Unit 3 Cor Tax

CHAPTER
TAX PLANNING AND

5 o
MANAGEMENT FINANCIAL
PLANNING RELATING DECISIONS
n TAX
DECISION CAPITAL STRUCTURE TO
1 DIVIDEND POLICY
n
INTER-CORPORATE DIVIDENDS AND BONUS SHARES
Non-Applicability of Sec. 115BBD Not applicable to Assessment Year
commencing on or after 1.4.2023 (w.e.f. 1.4.2023)
TAX PLANNING RELATING TO
CAPITAL
Capital structure refers to the mix of sources from STRUCTURE DECISION
are raised. The choice relating to raising of which funds required for the business
funds and
undertaking would be between capital and borrowingsplanning the capital structure of an
debt-equity ratio. and the planning of the optimum
From tax point of view expenses incurred on raising
payable on loans are deductible in computing taxable
loans/debentures and interest
income
amount of interest paid, in respect of loan for acquisition of an ofasset
the assessee. However, any
business (whether capitalised in the books of account or not) for anyfor extension of existing
he date on which loan was taken for acquisition of the asset till the period beginning from
Was first put to use, shall not be allowed as a deduction. It will bedate on which such asset
added to the cost of the
aset, On the other hand, the expenses incurred on raising capital/share capital and interest
Ou capitaldividend on share capital are not deductible in computing the taxable income of the
aaseSsee. However., the following expenses in relation to capital are deductible:
the assessee is afirm, the interest payable to partners on their capital and loan capital,
subject to a maximum of 12% p.a.
r the assessee is an Indian company and in connection with the issue, for public
Subscription, of shares in or debentures of the company, incurs expenses (being
underwriting commission, brokerage and charges for drafting, typing, printing and
advertisement of the prospectus) twenty per cent of such expenses are allowed for
each of the five successive previous years beginning with the previous year in which
the business commences.
tOfigherFromratethisof return
one may conclude that the borrowings contribute to tax saving resulting a
on owner's equity. But this does not hold good in every case. If thewould
rate
returntheon total ofcapital is more than the rate of interest, definitely the borrowing
\Crease rate return on owner's equity. Otherwise it would reduce his rate of return.
16,00034,000 25,16062.9% 4,000 2,9607.4%
16,000 Nil N Nil
3 3 3 dividend
aat
rate
Companies 1,60,000
2,00,000
40,000 4,00046,000
Companies50,000 34,040
11,960 21.275% 4,00016,000
Companies20,000 11,840
4,160 7.4% Companies16,000 12,000
4,000 3,120
8,880
5.55%
2 2 2 than
declare
2
cess more
2,00,0002,00,000 can
50,000 50,000
13,000
37,000
18.5% 20,000 20,000 14,800
5,200 7.4% 16,000 16,000 11,840
4,160 5.92%
MANAGEMENT 25%,including
10%,
8% is10%)
Company
1 1 1 (which
?
why is
25%best.
The
AND Total10% 26% 25%
Investment Tax Profit
Profit
before after
Tax 10% Tax Profit
Profit
before after
Tax 8% Profit
before
Tax Profit
after
Tax
PLANNING:under : : : and Return Return Return
capital
best
3is
the
as the of of of
TAX Rate Rate Rate on
capital is ofreturn
CORPORATE structure
company
of
structure
10% 10% 10%
the
@ @ @ (1)
rate
raised loan loans loans loang
capital
on
companies interest whose on 26% on 26% on 26%
Illustration
1 Rate
ofreturn Interest Rate
ofreturn
ofRate
tax @ @ @ : capital
Tax Tax Tax Conclusion
Capital
Loans of
Explain Return Return rate.
Three Rate Solution Less: Less: Return
: Less: : :
Less Less Less the
higher
194
16,000 8,84025,160
62.9% 20,000 4,0001,040 Nl
3 3 3 3 dividend
aat
Companies1,60,000
2,00,000
40,000 Companies50,000 46,000
4,000 34,040
11,960 Companies20,000
21.275% 4,000 4,16011,840
16,000 4,000
7.4% Companies16,000 12,000 8,8805.55%
3,120 than
rate
2 2 2
declare
2
ces8 is
more
can
2,00,0002,00,000 50,000 50,000
13,000
37,000
18.5% 20,000 20,000
5,200
14,800
7.4% 16,000 16,000 11,840
4,160 5.92% Company
MANAGEMENT 8% including 1 1 1 (which
10%,
?
why is
25%The
: 25%,26% 25%
Total
Investment
10% Tax 10%
Tax Profit
Profit
before after Tax Profit
Profit
before after
Tax 8% Tax Profit
Profit
before after
Tax
AND andReturn Return Return the
best.
PLANNINGCapital
as
under: : :
best
the of of of
TAX Rate Rate Rate 3is
is of
return
CORPORATE structure structure
company
of
loans
@10% 10% 10%
the
@ @ When
rate
raised loan loang loans
capital
companies on
on @26% on 26% on 26%
Itlustratlon
1 interest
ofreturn whose
Rate Interest Rate
ofreturn Interest Conclusion
(1)
:
ofRate
return
Rate
oftax @ @ 10%)
capital
the
Tax Tax Tax
Capital of Explain Return rate.
higher
Three Loans Rate :
Return : Return
:
Less :
Less : Less:
Solution Less Less Less
194
195 is willcompanyEquity10% is
woula 20%
and Issue 30,00,000
30,00,000
of Debentures 5,00,000
25,00,000
6,50,000 equity willstructure
18,50,000
18.5% 20,00,000
Alternative
Alternative
Alternative30,00,000
Generally,
companies
50,00,000
is capital Alternative25,00,000
25,00,000 16,00,00
6,00,000
3,00,000
capital Third rate Third
it of it
loan, in lakh of which tax the
issue
on of all 50 instead the Assume
returna structurecrore by return Issue of Shares 30,00,000
7,80,000
22,20,000 1,00,00,000
40,00,000 for 4,00,00018,60,00
2,40,000
of?
14.8% for for Second 20,00,000 cho0se Second
40,00,000
takes
or debentures alternatives
production
1 Sharesof
inyestment capital.
of tax).
rate Company
capital is rate should
25,00,00025,00,00
DECISIONS Equitythat Capital Tax Tax (before
the capital First share First
interest. if the additionai Assume
before after issued its three it shareholders.
capital.
interest, Shares. on increase alternative
MANAGEMENT situationexisting of Profit following 25%its
issue Return Profit have on 4%. (a)
of share proposal? is 20%
dividend
areand
rate of an by Equity should to businessEducation
Cess Profit
given
rate whose proposes whichthe
FINANCIAL
to
issues which
either of the
equalthe of Rate
company proposes 12%) Taxable
the Company, the to
or issue
forraised in to
26%
including
cess.of
approve It employedas dividend
(Int.
AND isloan thanIn business Computation paying
capital capital. of company. company i.e., 10%@
PLANNINGtheless befavour the company institution
takes
company Domestic carn you
debentures
crore maximum employed,
business, capital7%
and
Health @12%
on is its 10% Equity Debentures
TAX return returnon money
in do 1.5
on widely-held businessthe
expand 1,00,00,000.The
eturn decide
of
rate wherate
2tustration
directprooposes
of rs
Cansultant
on
@
50,00,000
26% on of
capital. financial
on adyise
pay 25% Loan
capital
of
the ofther entire
to They istax
eShares,De edbedn. tures. slution
When Whenratebest hes The Tax income
20%Interest
@
@
Tax
Return
expansion3Illustration
a
additional
10%
Share
Debentures
Capital
from
return
ar
similar
3%, to t0
Surchargeas on
@ on on
crore
Int.Int.
Expected have
the The Return
:
F of
:Less RateEor
is
Ltd. Loan in Youtructure SO Return
Rl :
2) 9) dnce aAs
ofste Ios
shares. A the
7
raquire engaged Solution Less
> d
196 CORPORATE TAX PLANNING AND MANAGEMENT
6,25,000
Tax @ 25% 43,750
4,65,000
Add : Surcharge 0 76 6,68,750
32,550
4,97,550
Add : Henlth and Education Cess @ 4%
26,750
19,902 28,W0
A(28,00%
(b) 6,95,500 5,17,452
17,120
Profits available for dividend 18,04,500 13,42,548 4,45,120
Profit per cent
The conpany should choose the third alternative.
18.045% 33.564%
11,57.574,44%80
nlustration 4
Bharat Ltd. a company engaged in manufacture of electrical switches is a
company. lt is considering amajor expansion of its production facility and importwidely
of helld
technology which is expected to improve its profitability from the present rate of 20% tht
least 254 (before tax). The finance manager has given the following proposals : ?(in lakh
A B C
Share Capital (Equity) 40 20 30

