Pass-through businesses do not face an entity-level tax. But their owners must include
their allocated share of the businesses’ profits in their taxable income under the individual income
tax. Pass-through entities include sole proprietorships, partnerships, limited liability companies
(LLCs) and S-corporations.

Corporation Tax popularly known as Corporate Tax is a direct tax levied on the net income or
profit that corporate enterprises make from their businesses. The tax is imposed at a specific rate
as per the provisions of the Income Tax Act, 1961.

Corporate entities that are liable to pay corporate tax in India are as follows:

 Incorporated corporations in India. 

 Corporations that acquire revenues from India and do business on those earned incomes. 
 Other foreign enterprises that have permanently established themselves in India.
 Corporations that have earned the title of being an Indian resident only for the purpose of
tax payment.

Corporate Entities: Definitions and Types

A corporate entity or corporation is an artificial person that is legally considered to have certain
rights and duties such that by law it has an independent legal identity separate from that of its
shareholders. India, corporations are classified into two different categories as follows:

 Domestic Corporations- A company that is established in India and is registered under

India’s Companies Act, 2013 is termed as a Domestic Corporate. Even a foreign company
can be considered as a domestic corporate if the Indian arm’s management and control is
wholly based in India.
 Foreign Corporations- In case of Foreign Corporation, as the name suggests, a company
that is situated overseas and not in India is called a foreign corporate. Again, if some part
of a foreign company’s management and control is situated outside of India, then also it is
called a foreign company. 

This distinction is important as domestic companies in India are charged corporate tax on their
universal income while foreign corporations get charged tax only on the income they generate
through their Indian operations only.

Calculation of Net Income for Corporates

Corporate tax is computed on the net revenue or net income of a company. A net income/net
revenue of a company is the total amount left with the company after making necessary deduction
of various expenses. There are a host of expenses that a company incurs for selling goods. These
expenses are as follows:

 Depreciation. 
 Total cost of goods sold. 
 Selling expenditures.
 Expenses incurred for administrative purposes.

The income of a company includes net profit earned from the business, rent income, capital gains
or income from other sources such as interest income or dividend income.

Thus Net Revenue = Gross Revenue – (Expenses + Depreciation)

Corporate Tax Rate in India

The rate of corporate tax in India varies from one type of company to another i.e. domestic
corporations and foreign corporations pay tax at different rates. Additionally, depending on the
type of corporate entity and the different revenues earned by each of them, the corporation tax rate
differs based on a slab rate system. Presently for the assessment year 2019-2020, the corporation
tax rates in India are as follows:

Surcharge on Net
Surcharge on Net Income greater Surcharge on Net
Corporate Tax
Type of Company Income Less than Rs. 1 Crore Income greater
Rate
than Rs. 1 crore and less than Rs. than Rs. 10 Crore
10 Crore

Domestic with
annual turnover
25% Nil 7% 12%
upto Rs 250
Crore

Domestic
Company with
turnover more 30% Nil 7% 12%
than Rs 250
Crore

Foreign
40% Nil 2% 5%
Companies

Corporation Tax Rates in India for a Domestic Corporation

A Domestic Corporate/Corporation is a company that is of Indian origin and whose management

is located entirely in India. The applicable rate of corporate tax for AY 2019-20 in case of domestic
companies.
A domestic corporate entity with a turnover upto Rs. 250 Crore, pays a flat rate of 25% corporate
tax.

 For a particular financial year, if the total revenue earned by a company exceeds Rs. 1
crore, then a surcharge corporate tax of 5% is levied on such a corporation. 
 A Health and Educational Cess at 4% is also charged for a domestic company. 
 If a particular domestic company has its branches overseas, then same amount of corporate
tax is also charged on the total global earnings of such a company. Corporate tax in case
of domestic companies in India also considers the revenue that is earned by a domestic
company abroad.

Corporate Tax Rebates

As several types of corporate taxes are levied on a company, similarly there are certain provisions
for corporation tax rebates or deductions as well. The key ones to consider are as follows:

 Interest Income can be deducted in certain cases.

 Capital gains of a corporate entity are not taxed.
 Dividends may also be subject to tax rebate with applicable terms and conditions. 
 The corporate entity has an authority to carry the losses incurred in the business for a
maximum of 8 years.
 If a corporate sets up new sources of power or new infrastructure, then they can be
subjected to certain deductions.
 In case of exports and new undertakings of a corporate, certain amount of deductions are
allowed to the corporate.
 Various amounts of provisions for deductions are allowed if the corporate wishes to venture
capital enterprises or fund. 
 If a domestic corporate receives some amount of dividends from other domestic corporate,
they have the provision to deduct such dividends as rebates.

Basics of Corporation Tax Planning

Every taxpayer including business corporations require some tax planning that will enable them to
maximize their profits by reducing the tax payment burden. Corporate tax planning involves
development of a strategy in order to achieve this goal, so the corporations hire professionals who
are well tuned with all the rules and regulations regarding the laws pertaining to tax payments.
Proper corporate tax planning is required as every business involves significant financial risk.

It is important to keep in mind that corporate tax planning and tax evasion are two completely
different concepts. Tax evasion is non-payment of tax and a punishable offence by law. Whereas,
tax planning is a strategy to determine the amount of tax payable in such a way that the corporate
has more net profit and less tax to pay legally. For successful corporate tax planning in India, the
corporation must be well aware of all the tax laws as well as the financial rules set up by the
Government of India.

Dividend Distribution Tax

Dividend refers to distribution of profits to shareholders of a company and Dividend Distribution

Tax (DDT) is charged on the profits distributed by this process. On the other hand, Corporation
Tax is the tax calculated on the net profit of a company after deducting expenses incurred by them.
So, dividend distribution tax is a type of tax that is payable on the dividends offered to its
shareholders by the corporate thus higher dividends mean a greater tax burden for the corporate
entity. It can also be termed as the percentage on the dividends paid to the shareholders by that
particular corporate.

Dividend distribution tax is governed as per the provisions of Section 115-O of the Income Tax
Act, 1961. Presently, the dividend distribution tax that is payable on the dividends offered to a
company’s shareholders is 15% of the gross amount distributed as dividend which means it is
levied effectively at a rate of 17.65%.

Indian Taxes are divided into two types:

One is Direct Taxes and other is Indirect Taxes. Talking about direct taxes, it is levied on the
income that different types of business entities earn in a financial year. There are different types
of taxpayers registered with the Income tax department and they pay taxes at different rates. For
e.g. An individual and a company being a taxpayer are not taxed at the same rate. Therefore, Direct
Taxes are again subdivided as:

Income Tax: This tax is paid by the taxpayers other than companies registered under company
law in India on the income earned by them. They are taxed on the basis of slabs at different rates.

Corporate Tax: This tax is paid by the companies registered under company law in India on the
net profit that it makes from businesses. It is taxed at a

specific rate as prescribed by the income tax act subject to the changes in the rates every year by
the IT department.
 CHAPTER-2

RESEARCH METHODOLOGY

Tax Planning Relating to Merges and Demergers to Companies

Section 2(1B) of Income Tax Act defines ‘amalgamation’ as merger of one or more companies
with another company or merger of two or more companies to from one company in such a manner
that

(I) All the property of the amalgamating company or companies immediately before the
amalgamation becomes the property of the amalgamated company by virtue of the amalgamation.

