The Indian Tax Scenario Part 1

(Article taken from TaxIndia) The Indian Tax structure is very wide with two main divisions- direct tax and indirect tax. The present tax structure is governed by Income Tax Act, 1961. This governing act would soon be replaced by Direct Tax Code with effect from April, 2012. There have been a lot of amendments in the tax structure in presents Union Budget (2011-12). The first and foremost amendment that had an impact on the tax scenario of the country is the tax slab. There was an amendment in the recent tax slab by bringing up the tax slab rates. On one hand it brought a relief to the citizens of the country by increasing the limit of tax slab and also making a new entry of individual, the very senior citizen category, which was a very applaudable move by the Finance Minister. The tax slab rate basic exemption limit has been increased from earlier Rs.1, 60, 000 to Rs. 1, 80, 000. The basic exemption limit for senior citizen is now Rs. 2, 50,000 from the earlier. As far as the deductions are concerned there have been no major amendments in this section apart from the deduction under section 80 CCF under which you can avail a deduction Rs. 20000 on investment in infrastructural bonds issued by the notified companies. The finance minister has continued the deduction under this section for one more year. The present scenario of direct taxation is that recent union budget proposals will make the governments coffer less by almost Rs. 26, 000. The indirect tax has also been changed from many corners. The proposed GST structure of taxation would be implemented. Almost 130 items have bought under the net of indirect excise taxation with a nominal duty of 1 percent. This will increase the government revenue. The levy on branded garments which was earlier optional has now been made mandatory which will be charged at a flat rate of 10% now. The service tax bracket has also been widened with air conditioned restaurant which have permits to serve liquor been brought under the service tax net. Service taxes on travel through domestic and international airlines have been raised. Hotel accommodations have also been brought under tax net. The variable tax under custom duty which was earlier charged at the rate of 3 percent, 2.5 percent and 2 percent has now been done away with and will now be charged at a consistent rate of 2.5 percent.

The tax on petroleum products have been increased like for crude oil the present rate is now 5% and for diesel the present rate is 7.5%. The revenue loss in the direct tax proposals have been made up with the proposals made up in indirect tax section. The net earnings will be Rs. 43500. The above were the main highlights of the Indian tax scenario after the recently concluded Union Budget 2011. The present tax has been designed such that on direct tax forum max benefits have been provided to the individual through proposals in the direct tax and on the other hand the loss occurred due the benefits provided in direct tax arena has been made up with proposals in the indirect tax section through increase in the tax rate regiment of excise and custom duty and bringing in the tax structure items which were earlier exempted.

What is Tax Planning and Need to Planning of Tax?, Part-2

Tax planning is a systematic way of distributing the funds of an assessee in such a way that his tax liability is the least and on the other hand, also provides him the best benefits available. Tax planning has been a pressing issue for quite a long time and in such context, many have taken ax planning to be an unfair mean, whereas the reality is completely the opposite. Tax planning involves correct judgment of investment and diversification of funds which yield maximum utility to the assessee. For an instance, an assessee has Rs. 1, 20, 000 as investment where the assessee knows that his investment under Section 80C can only provide him deduction upto a maximum specified limit of Rs. 1, 00, 000, the assessee can very well invest upto Rs. 1, 00, 000 under such section and later on he can invest the extra funds under any other section like 80D, which provides medical benefits. Here, the whole amount of investment will come under deduction as both investments are allowed are deductions under the Income Tax Act of India. On the other hand, if the assessee had invested the whole amount only under Section 80C, the additional amount of Rs. 20, 000 would have been taxable. So this, diversification is known as Tax planning. But again sometimes this tax planning has also been used for purposes which are harmful from the revenue side of the Government and in such respect, the Honble Supreme Court in McDowell & co. v. CTO (1985) 154 ITR 148 has observed that tax planning may be legitimate provided it is within the framework of the law. Colourable devices cannot be a part of tax planning and it is wrong to encourage and entertain the belief that it is honorable to avoid payment of tax by resorting to dubious methods There has been some litigation against tax planning in the past but with time, people have come across various judgments, some are in support whereas some stands against it, but still the need for tax planning cannot be overlooked as it has so much to do while determining the right amount of tax liability of a person. However, the same shall not be confused with tax evasion as tax evasion is clear cut an evasion of tax and no payment is made to the government by the assessee in such respect. Tax evasion is illegal and attracts various penalties and prosecution whereas tax planning

is legal and can be said as be smart while determining the tax liability of a person.