50
14% Preference Shares 20 20
10
16% Non-Convertible Debentures 20 40
Term Loans from Institutions and
Banks (20%) 40 70
Lease Finance (22%) 40
Total 100 100 100 100
(i) The rate of dividend on equity has not been below 24% in the past.
(ii) The tax rate payable by the company is 26%.
Your opinion with detailed reasons is sought on the above.
Solution Computation of Rate of Return on Capital
Capital employed 1,00,00,000 1,00,00,000 1,00,00,000 1,00,00,000
Return required @ 25% 25,00,000 25,00,000 25,00,000 25.00,000
Less : Interest outgo :
16% NCD -(6,40,000
- ( ) 3,20,000
Term loan 20% -() 8,00,000 ( 14,00,000
Lease finance 22% () 8,80,000 18,60,000
Taxable profit 16,20,000 13,80,000 11,00,000 4,83,600
Less : Income-tax @26% (> 4,21,200 (-) 3,58,800 () 2,86,000 (-)13,76,400
Return on shareholders funds 11,98,800 10,21,200 8,14,000
(-)1,40,000
Less : Dividend on 14% pref. shares ( 2,80,000 (-) 2,80,000 12,36,400
Amount available to equity shareholders 9,18,800 7,41,200 8,14,000 24.73
Rate of return for equity shareholders (%) 22.97 37.06 27.13
Hence, option B is the best option.
lustration 5 before
Trapti Limited wants to raise capital of 20,00,000 for a Project where earningSuggest.
tax shall be 40% of the capital employed. The company can raise debt fund @18% P.a.
which of the following 3alternatives should it opt for:
(a) 20,00,000 to be raised by Equity Capital.
(b) 16,00,000 by Equity Capital and 4,00,000 by Loans.
(c) 4,00,000 by Equity Capital and 16,00,000 by Loans.
TAX PLANNING AND FINANCIAL MANAGEMENT 197
DECISIONS
the.company shall distr1bute the entire amount of profit as
dividend and tax rate
Assume
suton
Alternative Alternative Alternative
A B
employed @40% 8,00,000 8,00,000