(II) All the liabilities of the amalgamating company or companies immediately before the
amalgamation becomes the liabilities of the amalgamated company by virtue of the amalgamation.

(III) Shareholders holding at least three-fourths in value of the shares in the amalgamating
company or companies (other than shares already held therein immediately before the
amalgamated company or its nominee) becomes the shareholders of the amalgamated company by
virtue of the amalgamation.

Tax Relief’s and Benefits in case of Amalgamation

If an amalgamation takes place within the meaning of section 2(1B) of the Income Tax Act, 1961,
the following tax reliefs and benefits shall available:-

1. Tax Relief to the Amalgamating Company:

Exemption from Capital Gains Tax [Sec. 47(vi)]: Under section 47(vi) of the Income-tax Act,
capital gain arising from the transfer of assets by the amalgamating companies to the Indian
Amalgamated Company is exempt from tax as such transfer will not be regarded as a transfer for
the purpose of Capital Gain.

Exemption from Capital Gains Tax in case of International Restructuring [Sec. 47(via)]:
Under Section 47(via)} in case of amalgamation of foreign companies, transfer of shares held in
Indian company by amalgamating foreign company to amalgamated foreign company is exempt
from tax, if the following two conditions are satisfied:
At least twenty-five per cent of the shareholders of the amalgamating foreign company continue
to remain shareholders of the amalgamated foreign company, and

Such transfer does not attract tax on capital gains in the country, in which the amalgamating
company is incorporated

2. Tax Relief to the shareholders of an Amalgamating Company:

Exemption from Capital Gains Tax [Sec 47(vii)]: Under section 47(vii) of the Income-tax Act,
capital gains arising from the transfer of shares by a shareholder of the amalgamating companies
are exempt from tax as such transactions will not be regarded as a transfer for capital gain purpose,
if:

The transfer is made in consideration of the allotment to him of shares in the amalgamated
company; and

Amalgamated company is an Indian company.

3. Tax Relief to the Amalgamated Company:

o Carry Forward and Set Off of Accumulated loss and unabsorbed depreciation of the
amalgamating company [Sec. 72A]: Section 72A of the Income Tax Act, 1961 deals with the
mergers of the sick companies with healthy companies and to take advantage of the carry forward
of accumulated losses and unabsorbed depreciation of the amalgamating company. But the benefits
under this section with respect to unabsorbed depreciation and carry forward losses are available
only if the followings conditions are fulfilled:-

There should be an amalgamation of –

(a) a company owning an industrial undertaking (Note 1) or ship or a hotel with another company,
or

(b) a banking company referred in section 5(c) of the Banking Regulation Act, 1949 with a
specified bank (Note 2), or
(c) one or more public sector company or companies engaged in the business of operation of
aircraft with one or more public sector company or companies engaged in similar business.

Set Off and Carry Forward of Losses

Profit and losses are two sides of a coin. Losses, of course, are hard to digest. However, the
Income-tax law in India does provide taxpayers some benefits of incurring losses too. The law
contains provisions for set-off and carry forward of losses which are discussed in detail in this
article.

1. Set off of losses

2. Carry forward of losses

Set off of losses

Set off of losses means adjusting the losses against the profit or income of that particular year.
Losses that are not set off against income in the same year can be carried forward to the subsequent
years for set off against income of those years. A set-off could be an intra-head set-off or an inter-
head set-off.

a. An intra-head set-off

b. An inter-head set-off

a. Intra-head Set Off

The losses from one source of income can be set off against income from another source under the
same head of income.

For eg: Loss from Business A can be set off against profit from Business B, where Business A is
one source and Business B is another source and the common head of income is “Business”.

Exceptions to an intra-head set off:

1. Losses from a Speculative business will only be set off against the profit of the speculative
business. One cannot adjust the losses of speculative business with the income from any other
business or profession.

2. Loss from an activity of owning and maintaining race-horses will be set off only against the
profit from an activity of owning and maintaining race-horses.

3. Long-term capital loss will only be adjusted towards long-term capital gains. However, a short-
term capital loss can be set off against both long-term capital gains and short-term capital gain.

4. Losses from a specified business will be set off only against profit of specified businesses. But
the losses from any other businesses or profession can be set off against profits from the specified
businesses.

b. Inter-head Set Off

After the intra-head adjustments, the taxpayers can set off remaining losses against income from
other heads.

Eg. Loss from house property can be set off against salary income

Given below are few more such instances of an inter-head set off of losses:

1. Loss from House property can be set off against income under any head

2. Business loss other than speculative business can be set off against any head of income except
except income from salary.

One needs to also note that the following losses can’t be set off against any other head of income:

a. Speculative Business loss

b. Specified business loss

c. Capital Losses
d. Losses from an activity of owning and maintaining race-horses

Carry forward of losses

After making the appropriate and permissible intra-head and inter-head adjustments, there could
still be unadjusted losses. These unadjusted losses can be carried forward to future years for
adjustments against income of these years. The rules as regards carry forward differ slightly for
different heads of income. These have been discussed here:

Losses from House Property :

 Can be carry forward up to next 8 assessment years from the assessment year in which the
loss was incurred
 Can be adjusted only against Income from house property
 Can be carried forward even if the return of income for the loss year is belatedly filed.

Losses from Non-speculative Business (regular business) loss :

 Can be carry forward up to next 8 assessment years from the assessment year in which the
loss was incurred
 Can be adjusted only against Income from business or profession
 Not necessary to continue the business at the time of set off in future years
 Cannot be carried forward if the return is not filed within the original due date.

Speculative Business Loss :

 Can be carry forward up to next 4 assessment years from the assessment year in which the
loss was incurred
 Can be adjusted only against Income from speculative business
 Cannot be carried forward if the return is not filed within the original due date.
 Not necessary to continue the business at the time of set off in future years

Specified Business Loss under 35AD :

  No time limit to carry forward the losses from the specified business under 35AD
 Not necessary to continue the business at the time of set off in future years
 Cannot be carried forward if the return is not filed within the original due date
 Can be adjusted only against Income from specified business under 35AD

Capital Losses :

 Can be carry forward up to next 8 assessment years from the assessment year in which the
loss was incurred
 Long-term capital losses can be adjusted only against long-term capital gains.
 Short-term capital losses can be set off against long-term capital gains as well as short-term
capital gains
 Cannot be carried forward if the return is not filed within the original due date

Losses from owning and maintaining race-horses :

 Can be carry forward up to next 4 assessment years from the assessment year in which the
loss was incurred
 Cannot be carried forward if the return is not filed within the original due date
 Can only be set off against income from owning and maintaining race-horses only

Points to note:

1.A taxpayer incurring a loss from a source, income from which is otherwise exempt from tax,
cannot set off these losses against profit from any taxable source of Income

2. Losses cannot be set off against casual income i.e. crossword puzzles, winning from lotteries,
races, card games, betting etc.