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NEED FOR TAX PLANNING

Today the world has become complicated and competitive where each and everyone try to maximize his wealth and in such a case, tax planning becomes the vital weapon. The need for tax planning mainly arises due to: Minimum litigation it is the tendency of the taxpayers to try and pay the least amount as tax and on the other hand, we have the tax authorities who look at attaining the most of them. Both areacting in their best concern and it gives rise to litigation between them. Tax planning acts as a remedy for the both. Both the assessee and the tax authorities get balanced information about the tax liability which is due by the assessee and hence the problem of litigation among them is solved. Economic efficiency the economy is the best gainer in this case. Earlier the economy has faced a problem which showed that most of the people in the economy do not sufficient knowledge about the rate and various exemption of taxation, but since, tax planning has craved its path, it has created a new dimension for the assesses to attain knowledge and get the maximum benefit out of it. On the other hand, it also opens the doors of investment for assesses as in order to save their money, they will invest it somewhere and such investments would help in growth and prosperity of the economy. Increased investment As said earlier, people will take initiative to save their hard earned money to the maximum possible limit and the best part of such is to invest funds by way of fruitful investments. Earlier, there was lack of investment in many sectors as people found it safer to keep all the money with them, but now with the introduction of taxation system, people try and diversify their income in form of investments and that has considerably increased the rate of investment in India. Added to it, there are also certain areas like research and development fields which provide 125% to 150% deduction of the amount invested which raises the level of investment. Stable economy Tax planning is a very important tool for the economy also as it acts indirectly upon it. Stability of the economy depends upon two factors, namely, investment and use of investment. For a developing country like India, use of investments is not a big deal as there are projects with respect to infrastructure development and others are very easily available, the main problem lies in procurement of investments. Tax planning has solved

the problem of investment upto a very considerate level and has made things very easy for the sides, the tax payer and the tax receiver. Minimization of taxation At last, the prime motive of tax planning is also reflected as a need as tax planning is the most efficient form by which one can lower down his tax. Tax planning shows the assessee, the various available options that are available for investment and attaining maximum exemption so that there is less tax burden on the assessee. Not in only in form of investment, tax planning also takes into account the donations and other modes of diversification which balances the distribution of income of the assessee. Therefore, we realize the need for tax planning and know how important, the concept of tax planning actually is.

Key to Efficient Tax Planning Part-3

Tax planning is a task of great precision where each and every aspect has to be taken into account before any decision is taken. There are no textbook rules and regulations with respect to tax planning instead; tax planning is regarded as an art whereby personal skill and intelligence is required in order to get the best results. But on an overall basis, there are certain areas which appear to be common in most of the areas and these areas forms the basic key to efficient tax planning. Some of them are in form of: Proper organization Tax planning is all about organizing things in the best possible way so that the complexities and volume of work involved in ordinary business is minimized to the greatest extent. Proper organization of documents and vouchers allows the assessee to ensure efficient operations and lesser trouble while searching for them at the time of their need. Sometimes, a separate staff is also appointed so that the work can be done in the best possible way so as to minimize the litigations which may occur otherwise. Appointment of a specialist for such purpose ensures best operation and efficiency. Categorizing Categorizing is one of the best way to reduce the burden of work as it helps in separating various documents which are related to different areas. For an instance, if an assessee maintains all vouchers related to the sales vouchers and purchase vouchers separately, he shall have lesser trouble while computing the VAT payable by him. This ensures savings in time as well as lesser litigation in performance of operations. Efficient data

The most important of them all, is the data part. It is the data on which all documents and reports are prepared for the purpose of taxability and in such regard it becomes very important that the data which is being used in the process is correct and can be relied upon. On the other hand, the quantity aspect also needs to be looked upon. Correct and accurate data in small quantity is always favored over voluminous and vague data as it only leads to confusion and inaccurate statements. Integration: Data and knowledge themselves cannot ensure effective result, it is proper integration of both which brings the most efficient result, therefore, integration of data with knowledge is very important. Improper implementation can only lead to complexities in operations and improper tax planning. Consistency Tax planning is not a one time operation which can be done once and can be forgotten for the rest of the time. Consistency plays a very important as tax planning on a regular basis will ensure the best result for the assessee. Inconsistency, on the other hand, will only make things complicated and inconsistent. Smooth functioning can only be achieved only if tax planning is done on a regular basis. Availing the exemptions and the deductions Perhaps the most important part of tax planning knows where one can get exemptions and deductions so that such things can be used for our own benefits. Deduction available under section 80C, 80D, etc., can be used in order to minimize the tax liability, which perhaps is the prime objective of tax planning. Thought not a complete set, yet these are some of the common areas which need to focus by every assessee in order to complete efficient tax planning.