Returnon capital
8,00,000
on loan @18% 72,000 2,88,000
Less::Interest
i
Profit before tax 8,00,000 7,28,000 5,12,000
27.82% 2,22,560 2,02,530 1,42,438
Less: Tax@ Dividend to shareholders Profit after tax 5,25,470 3,69,562
5,77,440
32.84% 92.39%
Rate of Return 28.87%
Corclusion : The company should choose option C.

Impact of Capital Structure on Exemption or Deduction 80IAB or
+
exemption/deduction under section 10AA or deduction under section 80LA or in other
The increases the profits after tax or
801C or 80IE etc. of the Income Tax Act But the borrowed capital reduces the
of return on equity capital.
sincreases the rate tax and to that extent the exemption is reduced or
interest) before
-ts (profits less
deduction is reduced. Therefore, minimum possible loans may be taken at the
nortionately undertaking.
e of commencement of an industrial
Tax Planning minimum
on investment is less than the rate of interest, the
1 Where rate of return
loan capital must be used. interest, it will increase
return on investment is more than the rate of capital
2. Where rate of legal requirements for raising
capital. However, the
the rate ofreturn of equity
finance cannot be ignored.
through any means of like land,
utilised for acquisition of non-depreciable assetsassets. The
3. The capital may borrowed be depreciable
funds may be utilised to acquire before the asset was
g00dwill, etc. and after setting up of business
but
interest on loans for the period
amount of depreciation will be allowed.
capitalised and a higher
Put touse will be more it is better to use capital rather than
gestation period in an industry is This interest payment will be
* the capital.
loans. On the loans interest logs will be paid out of may not be able to
set-off within
which the assessee have to
carried forward as business
years. On the other hand, the money-lenders
prescribed period of eight
Pay tax on their interest income. deducted at source. If tax has not
5. If interest is payable outside India tax must asbe interest will not be allowed as a
paid
been deducted at 8Ource, the amount income. liberally.
deduction in computing business 2(28A) of the Income Tax Act,
6. The term interest' has been defined in section of any money
borrowed or
in respect moneys
payable in any mannerother charge in respect of the
'Interest means
debt incurred and
interest
includes any service fee or
credit facility which has not been
in respect of any
borrowed
utilised.
or debt incurred or
other charge on loans,
whether utilised
business income.
service fee or
Hence, not only interest but also
not, should be claimed as revenue
expense in
computing the
DIVIDEND POLICY
Meaning of Dividend in common use : In ordinary language dividend
received by a shareholder of a company on the distribution of its profits, whether
income or tax-free income. It is immaterial whether it is received in
cash or in out oi
meang
he sum
shareholders (Ser. ta22)xae
Definition of Dividend
The following distributions or payments by a company to its
kind.
dividends to the extent of accumulated profits of the company : are
(a) Any distribution which entails the release of all or any of the
assets of aa deemed
(b) Any distribution of debentures or deposit certificates or
bonus shares the
shareholders;
(c) Any distribution on its liquidation;
(d) Any distribution on the reduction of itscapital;
to
prcoerfnepraetnrye.,
(e) Any payment by a closely-held company by way of advance or loan to a
a person who is the beneficial owner of shares) having at least 10%
to any concern in which such shareholder is a
mnember
of the sharehol
votingder
a substantial interest.
or a partner and in which o
he has pWer
Advances/loans received
dividend ws 2(22Xe) if Karta, who isby HUF from a closely-held
company is
in the HUF even if HUF shareholder in lending company has taxable as deemed
is not a registered
shareholder. substantial inte
If a [Gopal &Sons (HUF) vs CIT (2017) 77
person takes trade advances, which are in taxmann.com 71 (sC
would not fall within the ambit of the the nature of
liable to tax. commercial
word 'advance' in Sec. 2(22Xe) of the transactinns
Act.
Dividend does not incude the following : i) A [Circular No. 19/2017, DatedHence. not
12.6.2017
cormpany or on reduction of its capital in distribution made on the liquidation
respect preference shares issued for full cash
of of a
consideration, as the holder of these
shares is not entitled in the event of
participate in the surplus assets.
(iü) A distribution made on the liquidation to
8o far as such
distribution liquidation
is attributable of a company or on
reduction of its
of the company capital
bonus shares allotted to its equity to the in
(iiü) Any advance or loan givenshareholders
capitalized profits representing
to a shareholder during the financial year 1964-65.
its business, where the lending of money is a by a company in the
(iv) Any dividend paid by substantial part of the business ordinary coursu
or any part of any sum a conmpany which is set-off by the of the compa
(v) Where a previously paid by it a8 advance or loan company against tne
tion, such transfercompany
is not transfers its referred
assets to another company in a to above in Claus
to ite regarded as a scheme of amalgama
shareholders
transferred. even though its 'daccumulated
istribution' by the
company of its accumulated protits
(vi) The payment profits are embedded in the assets N
in
accordance with the made by a
provigions company
of Sec.
on
purchase of its own shares from a shareholder
(viü) Any 68 of the
shareholders distribution
demerged company).
of the
demerged
of shares
pursuant to a CompaniesbyAct, 2013.
demerger
company (whether or not there is a reduction
the Company to
resulting of capitalinthe
the
Accumulated Profits
to be
The meaning of the term
dividend us 2(22). For
Explanation 1 : The 'A
this ccumulated
purpose
expression 'a Profits'
ccumulated
there are
is very
profit
three important
includes all profits
for of
deeming thea
payment
companr
section.
1unto the date of explanations given under this
distribution
March, 1948 and before except1956.
lst April, capital gains arising before after
31t
Explanation 2: Accumulated profíts include all profits of the1stcompany uptoorthe dateof