Set off of losses in the year in which loss is incurred and carry forward and set off of losses in
the subsequent years reduces the total income and thus the tax liability.
In the process of adjustment of losses with the income, we have the following circumstances-
The amount of ‘Loss’ arising for the first time: When the loss is incurred for the first time by
the assessee, whether under different heads of income or under different activities under the same
head of income, adjustment of this loss with other income is called ‘Set-off’ of loss.
If the entire amount of loss cannot be set-off in the first year itself due to inadequacy of income or
due to restrictions under the law, the unadjusted or unabsorbed loss is carried forward to next
year(s) to be set-off with the income in the future years, the same is called ‘carry forward of loss’.
Carry forward and set-off of Loss from previous year(s): Apart from the current year’s loss,
one may have loss carried forward from previous financial year(s) available to be set-off with the
current year’s income.
Legal Provisions for Set-off and Carry Forward of Losses
For computation of Gross Total Income (GTI), income from various sources is computed under
the five heads of income. If all the sources and heads are having positive income (i.e. profit) then
the same can simply be added to compute Gross Total Income. However, if certain source(s) or
certain head(s) have negative income (i.e. loss) then such loss needs to be adjusted with income of
another source(s) or head(s). Section 70 to section 79 which falls under Chapter VI of the Income
Tax Act, 1961.
 Residential Status of an Assessee
The total income is different in case of a person resident in India and a person non-resident in India.
Further, in case of an individual and HUF being "not ordinarily resident in India", the meaning of
total income shall be slightly different. Since the total income of an assessee varies according to his
residential status in India, the incidence of tax shall also vary according to such residential status in
India.

Tax is levied on total income of assessee. Under the provisions of Income-tax Act, 1961 the total
income of each person is based upon his residential status. Section 6 of the Act divides the
assessable persons into three categories

1. Ordinary Resident;
 2. Resident but Not Ordinarily Resident; and
3. Non-Resident.

Residential status is a term coined under Income Tax Act and has nothing to do with nationality or
domicile of a person. An Indian, who is a citizen of India can be non-resident for Income-tax
purposes, whereas an American who is a citizen of America can be resident of India for Income-
tax purposes. Residential status of a person depends upon the territorial connections of the person
with this country, i.e., for how many days he has physically stayed in India.

The residential status of different types of persons is determined differently. Similarly, the
residential status of the assessee is to be determined each year with reference to the “previous year”.
The residential status of the assessee may change from year to year. What is essential is the status
during the previous year and not in the assessment year.

Important Points:

1. Residential Status in a previous year. Residential status is to be determined for each

previous year.
It implies that—
a. Residential status of assessment year is not important.
b. A person may be resident in one previous year and a non-resident in India in another
previous year, e.g., Mr. A is resident in India in the previous year 2018-19 and in
the very next year he becomes a non-resident in India.
2. Duty of Assessee. It is assessee’ s duty to place relevent facts, evidence and material before
the Income Tax Authorities supporting the determination of Residential status.
3. Dual Residential Status is possible. A person may be resident of one or more countries in
a relevant previous year e.g., Mr. X may be resident of India during previous year 2018-19
and he may also be resident/non-resident in England in the same previous year. The
emergence of such a situation depends upon the following
a. the existence of the Residential status in countries under considerations
 b. the different set of rules having laid down for determination of residential status.

Determination of Residential status of different ‘Persons’ :

As we know that Income tax is charged on every person. The term ‘Person’ has been defined under
section 2(31) includes :

i. An individual
ii. Hindu Undivided Family
iii. Firm
iv. Company
v. AOP/BOI
vi. Local authority
vii. Every other artificial juridical person not falling in preceding six sub-classes.

Therefore, it is essential to determine the residential status of above various types of persons and
now we shall learn the calculation of residential status of each type of person.
Basic rules for determining Residential Status of an Assessee

The following basic rules must be kept in mind while determining the residential status:

 — Residential status is determined for each category of persons separately e.g. there are
separate set of rules for determining the residential status of an individual and separate rules
for companies, etc.
 — Residential status is always determined for the previous year because we have to
determine the total income of the previous year only.
 — Residential status of a person is to be determined for every previous year because it may
change from year to year. For example A, who is resident of India in the previous year 2017-
18, may become a non-resident in previous year 2018-19.
 — If a person is resident in India in a previous year relevant to an assessment year in respect
of any source of income, he shall be deemed to be resident in India in the previous year
relevant to the assessment year in respect of each of his other source of income. [Section
6(5)]
 — A person may be a resident of more than one country for any previous year. If Y is a
resident in India for previous year 2017-18, it does not mean that he cannot be a resident of
any other country for that previous year.
 — Citizenship of a country and residential status of that country are separate concepts. A
person may be an Indian national/citizen, but may not be a resident in India. On the other
hand, a person may be a foreign national/citizen, but may be a resident in India.
 — It is the duty of the assessee to place all material facts before the assessing officer to
enable him to determine his correct residential status.

Residential Status In Nutshell

Ordinary Resident Resident But Not Ordinary Non-Resident

Resident (NOR)

INDIVIDUAL (a) He was in India for a He fails to fulfill both the

(a) He was in India for a period or period or periods totaling in tests of section 6(1).
periods totaling in all to 182 days all to 182 days or more during
or more during relevant previous relevant previous
year year
OR OR
(b) He was in India for a period or
periods totaling in all to 60 days (b) He was in India for a
or more during relevant previous period or periods totaling in
year and 365 days or more during all to 60 days or more during
four previous years preceding the relevant previous year and
relevant previous year. And 365 days or more during four
Must be Resident in India in 2 out previous years preceding the
of 10 previous years preceding the relevant previous year. And
relevant previous year And U/s 6(6) was non resident in 9
or 10 previous years out of 10
previous years preceding
Must be in India for 730 days or
relevant previous year ; OR
more during 7 previous years
prece- ding the relevant previous
year. was in India for less than 730
days during 7 previous years
preceding the relevant
previous year.

HUF, FIRM, AOP, BOl This status is allowed only to If control or management
If control or management of HUF, HUF and others cannot claim of such HUF, FIRM, AOP,
FIRM, AOP, BOI was wholly or it. HUF shall be NOR if its BOI was wholly outside
partially in India during relevant Karta can fulfill any one of India during relevant
previous year. the two tests given u/s 6(6) previous year.
for an individual.

COMPANY A company cannot enjoy this Any company, which is

Every Indian compnay [i.e. which status. incorporated outside India
is incorporated under Indian Law and has its control or
or is deemed as company under management outside India
any law of the country] is during relevant previous
Resident company. year is non-resident
In case of any other company, company.
which is incorporated outside
India but has its control or
management in India during
relevant previous year is also a
resident company.

IN CASE OF EVERY OTHER Any other person cannot Any other person, which
PERSON enjoy this status, has its control or
In case of every other person, management wholly
which has its control or outside India during
management wholly in India relevant previous year is
during relevant previous year is non-resident.
resident.