April, 1946
distribution or upto the date of liquidation. However, where the liquidation is Consequenton
TAX PLANNING AND FINANCIAL MANAGEMENT DECISIONS 199
compulsory acquisition of undertaking by the Government or a Government company,
the
accumulated profits do not include any profits of the company prior to three successive years
aediately preceding the previous year in which such liquidation took place.
Rplanation 2A : Accumulated profits or loss of amalgamating company (whether
capitalised or not) on the date of amalgamation, shall be included in the accumulated profits
dfamalgamated company.
Thus, if a company goes into liquidation on 30th Sept., 2022 on account of compulsory
isition the accumulated profits prior to 1.4.2019 shall not be included in accumulated
Bts for clause (c) of section 2(22). It is to be noted that 'accumulated profits' means profíts
the commercial sense and not assessable or taxable profits.
PK. Badiani vs. CIT (1976) 105 IRT 642 (SC))
Similarly, exempted income (e.g., agricultural income to a company) (s. Kumarswami
mo (196) 43 (Mad.). Capital gains whenever chargeable to tax (Tea Estate India (Pot.) Ltd. vs. CrT
ene 109 IRT 785 (SC)) are accumulated profits. But it does not include additions made by the
ASsessing Officer by disallowing the expenses.
However, the amount of loan etc. which has been treated as deemed dividend ws 2(22Xe)
must be deducted from accumulated profits. (CIT vs. G. Narasimhan (1999) 236 IRT 327 (SC))
Some other aspects relating to Dividends
(1) Normal Dividend : Any dividend declared by a company at its annual general meeting
shall be deemed to be the income of the previous year in which it is so declared. It is a normal
dividend. [Sec. 8(a)]
(2) Deemed Dividend : Deemed dividend ws 2(22) is deemed to be the income of the
previous year in which it is so distributed or paid.
(3) Interim Dwidend : An interim dividernd is one which is declared by a company at any
time prior to its annual general meeting for the year. Any interim dividend shallbe deemed
to bethe income of the previous year in which the amount of such dividend is unconditionally
made available by the company to the member who is entitled to it. It means that the date of
declaration of such dividends is immaterial so long as the amount is not released for
disbursement. (Sec. 8(b)
(4) Place of accrual : Under Section 9(1Xiv), dividend paid by an Indian company outside
India shall be deeemed to accrue or arise in India.
(5) Dividend paid by a foreign company outside India is not deemed to accrue or arise in
India.
(6) In the case of dividend received by an Indian shareholder fromn a foreigm company which
has deducted tax at source; but has not paid the deducted amount of tax to the Government of
India, the amount deducted as tax at source shall not be included in the dividend income of the
Indian shareholder.
However, where assessee is entitled to double taxation relief (us 91), the gross dividend
shall be included in income. [CIT vs. Amalgamations Ltd. (1998) 232 ITR 608 (Mad.))
(7)If dividend for several years is declared in some later year and paid in lump-sum in
that later year, the dividend shall be deemed to be the income of the previous year in which
they are declared.
Dividend Distribution
Dividend must not be paid out of capital.
Tax on Distributed Income of Domestic Company for Buy-Back of Shares
(Secs. 115QA, 115QB and 115QC)
1. Rate of Tax : If a domestic company buy-back of its own shares from a shareholder, it
tau be liable to pay additional income-tax on the distributed income as under :
Income-tax @ 20%, Surcharge @ 12% and Health and Education Cess @4%.
However, the shall not be liable to pay tax on such buy-bac of

the shares listed company
on a recognised stock exchange) in respect of which publi
shares (bein
an ouncement
has been made before 5.7.2019.
Baplanation : "Distributed income" means the consideration paid by the
buy-back of shares as reduced by the amount which was received by the
such shares, determined in the manner as may be prescribed.
2. Payment of Tax : Tax shall be paid to the credit of the Central
company on
company
for
fourteen days from the date of payment of consideration to the shareholder.
3. Payment of Interest : If the principal officer of the company or the Governmentfails within
the whole or part of the tax within the period mnentioned in 2, he or it shall
Simple interest @1% for every month or part ofa month, for the delayed periot
company
be liable to pay
to pay
4. If the principal officer or the company does not pay tax on distributed
prescribed time, then, he or it shall be deemed to be an assessee in
provisions of this Act for collection and recovery of income tax shall apply.
income
default and allwiththein
Tax Liability of Shareholders : The income arising to the shareholders in
such buy-back by the company, shall be exempt. respect of
Dividends froma Co-operative Society
The amnount received as dividends from the Co-operative Society
income. However, the co-operative society is not empowered to deductshall
be included in s
the question of grossing up of dividends does not arise. tax at source. Hen
Withdrawal of Concessional Rate of Tax on Dividend Received by

Indian Companies from Specified Foreign Companies
(Sec. 115BBD
The concessional rate of 15% under section 115BBD would not be
from Assessment Year 2023-24. Accordingly, dividend received by applicable with efec
specified foreign companies would also be chargeable to tax at normal Indian companies from
rates applicable to such
Company.
TAX PLANNING IN RELATION TO DIVIDEND

INCOME
1. A domestic company may issue bonus shares to its
dividend in cash. By this method it can avoid theeguity shareholders in lheu
tax u/s 115-0 on dividemu
distributed. However, it will increase tax liability of its
2. Payment made by a closely-held company to shareholders.
a shareholder who is the beneficial o
of not less than 10% of the equity shares of the
benefit, is deemed to be dividends to the extent company or on his behalf or
shareholder should not take loan fromn the companyof oraccumulated pronts ake
payment on his behalf or for his benefit. However, if it is asknot the compaykios
possible. beforetaking
a loan ete. he should reduce his shareholding (voting power) to less than 100% of equity
share capital.
3. Similarly, a concern, in which the aforesaid shareholder has substantial innterst
(entitled to not less than 20% of the income of the concern or 20% voting rightinthe
willbe
company), should not borrow from the Otherwise,
it
hands ofclosely-held
taxed as
Where a deemed dividend
handsinof the
company.
4 loan in the a shareholderthementioned
lending company.
in 2 and 3, has been taxedas
shoud
deemed dividend, such loan should not be It
be adjusted against the repaid to the closely-held company.
Thedividend
declared in future and adjusteddividends declared by the Company in future. declared

Thus, the double taxation liabilityagainst the loan is not treated as dividend
The can be avoided.
Finance Act, 2022 w.e.f. 1.4.2023, Assessment Year
2028-24)
TAX PLANNING AND FINANCIAL 201
alustrationB
MANAGEMENT DECISIONS
Indian company with each
n paid-up (for cash) share capital of 10.00000 divided into
An equity,shares of ? 100 went into liquidation 30th June 2020 On that date itH
on
aerrescreatedout of profits amounted to ? 7,00,000 arnd the balance
A00 to the credit of ita proft
ACCOunt
was B0,000.
Theliquidator realised
the asseta prices conAiderably in
at
loss values and aftermeeting and providingfor all
iabilitjes including the liailiy
book
taxation had a distributable sum of ? 26,50,000 which he duly distributed to shareholder
their
022-23.
of 500 shares acquired by it on lst July, 1997 at a cost of ? 10,000
a holder
s Ltd.,youfor advice as to the treatment for income tax purpo8es for the amount received
0oraRches
fromthe liquidator. The fair market value of shares of s Ltd. on L4.2001 was 15,000.
Arit index for 2001-02 was
inflation 100 and for 2022-23 331. Discuss fully.
cost
he
solution
Computation of Deemed Dividend and Capital CGains
for the Assessment Year 2023-24)
Ltd. :
Amount received by S
500 Shares
10,000 Shares x 26,50,000 (Distributed sum) 1,32,500
Less : Amount deemed dividend :

500Shares
37,500
10,000 Shares x7,50,000 (Accumulated Profits)
95,000
Jess : Indexed cost of acquisition of Shares
(15,000 x331+ 100) 49,650
Long-ternm Capital Gain (Shares held by S Ltd.
for more than 12 months) 45,350
º Mlustration 7
Out of ?30,00,000 share capital of 100per share, the company reduces 3,00,000 share
zuital at 710 per share. The profits of the company were 1,50,000 after payment of dividend
istribution tax. Mr. Ram holds 500 shares of the company. Compute the amount of deemed
dividend ws 2(22\d).
Solution Computation of amount of Deemed Dividend
500
Amount received by Mr. Ram =3,00,000 × 30,000 5,000
Amount received out of accumulated profits :
500 Shares
=71,50,000 x 30,000 Shares T2,500
Hence, deemed dividend =? 2,500.
lustration 8
Mr. Ram took aloan of 1,00,000 on 10.9.2022 from a company in which the public are
Wt substantially interested. The company also paid insurance premium ? 5,000 on his behalt
He holds
25% equity shares of the company. On the date of loan and paying the premium the
conpany
ared diOnts of the company were 80,000. Subsequently in the same year the
to its shareholders. The dividends on the shareholdirg of Mr. Ram
Rtuntingdividends
to 15,000 Was set-off against the amount of loan etc.
Comput
bution e the amount of deenmed dividend ws 2(22\e).
Assessment Year 2023-24
Amount
Add
of Loan
taken 1,00,000
Total :Insurance
5,000
premium paid on his behalf
amount taken from the company 1,05,000
Accumulated profits of the company 80,000