Residential Status for Income Tax – Individuals & Residents

1. Meaning and importance of residential status

The taxability of an individual in India depends upon his residential status in India for any
particular financial year. The term residential status has been coined under the income tax laws of
India and must not be confused with an individual’s citizenship in India. An individual may be a
citizen of India but may end up being a non-resident for a particular year. Similarly, a foreign
citizen may end up being a resident of India for income tax purposes for a particular year.
Also to note that the residential status of different types of persons viz an individual, a firm, a
company etc. is determined differently. In this article, we have discussed about how the residential
status of an individual taxpayer can be determined for any particular financial year

2. How to determine residential status?

For the purpose of income tax in India, the income tax laws in India classifies taxable persons as:

a. A resident

b. A resident not ordinarily resident (RNOR)

c. A non-resident (NR)

The taxability differs for each of the above categories of taxpayers. Before we get into taxability,
let us first understand how a taxpayer becomes a resident, an RNOR or an NR.

Resident

A taxpayer would qualify as a resident of India if he satisfies one of the following 2 conditions :

1. Stay in India for a year is 182 days or more or

2. Stay in India for the immediately 4 preceding years is 365 days or more and 60 days or more in
the relevant financial year

In the event an individual who is a citizen of India or person of Indian origin leaves India for
employment during an FY, he will qualify as a resident of India only if he stays in India for 182
days or more. Such individuals are allowed a longer time greater than 60 days and less than 182
days to stay in India. However, from the financial year 2020-21, the period is reduced to 120 days
or more for such an individual whose total income (other than foreign sources) exceeds Rs 15 lakh.
In another significant amendment from FY 2020-21, an individual who is a citizen of India who is
not liable to tax in any other country will be deemed to be a resident in India. The condition for
deemed residential status applies only if the total income (other than foreign sources) exceeds Rs
15 lakh and nil tax liability in other countries or territories by reason of his domicile or residence
or any other criteria of similar nature.

Resident Not Ordinarily Resident

If an individual qualifies as a resident, the next step is to determine if he/she is a Resident ordinarily
resident (ROR) or an RNOR. He will be a ROR if he meets both of the following conditions:

1. Has been a resident of India in at least 2 out of 10 years immediately previous years and

2. Has stayed in India for at least 730 days in 7 immediately preceding years

Therefore, if any individual fails to satisfy even one of the above conditions, he would be an
RNOR.
From FY 2020-21, a citizen of India or a person of Indian origin who leaves India for employment
outside India during the year will be a resident and ordinarily resident if he stays in India for an
aggregate period of 182 days or more. However, this condition will apply only if his total income
(other than foreign sources) exceeds Rs 15 lakh.
Also, a citizen of India who is deemed to be a resident in India (w.e.f FY 2020-21) will be a
resident and ordinarily resident in India.
NOTE: Income from foreign sources means income which accrues or arises outside India (except
income derived from a business controlled in India or profession set up in India).

Non-resident

An individual satisfying neither of the conditions stated in (a) or (b) above would be an NR for the
year.

3. Taxability

Resident: A resident will be charged to tax in India on his global income i.e. income earned in
India as well as income earned outside India.
NR and RNOR: Their tax liability in India is restricted to the income they earn in India. They
need not pay any tax in India on their foreign income.

Also note that in a case of double taxation of income where the same income is getting taxed in
India as well as abroad, one may resort to the Double Taxation Avoidance Agreement (DTAA)
that India would have entered into with the other country in order to eliminate the possibility of
paying taxes twice
 CHAPTER-3

FINDING & ANALYSIS

Section – 44AD: Special provision for computing profits and gains of business on
presumptive basis

44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case
of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total
turnover or gross receipts of the assessee in the previous year on account of such business or, as
the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible
assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the
head “Profits and gains of business or profession” :

41[Provided that this sub-section shall have effect as if for the words “eight per cent”, the words
“six per cent” had been substituted, in respect of the amount of total turnover or gross receipts
which is received by an account payee cheque or an account payee bank draft or use of electronic
clearing system through a bank account during the previous year or before the due date specified
in sub-section (1) of section 139 in respect of that previous year.]

(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of
sub-section (1), be deemed to have been already given full effect to and no further deduction under
those sections shall be allowed.

(3) The written down value of any asset of an eligible business shall be deemed to have been
calculated as if the eligible assessee had claimed and had been actually allowed the deduction in
respect of the depreciation for each of the relevant assessment years.

43[(4) Where an eligible assessee declares profit for any previous year in accordance with the
provisions of this section and he declares profit for any of the five assessment years relevant to the
previous year succeeding such previous year not in accordance with the provisions of sub-section
(1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment
years subsequent to the assessment year relevant to the previous year in which the profit has not
been declared in accordance with the provisions of sub-section (1).

(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible
assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds
the maximum amount which is not chargeable to income-tax, shall be required to keep and
maintain such books of account and other documents as required under sub-section (2) of section
44AA and get them audited and furnish a report of such audit as required under section 44AB.]

(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions,
shall not apply to—

(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;

(ii) a person earning income in the nature of commission or brokerage; or

(iii) a person carrying on any agency business.

Explanation.—For the purposes of this section,—

(a) “eligible assessee” means,—

(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited
liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited
Liability Partnership Act, 2008 (6 of 2009); and

(ii) who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction
under any provisions of Chapter VIA under the heading “C. – Deductions in respect of certain
incomes” in the relevant assessment year;

(b) “Eligible business” means,—

(i) any business except the business of plying, hiring or leasing goods carriages referred to in
section 44AE; and
(ii) Whose total turnover or gross receipts in the previous year does not exceed an amount of
44[two crore rupees].

Five heads of Income eligible for Income Tax Computation

As per the Section 14 of the Income Tax Act of 1961, there can be several modes of income for
an individual. The income tax computation is an important part and has to be calculated according
to the income of a person. For a hassle-free computation, the income has to be classified properly
so that there is zero confusion regarding the same. The government has classified the sources of
income under separate heads and then the income tax is computed accordingly. The provisions and
rules are according to the details mentioned in the Income Tax Act.

The five main heads of income according to the above-mentioned Section 14 for the
computation of the Income Tax in India are:

 Income from Salary

 Income from House Property
 Income from Profits and Gains of Business or Profession
 Income from Capital Gains
 Income from Other Sources

Let us understand these one by one in detail.

Income from Salary

This head essentially includes any remuneration, which is received by an individual on terms of
services provided by him based on a contract of employment. This amount qualifies to be
considered for income tax only if there is an employer-employee relationship between the payer
and the payee respectively. Salary also include the basic wages, advance salary, pension,
commission, gratuity, perquisites as well as annual bonus.
The important point to note here is that salary is taxable on due basis or received basis whichever
is earlier. Let me explain this with the help of an example. If you receive salary for the month of
March 2020 in April 2020, it will still be taxable in previous year 2019-20. This is because it was
due in March. Similarly if your employer has given you salary of April and May in advance in the
month of March, then it will be taxable again in the month of March itself.

Therefore, salary income will be taxable on due basis or received basis whichever is earlier.