MANAGEMENT
202 CORPORATE TAX PLANNING AND
80,000
Hence, deemed
thetaken dividend ws 2(22\e) shall be
(Loan etc. or the amount of accumulated profits, whichever is less)
The amount of actual dividend 15,000 is set-off against loan etc.,
dividend distributed by the company hence,
(? 15,000) is not to be treated as a
llustration 9
uws
(Secs. guch
2(22)115-\e) 0and. d222vde
X Private Limited gives you the following details :
(i) Paid-up equity share capital is divided into shares of 10 each
(ü) A, B, C and D are registered shareholders, each holding 10,000 equity
paid-up.
(i1) Reserves of accumulated profits were 40 lakh. shares tu
(iv) Current year's surplus was 10 lakh.
(v) Current liabilities and provisions at year end amounted to 1 lakh
(vi) Fixed assets consisted of only one item, viz., office buildings (at cost)
(vii) Preliminary expenses not written-off (at year end) 40,000. of 11 lak
(vii) Current assets amounted to 30 lakh.
(ix) Loans and advances granted in the year and outstanding
13,60,000. These included : at year end
(a) trade deposit of 1 lakh given to A. He supplied a'softy' ice
was adjusted against the cost of machine andthe
(b) loan of 3 lakh given to B out ofmachinery supplied;
which 1 lakh was repaid by him: advany
(c) loan of 3 lakh given to Smt. C at the specific
(d) loan of? 4 lakh to D (H.UF) who are request of Shri C;
the name of D.
the beneficial owners of shares reoistav.
Required:the
Discuss tax implications of the above
(i) shareholders, and transactions in the hands of :
(iü) X Private Ltd.
Solution
(i) Tax Assessment Year 2023-24
company toimplications
in the hands of
a shareholder Shareholders : Any loan or advance by a
power or to a concern in which the (beneficial owner of shares) holding not less than 10% ofclosely-tec
such company on behalf or for theshareholder has a substantial interest or any the votmn=
accumulated profits, is deemed dividend individual benefit of such shareholder, to thepaymen exten
commerical transaction, it would not be treated ws 2(22)e), However. if
as deemed advance is in the natuis
Keeping in dividend us 2(22(e.
All the view the above, the treatment of given items [Circular No. 19/2017, Dated 12.6:21
accumulated shareholders
profits of the
A, B, C and D are
having 25%
shall be as under : andth
(a) Trade deposit of company are more than the shares of the company
(b) Loan of 1,00,000 given to A is not deemed advances and loans.
before the 3,00,000
end given to Bis a deemed dividend. 1,000
year does not dividend.
of the The of loan
to Smt. previous
(c) Loan given repayment
affect deemeddividen
given to the Cat the
request of Cis not a the tax liability on loanis
the
individual
the benefit
shareholder
benefit
or
ofC.
to a
If concern in which deemed
dividend. The
he has substantial interest given ti
ort
of C, it the
will be deemed Assessing Officer proves that the loan is
(a) The loan
it is a deemed 4,00,000 is given to dividend.
of?
D
henc
The dividend. (H.UE), the beneficial owner of shares,