Income from House Property

According to the Income Tax Act 1961, Sections 22 to 27 is dedicated to the provisions for the
income tax computation of the total standard income of a person from the house property or land
that he or she owns.

In simple terms, this head includes rental income received from the properties. For tax
computation purposes, the property in which you are staying and not earning any rental income
can give you benefit. This benefit is in the form of deductions of interest paid on home loan.

However, if the property is utilized for letting out the normal course of business, then the income
from the rent will be considered.

Income from Profits of Business

The income tax computation of the total income will be attributed from the income earned from
the profits of business or profession. The difference between the expenses and revenue earned will
be chargeable. Here is a list of the income chargeable under the head:

 Profits earned by the assessee during the assessment year

 Profits on income by an organisation
 Profits on sale of a certain license
 Cash received by an individual on export under a government scheme
 Profit, salary or bonus received as a result of a partnership in a firm
 Benefits received in a business
Income from Capital Gains

Capital Gains are the profits or gains earned by an assessee by selling or transferring a capital
asset, which was held as an investment.

Capital asset can be real estate, stocks, Mutual funds, Bonds, Gold etc.

So whenever you sell a capital asset and earn gains. This is considered as your income which will
be taxable under the head Capital Gain.

Just to clarify, please note that rental income from property is taxed under “Income from house
Property” but if you sell the property and experience gain, it will be taxed under “capital gain”.

Income from Other Sources

This is the last head of income. Any other form of income, which is not categorized in the above
mentioned 4 heads, can be sorted in this category.

Some of the examples can be interest income from bank deposits, lottery awards, card games,
gambling or other sports awards are included in this category.

These incomes are attributed in the Section 56(2) of the Income Tax Act and are chargeable for
income tax.

Now that you are aware of the five heads of income, take out a piece of paper, write down all the
sources of income that you have and classify it into these 5 heads. This will help you to plan your
taxes well. This is the first step to identify your incomes in respective heads.

If you need expert help in doing so, get in touch with our financial tax experts at Minty who will
guide you in the best possible way to plan your taxes.

Double Taxation Avoidance Agreement (DTAA)

What is Double Taxation Avoidance Agreement?

The Double Tax Avoidance Agreement (DTAA) is a tax treaty signed between two or more
countries to help taxpayers avoid paying double taxes on the same income. A DTAA becomes
applicable in cases where an individual is a resident of one nation, but earns income in another.

DTAAs can be either be comprehensive, encapsulating all income sources, or limited to certain
areas, which means taxing of income from shipping, inheritance, air transport, etc. India presently
has DTAA with 80+ countries, with plans to sign such treaties with more countries in the years to
come. Some of the countries with which it has comprehensive agreements include Australia,
Canada, the United Arab Emirates, Germany, Mauritius, Singapore, the United Kingdom and the
United States of America.

Advantages of Double Taxation Avoidance Agreement

The intent behind a Double Tax Avoidance Agreement is to make a country appear as an attractive
investment destination by providing relief on dual taxation. This form of relief is provided by
exempting income earned in a foreign country from tax in the resident nation or offering credit to
the extent taxes have been paid abroad.

Say, for instance, if an individual is asked to go abroad on deputation and receives payments during
the period away from home, the income earned may be subject to tax in both the countries. The
individual can claim relief at the time of filing tax return for that financial year, provided there is
an applicable DTAA. If the person is an NRI with investments in India, there may be DTAA
provisions that apply to income from such investments. In some cases, DTAAs also allow for
concessional rates of tax. For instance, interest earned on NRI bank deposits attract TDS of 30%.
However, under the DTAAs that India has signed with other countries, tax is deducted at 10-15%.

What is double taxation?

Double taxation is the levy of tax by two or more countries on the same income, asset or financial
transaction. This double liability is mitigated in many ways, one of them being a tax treaty between
the countries in question. Let us try and answer some important queries you might have about such
agreements/treaties.
What is DTAA?

A tax treaty between two or more countries to avoid taxing the same income twice is known as
Double Taxation Avoidance Agreement (DTAA). This means that there are agreed rates of tax and
jurisdiction on specified types of income arising in a country. When a tax-payer resides in one
country and earns income in another country, he is covered under DTAA, if those two countries
have one in place. DTAAs can be either comprehensive, i.e. covering all types of income or
specifically target certain types of income. This depends on the types of businesses/holdings of
citizens of one country in another. Some of the common categories covered under DTAAs are
services, salary, property, capital gains, savings/fixed deposit accounts, etc.

Does India have DTAAs too?

Yes. Being a hub for international investment and also forming a large number of emigrants, India
has understood the importance of DTAAs and has actively pursued this matter. For instance, our
country has 85 active agreements of this kind. Apart from these separate international agreements,
the Income Tax Act in itself provides relief from double taxation. This is covered under Sections
90 and 91. In case of any conflict, the provisions of DTAA will be binding.

Can you provide an example?

Let us take the DTAA between India and Singapore for example. Under this, capital gains of shares
in company are taxed based on residence. It helps in curbing revenue loss, avoiding double taxation
and streamline the flow of investments.

So, what are the advantages of having such an agreement?

Since there is no dual taxation, countries having DTAAs tend to become lucrative investment hubs.
This helps in attracting foreign investment into a country and its subsequent development.

DTAAs are beneficial for NRIs too. If they earn income both in India and the country of current
residence, the income earned in India would be taxed both in India and the country of residence.
If India has a DTAA in place with the said country, NRIs can either avoid paying tax twice or pay
a lower rate of tax.
On a more non-tangible front, DTAAs provide both formal and informal trust between countries,
which translates into diplomatic benefits and cordial relationships.

Is it a perfect measure?

Though DTAAs are charted out with the intention of easing tax matters and promoting investment,
there can be certain side effects which may emanate from such agreements. ‘Double taxation’
under tax treaties usually means juridical double taxation (circumstances where a taxpayer is taxed
on the same income in more than one jurisdiction). There is another type of double taxation –
economic double taxation. This is related to taxation of two and more taxes from one tax basis.

DTAAs are sometimes used by unscrupulous entities to pay very less tax or no tax, by
impersonating as companies or entities in one of the countries party to the agreement. This leads
to revenue leakage. To prevent this, countries usually include a Limitation of Benefits (LoB) clause
in their DTAAs

Tax Evasion

Tax evasion is an illegal activity in which a person or entity deliberately avoids paying a true tax
liability. Those caught evading taxes are generally subject to criminal charges and substantial
penalties. To willfully fail to pay taxes is a federal offense under the Internal Revenue Service
(IRS) tax code.

Understanding Tax Evasion

Tax evasion applies to both the illegal nonpayment as well as the illegal underpayment of taxes.
Even if a taxpayer fails to submit appropriate tax forms, the IRS can still determine if taxes were
owed based on the information required to be sent in by third parties, such as W-2 information
from a person’s employer or 1099s. Generally, a person is not considered to be guilty of tax evasion
unless the failure to pay is deemed intentional.

Tax evasion occurs when a person or business illegally avoids paying their tax liability, which is
a criminal charge that’s subject to penalties and fines.
Failure to pay proper taxes can lead to criminal charges. In order for charges to be levied, it must
be determined that the avoidance of taxes was a willful act on the part of the taxpayer. Not only
can a person be liable for payment of any taxes that have been left unpaid, but they can also be
found guilty of official charges and may be required to serve jail time. According to the IRS, the
penalties include jail time of no more than five years, a fine of no more than $250,000 for
individuals or $500,000 for corporations, or both—along with the costs of prosecution.

Requirements for Tax Evasion

When determining if the act of failure to pay was intentional, a variety of factors are considered.
Most commonly, a taxpayer’s financial situation will be examined in an effort to confirm if the
nonpayment was the result of committing fraud or of the concealment of reportable income.

A failure to pay may be judged fraudulent in cases where a taxpayer made efforts to conceal assets
by associating them with a person other than themselves. This can include reporting income under
a false name and Social Security number (SSN), which can also constitute identity theft. A person
may be judged as concealing income for failure to report work that did not follow traditional
payment recording methods. This can include acceptance of a cash payment for goods or services
rendered without reporting them properly to the IRS during a tax filing.

In most cases of corporate tax evasion listed on the IRS website, the tax liability was
underrepresented. Many business owners undervalued the sums of their receipts to the agency, an
act which was deemed to be the purposeful evasion of tax. These were documented to be sources
of income, revenue, and profits that were not accurately reported.

Tax Evasion vs. Tax Avoidance

While tax evasion requires the use of illegal methods to avoid paying proper taxes, tax avoidance
uses legal means to lower the obligations of a taxpayer. This can include efforts such as charitable
giving to an approved entity or the investment of income into a tax deferred mechanism, such as
an individual retirement account (IRA). In the case of an IRA, taxes on the invested funds are not
paid until the funds, and any applicable interest payments, have been withdrawn.
Tax Planning

What Is Tax Planning?

Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of
tax planning is to ensure tax efficiency. Through tax planning, all elements of the financial plan
work together in the most tax-efficient manner possible. Tax planning is an essential part of an
individual investor's financial plan. Reduction of tax liability and maximizing the ability to
contribute to retirement plans are crucial for success.

How Tax Planning Works

Tax planning covers several considerations. Considerations include timing of income, size, and
timing of purchases, and planning for other expenditures. Also, the selection of investments and
types of retirement plans must complement the tax filing status and deductions to create the best
possible outcome.

Tax Planning for Retirement Plans

Saving via a retirement plan is a popular way to efficiently reduce taxes. Contributing money to a
traditional IRA can minimize gross income up to $6,500. As of 2018, if meeting all qualifications,
a filer under age 50 receives a reduction of $6,000 and a reduction of $7,000 if age 50 or older. For
example, if a 52-year-old male with an annual income of $50,000 who made a $6,500 contribution
to a traditional IRA has an adjusted gross income of $43,500, the $6,500 contribution would grow
tax-deferred until retirement.

There are several other retirement plans that an individual may use to help reduce tax liability.
401(k) plans are popular with larger companies that have many employees. Participants in the plan
can defer income from their paycheck directly into the company’s 401(k) plan. The greatest
difference is that the contribution limit dollar amount is much higher than that of an IRA.

Using the same example as above, the 52-year-old could contribute up to $24,500. As of 2018, if
under age 50, the salary contribution can be up to $18,500, or up to $24,500 if age 50 or older.
This 401(k) deposit reduces adjusted gross income from $50,000 to $25,500.
Tax Gain-Loss Harvesting

Tax gain-loss harvesting is another form of tax planning or management relating to investments.
It is helpful because it can use a portfolio's losses to offset overall capital gains. According to the
IRS, short and long-term capital losses must first be used to offset capital gains of the same type.
In other words, long-term losses offset long-term gains before offsetting short-term gains. As of
2018, short-term capital gains, or earnings from assets owned for less than one year, are taxed at
ordinary income rates.

Long-term capital gains are taxed based on the tax bracket in which the taxpayer falls.

 0% tax for taxpayers in the lowest marginal tax brackets of 10% and 15%
 15% tax for those in the 25%, 28%, 33%, and 35% tax brackets
 20% tax of those in the highest tax bracket of 39%

For example, if an investor in a 25% tax bracket had $10,000 in long-term capital gains, there
would be a tax liability of $1,500. If the same investor sold underperforming investments carrying
$10,000 in long-term capital losses, the losses would offset the gains, resulting in a tax liability of
0. If the same losing investment were brought back, then a minimum of 30 days would have to
pass to avoid incurring a wash sale.

Up to $3,000 in capital losses may be used to offset ordinary income per tax year. For example, if
the 52-year-old investor had $3,000 in net capital losses for the year, the $50,000 income will be
adjusted to $47,000. Remaining capital losses can be carried over with no expiration to offset
future capital gains.

Tax planning is the process of analyzing a financial plan or a situation from a tax perspective. The
objective of tax planning is to make sure there is tax efficiency. With the help of tax planning, one
can ensure that all elements of a financial plan can function together with maximum tax-efficiency.
Tax planning is a significant component of a financial plan. Reducing tax liability and increasing
the ability to make contributions towards retirement plans are critical for success.
Tax planning comprises various considerations. Considerations such as size, the timing of income,
timing of purchases, and planning are concerned with other kinds of expenditures. Also, the chosen
investments and the various retirement plans should go hand-in-hand with the tax filing status as
well as the deductions in order to create the best possible outcome.

Understanding Tax Planning

Tax planning plays an important role in the financial growth story of every individual as tax
payments are compulsory for all individuals who fall under the IT bracket. With tax planning, one
will be able to streamline his/her tax payments such that he or she will receive considerable returns
over a specific period of time involving minimum risk. Also, effective tax planning will help in
reducing a person's tax liability.

Tax planning can be classified into the following:

1. Permissive tax planning: Tax planning which falls under the framework of the law.
2. Purposive tax planning: Tax planning with a specific objective.
3. Long-range/short-range tax planning: Planning executed at the beginning and towards
the end of the fiscal year.

Objectives of Tax Planning

Tax planning is a focal part of financial planning. It ensures savings on taxes while simultaneously
conforming to the legal obligations and requirements of the Income Tax Act, 1961. The primary
concept of tax planning is to save money and mitigate one’s tax burden. However, this is not its
sole objective.

Advantages of tax planning:

1. To minimise litigation: To litigate is to resolve tax disputes with local, federal, state, or
foreign tax authorities. There is often friction between tax collectors and taxpayers as the
former attempts to extract the maximum amount possible while the latter desires to keep
their tax liability to a minimum. Minimising litigation saves the taxpayer from legal
liabilities.
 2. To reduce tax liabilities: Every taxpayer wishes to reduce their tax burden and save money
for their future. You can reduce your payable tax by arranging your investments within the
various benefits offered under the Income Tax Act, 1961. The Act offers many tax planning
investment schemes that can significantly reduce your tax liability.
3. To ensure economic stability: Taxpayers’ money is devoted to the betterment of the
country. Effective tax planning and management provide a healthy inflow of white money
that results in the sound progress of the economy. This benefits both the citizens and the
economy.
4. To leverage productivity: One of the core tax planning objectives is channelising funds
from taxable sources to different income-generating plans. This ensures optimal utilisation
of funds for productive causes.