shareholders are liable to pay tax on deemed
dividend.
203
TAX PLANNING AND FINANCIAL MANAGEMENT DECISIONB
INTER-CORPORATE DIVIDENDS AND BONUS SHARES
Inter-Corporato Dlvldond
When a company rocoivoN dividond Irom another company iL in known as intor corporate
dividond,
(X)Deductlon In rospoct of cortain Intor-corporato Dlvldends (Sec, H0M)
Kliglble Companies : Whero the GrOHN "Ibtal Incomo of a Domestie Company in any
provious yonrinneludosornny
a
incomo by wny of Dividends from any other IDomestic Company
[Sec. B0M1|
foroign company busineNA trus.
Deduction : Amount oqunl to No much of the nmount of income by way of dividends
meivedfrom such other domestic company or a foreign company or a business trust as does
exceodthe amount of dividend distributod by it on or bofore the due dat, shall be allowed
notdeduction in
computing the total income of the domostic company.
e Double Deduction : Whore any deduction, in respect of the amount of Dividend
distributed by the Domestie Company, has been allowed as above u/s 80M(1) in any previous
year, no
deduction shall be allowed in rospect of such amount in any other previous year.
(Sec. 80M(2)|
Due date" moans the dnto one month prior to tho dnto for furniahing the return of incomeu/s 1391).
acopany opta to be taxed undor aeetion 116BAAor it in oligible for benefit of nectlon 116BAB,the detuction
mdor wcction80JJAA und ection 80M shall ntill bo allowod although it is not allowed any other deduction
under chapter VIA
Tax Planning
When a company issue8 bonus shares to its equity shareholders, it is not a deemed
dividend and the company is not liable to pay tax on such deemed dividend. Hence, a domestic
company may issue bonus shares to its equity shareholders ingtead of dividend in cash to
reduce its tax liability.
Bonus Shares
When a company issues shares to the existing shareholders in lieu of dividends such
shares are termed as 'bonus shares'. By issue of bonus shares a company capitalises its profits
and widens the capital base.
Expenditure incurred on issue of bon us shares is deductible because issue of bonus shares
does not result in increase of the capital employed.
(cIT V8. General Insurance Corporation (2006) 156Taxmann 96 (SC)
Where bonus shares are issued tothe equity shareholders, thevalue of the shares is not
taxed as dividend distributed. However, when redeemable preference shares are issued as
bonus shares, on their redemption, the amount shall be taxed as dividend distributed.
o be
Where bonus shares are issued to thepreference shareholders, on their issue it is deemed
dividend and liable to tax.
When a shareholder sells the bonus shares, the cost of bonus shares is taken as nil. Hence,
Wnole net consideration (congideration les8 selling expense8, if any) is treated as long-term or
short-term capital gains, as the case may be.
lax Planning In Relatlon to Bonus Shares
L. An equity shareholder may transfer his bonus shares after one year from allotment
to a firm or an association of persons as capital contribution. The amount recorded
In the books of firm/AOP for such shares will be the cost of acquisition for the
irm/AOP and long-term capital gains to the transferor. Now, when the firm/AOP will
Bell these shares as long-term capital asset it will be entitled to deduct the indexed
CO8t of acquisition instead of nil cost as applicable to equity sharehulder. Alternatively,
Bueh shares may be sold to a relative after one year of their allotment. The selling
Price will be the long-term capital gains of the allottee of the bonus shares for the
ear of sale. Whenever the relative will sell these shares he will get the benefit of
Indexation of the cost of acquisition.
A preference shareholder may first convert preference shares into

2.
equity
3.
thereafter receive bonus shares. This will reduce the tax liability at
of issue of bonus shares.
Acompany may capitalise its profits by converting partly paid shares
least shartehse timend
at
into
shares instead of issue of bonus shares. This conversion will not be a
deemed ful y paid
Further, the benefit of indexation for the price paid by the
available from the date of allotment of shares. shareholderdividwienld. be
4. Where bonus shares are received by a firm it may transfer such shares to
by sale. When such shares are transferred by sale, the buyer will get the
indexation of cost.
partnitersf
benef
5. The company should issue equity shares as bonus shares. If the
shareholder
these shares after holding for more than twelve months and pays securities sell
tion tax, the LTCG exceeding one lakh will be taxed @10% (without
cost) + Surcharge, if any + Health and Education Cess @ 49% ws 112A. indexitrnagnsac-the
If he
these shares as short-term capital asset and pays securities transaction sels
tax, the
will be liable to tax @ 15% + Surcharge, if any + Health and Education Cess STCG
ws 111A.
Tax Planning through Purchase of Own Shares or Distribution of Dividend
Where a domestic company distributes dividends to its shareholders, the company is nt
liable totax on dividend distributed ws 115-0. However, purchase of own shares by acompan
from shareh olders is not deemed to be dividend distribution.
Ifa comnpany purchases its own shares, the consideration paid in excess of the sum received
by the company at the time of issue of such shares will be charged to tax. The company shal
be liable to tax @ 20% plus surcharge @ 12% and Health and Education Cess @4% ws 115QA.
The income arising to the shareholder on account of buy-back of shares by the company shall
be exempt ws 10(34A).
For details see sections 115QA, 115QB and 115QC in chapter 3.
llustration 1O
From tax planning point of view determine whether a company should distribute
dividends or purchase its own shares from shareholders keeping in view the following
information :
1. Share capital 1,00,000 shares (listed) of 10 each.
2. General Reserve 16 lakh.
3. Issued shares in 1998 at par.
4. Market price of shares on 1.4.2001 9.5 each.
5. The company wants to reduce its general reserve by 12 lakh either by distr1buut
dividend @ 12per share or buying its shares @ 120 per share.
Solution Assessment Year 2024-25
Purchase of its own Shares : 12,00,000
Company willpurchase 10,000 shares @ 120 per share
Less : Amount received from shareholders at the time 1,00,000
of issue of shares 11,00,000
Amount excess paid 2,20,000
Tax on 11,00,000 @ 20% 26,400
Add : Surcharge @ 12% 2,46,400
9,856
Add : Health and Education Cess @ 49% 2,56.256
Company should distribute dividend.