Types of Tax Planning

Most people merely perceive tax planning as a process that helps them reduce their tax liabilities.
However, it is also about investing in the right securities at the right time to achieve your financial
goals.

Following are some of the various methods of tax planning:

1. Short –range tax planning

Under this method, tax planning is thought of and executed at the end of the fiscal year. Investors
resort to this planning in an attempt to search for ways to limit their tax liability legally when the
financial year comes to an end. This method does not partake long-term commitments. However,
it can still promote substantial tax savings.

2. Long-term tax planning

This plan is chalked out at the beginning of the fiscal and the taxpayer follows this plan throughout
the year. Unlike short-range tax planning, you might not be offered with immediate tax benefits
but it can prove useful in the long run.

3. Permissive tax planning

This method involves planning under various provisions of the Indian taxation laws. Tax planning
in India offers several provisions such as deductions, exemptions, contributions, and incentives.
For instance, Section 80C of the Income Tax Act, 1961, offers several types of deductions on
various tax-saving instruments.

4. Purposive tax planning

Purposive tax planning involves using tax-saver instruments with a specific purpose in mind. This
ensures that you obtain optimal benefits from your investments. This includes accurately selecting
the appropriate investments, creating an apt agenda to replace assets (if required), and
diversification of business and income assets based on your residential status.

How to save taxes?

Taxpayers are provided with several options to reduce their tax liabilities. Various sections of the
Indian income tax law offer tax deductions and exemptions, of which, Section 80C is the most
popular tax-saving avenue. For e.g., Deposits in Public Providednt Fund, Five Year Bank Depoists,
National Savings Certificate, and Investment in ELSS schemes.

The best and the most optimum way to save taxes is by laying out a financial plan whenever there
is a revision in your income and sticking to it. Also, it is a good habit to make tax-saving
investments at the beginning of the year rather than making hasty and often incorrect investment
decisions at the last moment. To do this, it is crucial to be aware of all the exemptions and
deductions available to you.

Tax saving options under Section 80C

Section 80C, one of the most prevalent sections in the Income Tax Act, 1961, provides provisions
to save up to Rs46,800 (assuming the highest slab of income tax i.e. @30% plus education cess
4%) on tax liabilities each year. One of the best tax-saving avenues under Section 80C is investing
in an equity-linked savings scheme, more commonly known as ELSS. Such tax planning mutual
funds offer the dual benefit of potential capital appreciation and tax-saving. Apart from ELSS
funds, you can choose to invest in government schemes such as National Savings Certificate
(NSC), Public Provident Funds (PPF), tax-saving FDs, etc. Cumulative investments under these
securities can offer deductions up to Rs1.5 lakh.

Tax saving options under Section 80D

Under this section, taxpayers are offered deductions on the premium paid towards health insurance
policies. Under Section 80D, a taxpayer can claim the following amounts as deductions:

1. Avail up to Rs25,000 on the premium paid towards health insurance for self, children, or
spouse
2. Avail up to Rs50,000 if your parents are also covered under your health insurance plan
3. If either of your parents belongs to the senior citizen bracket, then a maximum deduction
of Rs75,000 is allowed

Tax saving options under Section 80E

Section 80E offers tax deductions on the interest paid for an education loan. These deductions can
be claimed for eight years starting from the date of repayment. There is no upper limit on the
deductible amount. This means that an assessee can claim the entire amount paid as interest from
the taxable income.

Claiming HRA Exemption

Under HRA, taxpayers can avail exemption on the cost incurred to stay in a rented accommodation.
The taxpayer is mandated to furnish the rent receipts provided by the landlord. The deduction
available is the least of the following amounts:

1. Actual HRA received; or

2. 50% of basic salary+DA (dearness allowance) for taxpayers living in metro cities; & 40%
of (basic salary + DA) for taxpayers residing in non-metro cities; or
3. Total rent paid less 10% of basic salary + DA

Other Exemptions and Deductions

 Apart from the deductions and the exemptions mentioned above, you can save taxes in several
different ways. Donations towards charities and qualified organisations are also eligible for tax
exemptions.

Under the new tax regime announced with the Union Budget 2020, individuals can opt to pay taxes
at reduced rates and redefined income tax slabs by forgoing the various deductions and
exemptions.

Income tax planning, if performed under the framework defined by the respective authorities, is
an entirely legal and a smart decision. However, you might land yourself in trouble for adopting
shady techniques to save taxes. It is the duty and responsibility of every citizen to carry out prudent
tax planning. Based on your tax slab, personal choices, and social liabilities, you can choose from
distinct tax saver mutual funds and investment avenues offered to you. Good luck!

Tax Deducted at Source (TDS)

The concept of TDS was introduced with an aim to collect tax from the very source of income. As
per this concept, a person (deductor) who is liable to make payment of specified nature to any
other person (deductee) shall deduct tax at source and remit the same into the account of the Central
Government. The deductee from whose income tax has been deducted at source would be entitled
to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by
the deductor.

Rates for deduct of tax at source

Taxes shall be deducted at the rates specified in the relevant provisions of the Act or the First
Schedule to the Finance Act. However, in case of payment to non-resident persons, the withholding
tax rates specified under the Double Taxation Avoidance Agreements shall also be considered

 TDS Rates

 Withholding Tax Rates


 Tax Rates DTAA v. Income-tax Act
 How to pay Tax Deducted/Collected at source? 


Tax deducted or collected at source shall be deposited to the credit of the Central Government by


following modes:

 1) Electronic mode: E-Payment is mandatory for
o a) All corporate assesses; and
o b) All assesses (other than company) to whom provisions of section 44AB of the
Income Tax Act, 1961 are applicable.
 2) Physical Mode: By furnishing the Challan 281 in the authorized bank branch

Note:-

Where tax is deducted/collected by government office, it can remit tax to the Central Government
without production of income-tax challan. In such case, the Pay and Accounts Officer or the
Treasury Officer or the Cheque Drawing and Disbursing Officer or any other person by whatever
name called to whom the deductor reports the tax so deducted and who is responsible for crediting
such sum to the credit of the Central Government, shall submit a statement in Form No. 24G.to
NSDL with prescribed time-limit.

TDS, or Tax Deducted at Source, is a certain percentage of one’s monthly income which is taxed
from the point of payment. According to the Income Tax Act, 1961, every individual or
organisation is liable to pay taxes if their income is above a certain threshold.

TDS deduction is applicable to multiple types of payments, including –

 Salary
 Commission earned.
 Rent
 Interest payment by banks.
 Professional or consultant fees.

.
 CHAPTER-4

CONCLUSION

Today’s global economy is characterized by a high degree of international economic integration.

This is not only evidenced by the large global network of international economic integration
agreements that exists, but also by daily practice in which transnational trade and investment are
widespread. The main purpose of international economic integration is to promote international
trade and investment by removing obstacles to international flows of goods, services, persons and
capital which, for its part, contributes to economic growth and, consequently, to an increase in
global welfare. One example of international economic integration, which constituted the very
basis for this study, is the European Union. The European Union aims to create an internal market
that is characterized by the abolition, as between Member States, of obstacles to the free movement
of goods, persons, services and capital. Because of the fact that all 27 Member States apply their
own corporate income tax systems, major distortions for international flows of persons, services
and capital may arise. As a result, fair competition within the internal market may be distorted.
Therefore, a large number of restrictions in the field of corporate income taxation have been
abolished in the past within the Union, not only through Union legislation, but particularly through
an extensive interpretation by the Court of Justice of the European Union (ECJ) of the provisions
relating to the free movement of persons, services and capital in the field of corporate income
taxation. Practice shows that the Member States of the European Union maintain a diversified
range of economic relations with non-EU Member States (or third countries). A large number of
non-EU-based enterprises are carrying on business in the European Union. Conversely, numerous
EU-based enterprises are also carrying on business outside the territory of the Union. Both within
these inward and outward investment relationships, “economic openness” is key. Accordingly,
trade and investment between Member States and non-Member States is nowadays similarly
promoted by abolishing or reducing tax or other obstacles to international flows of goods, services
and/or investment between the Member States and non-Member States. One may recall in this
regard the large number of economic integration agreements which the Union has concluded over
the past decades with countries all around the world, such as countries in Eastern Europe, the Euro-
Mediterranean countries and the African, Caribbean and Pacific states and which, to a greater or
lesser extent, provide for liberalization of trade and investment between the Union and the
respective non-Member State. The Treaty on the Functioning of the European Union itself also
provides for a substantial degree of economic
2 openness vis-à-vis third countries, particularly by means of the Treaty provisions relating to the
free movement of capital. On the basis of these provisions capital movements between Member
States and non-Member States may not be restricted. It is this unique current legal relationship
between the EU Member States individually and the Union as a whole vis-à-vis the rest of the
world which this study has taken as a starting point. It has focused on freedom of investment
between the Member States and non-Member States under EU law and its significance for Member
States’ corporate income tax systems from the perspective of the transnational corporation.
Essentially, this study has sought to examine to which extent the impact on Member States’
corporate income tax systems of the liberalization provisions included in the above instruments
(“freedom of investment”) is similar, or should be similar, to the impact that the above-mentioned
free movement provisions included in the Treaty have on Member States’ corporate income tax
systems in an intra-Union context. This question appeared to be one of the most controversial
issues in the recent development of EU law and has been heavily debated over the past years. This
study has sought to provide for solid, balanced and usable answer
 CHAPTER-5

RECOMMENDATION\SUGGESTION

As a result of the economic recession caused by the COVID-19 pandemic, many corporations find
themselves with unprecedented losses from investments and operations. These losses will result in
the creation of tax attributes that may be used as deductions against past or future profits.
Corporations with tax attributes will need to understand the rules that limit their use.

Sections 382 of the tax code limits the use of net operating losses (NOLs) and certain other tax
attributes (e.g. business interest expense carry forwards and built-in losses) by corporations. These
provisions apply after a company undergoes an ownership change (i.e., a greater than 50% increase
in stock ownership by 5% shareholders and shareholder groups over, generally, a three-year
period). Corporations that have specified tax attributes are required by regulations to determine
(and disclose on their tax return) whether they have had an ownership change.

Linked below is a detailed report on the section 382 rules that provide limitations on the use of tax
attributes (carry forwards and built-in items) by corporations. The report also discusses the related
rules under section 384 and the separate return limitation year (SRLY) limitation rules that apply
to consolidated subsidiaries.

This updated version of the report discusses at length the proposed built-in gain or loss rules under
section 382(h) that were issued last year. When finalized, these proposed rules, will supersede
Notice 2003-65 (the current guidance in effect) prospectively.

Notice 2003-65 allowed taxpayers to choose from two different alternative approaches: section
338 and section 1374 approaches. The section 338 approach, generally more favorable to taxpayers
with a built-in gain, allowed for increases in the section 382 limitation for foregone amortization
(i.e. depreciation and amortization that would have been available in a taxable asset purchase). The
section 1374 approach, generally more favorable to taxpayers with a built-in loss, allowed for
favorable rules for the treatment of built-in deductions.

These proposed rules support a single approach (a variation on the section 1374 approach). As a
result, they are not as favorable as Notice 2003-65 for taxpayers with a built-in gain (since foregone
amortization will not be allowed). They also include more complicated rules regarding the
treatment of cancellation of debt (COD) income.

The proposed regulations are generally intended to apply to ownership changes that occur 30 days
after the rules are finalized (the applicability date). In addition, many transactions that are in
process on the applicability date, but result in an ownership change after such date, will be exempt
from the forthcoming final regulations. Taxpayers can continue to apply Notice 2003-65 if the
forthcoming final regulations do not apply.

In this interim period before the proposed regulations are finalized, taxpayers may adopt (i) the
section 338 approach, (ii) the section 1374 approach or (iii) the approach applied by the proposed
regulations. Furthermore, taxpayers are also free to use any of the multitude of approaches that are
available based upon the statute.
 CHAPTER-6
LIMITATION OF THE STUDY

Paying off tax debt is difficult, but so is understanding various tax laws and Canada Revenue
Agency (CRA) rules. In fact, fully understanding the ins and outs of CRA processes and rules
is often more complicated than filing and paying taxes. One situation that many have trouble
understanding is the CRA statute of limitations. This refers to how far back the CRA can go
when looking into prior year returns, collecting tax debt, and conducting audits (this is
sometimes known as the CRA audit time limit). A big fear that many have is the CRA
conducting an investigation into returns from many years ago and then demanding you pay a
significant tax debt that you weren’t even aware of owing.
This is why the CRA statue of limitations is so important. It gives you peace of mind and calms
your concerns.
There are several reasons why people want to know more about the CRA audit time limit and
reassessment time limit. For instance, there are some cases where a person knows that they
owe a tax debt for several years, but they ignore it, hoping that the Canada Revenue Agency
(CRA) won’t find it. In other cases, a person files their taxes and thinks everything is fine, only
to be hit with a CRA reassessment many years later.
Either scenario brings up the same question: How far back can the CRA go when looking at
income taxes and tax debt?

One thing to remember, is that ignoring a tax situation and hoping the CRA doesn’t find out about it
isn’t a smart strategy. The agency fully understands its own powers and any limitations that are placed
upon these powers. This means that it knows what it can and cannot do. CRA officers understand their
powers and are trained to utilize them effectively. If you have a tax issue, you cannot count on the CRA
to not notice it. Instead, it is clearly in your favour to work with experts who understand tax law and
CRA processes as well as CRA agents themselves. The team at Farber Tax Solutions is made up of
legal and ex-CRA experts who have extensive experience in dealing with the CRA. We will work to
review your situation, plan the best strategy for resolving your tax problem, and then communicate and
negotiate with the CRA on your behalf. Using this strategy, you actually resolve your tax issue, instead
of just waiting around and hoping the CRA doesn’t notice.
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