TAX PLANNING AND FINANCIAL MANAGEMENT DECISIONS 205
Planningthrough Issue of Bonus Debentures instead of Bonus Shares
can reduce its tax liability if it issues bonus debentures to its equity
Company
A
instead of bonus shares. When a company issues bonus debentures, the interest
sgreholderS deductible in computing its income while dividend on bonus shares is not
debenturesis
computing its income. When a company wants to distribute deferred dividend it
inbonus debentures instead of bonus shares.
Astuctible
chuld' issue
deductionof certain loss [Sec. 94(7) & 94(8)]
No
ySecurities: record
any person
buys or acquires any securities within three months prior to the
(a) If
date;
months after the record date;
He sells or transfers such securities within three
(b) person is exempt, then,
(c) The
dividend on such securities received or receivable by suchsale of securities, to the
purchase and
#he loss. if any, arising to him on account ofdeduction in computing his income
stent of exempted income shall not be allowed as
chargeable to tax.
purpose
means such date as may be fixed by a company for the
Eplanation Record date'securities to recieve dividend.
intitlement of the holder of
record
3 Units:
buys or acquires unit within a period of three months prior to the
(a) i)If a person
record date;
date;
or transfers such unit within aperiod of nine months after
(i) He sells
or receivable is exempted;
(iüi) The income on such unit received on account of purchase and sale of units, to the
then, the loss, if any, arising to him deduction in computing his income
shall not be allowed as a
extent of exempted incomne
chargeable to tax.
units :
(b) If a person buys or acquiresmonths
period of three prior to the record date;
) within a
on record date;
(ü) he is allotted bonus units units within nine months fron the
whole or part of the original
)he sells or transfers
record date;
part of the bonus units; and the amount of loss will be
) he continues to hold all or units will be ignoredthe date of such sale or transfer.
then, the loss on sale of original
units as are held by him on fixed by a Mutual Fund or the
Osidered the cost of bonus
date as may be company for the purpose of
:Record date' means such
Erplanation or the specifiedor additional unit without any
MniAitlenmentistrator
of the specified undertaking receive
of the holder of the units to
income
MASillustration
deration. 11 compute total income :
Pr1.om the following information15.6.2022 for 3,00,000;
2. 1,000 shares
purchased on
Record
3. Dividenddatereceived on shares 50,000
10.8.2022
*. 1,000 shares sold on 14.10.2022 for 2,40,000
5.
Other capital gains 1,00,000.
MANAGEMENT
206 CORPORATE TAX PLANNING AND
Solution 94(7)1
Computation of Tbtal Income Sec.
2023-24)
for the Assessment Year
Dividend
Short-term capital loss on purchase and sale of
shares ( 3,00,000 2,40,000)
three
60,000
Less : Exempted dividend (Shares sold within
months after record date)
Other capital gains
Total Income
lustration 12
From the following information compute (a) the total income, and (b) cost of bonus
if any: unita
for 50,000.
(i) 4,000 units of aMutual Fund purchased on 1.9.2022
(ii) Record date 15.10.2022.
(iii) 2,000 bonus units were allotted to it on record date.
(iv) 4,000 original units sold on 10.3.2023 for 40,000.
(v) Other short-term capital gains 1,00,000.
Solution (a) Computation of Total Income
for the Assessment Year 2023-24)
Cost of 4.000 units 50.0
Selling price of 4,000 units 40.00
Loss on Sale 10.00
The units have been sold within nine months from the record date, hence loss on aale i
such units cannot be setoff against other income.
Total Income STCG 1,00,000
(b) Cost of Bonus Units
LOss on Sale of original units shall be deemed to be the cost of bonus units, ie.,
ws 94(8).
QUESTIONS
Short Answer Type Questlons
1. Explain inter-corporate dividends.
2. Explain interim dividend.
3. Write a note on bonus shares.
Objective Type Questions
1. Deemed dividend is defined in:
(A)Section 2 (22Xa) (B) Section 2 (21Xa)
(C)Section 2(23Xa) (D)Section 2 (22\c)
[Ans. 1. (A).]
Long Answer Type Questions

onowner'sequit
1, "The loan capitalcontributes to tax saving resulting a higher rate of return example. why?
you agree with the statement? If not, illugtrate your answer by a suitable preferand
2. From the point of view of tax considerations which one of the following would you
) Pavment of dividend or ssue of bonus share8.
(iü) Issue of shares or lssue of debentures
CHAPTER
6
TAX PLANNING AND MANAGERIAL
DECISIONS
LEASE
1 TAX PLANNING IN RESPECT OF OWN ORRESEARCH
o SALE OF ASSETS USED FOR SCIENTIFIC
MAKE OR BUY DECISIONS
REPAIR, REPLACE, RENEWAL OR RENOVATION OF AN ASSET
o SHUT DOWN OR CONTINUE DECISIONS
TAX PLANNING IN RESPECT OF OWN OR LEASE

made for certain time, in
A lease of property is a transfer of right to enjoy such property,
consideration ofa price payable periodically to the transferor by the transferee.
In other words, leasing is an arrangement that provides a person with the
use and control
a title of ownership. In case of
over an asset, for a price payable periodically, without having called the lessee.
lease agreement the owner of the asset is called the lessor and the user is
decide whether the
When a person needs an asset for his business purposes, he has to
keep in
asset should be purchased or taken on lease. While taking this decision he should
mind the following factors:
borrow funds at a
1. Cash position : When a person has sufficient cash or he can
reasonable raie of interest to purchase an asset or can acquire the asset under hire purcnase
deductible
installment system, he may decide to buy it. The cost of own asset is not
computing the income but the interest on borrowed funds or under hire purchase/installme"
nor ne
system is deductible in computing the income. If he neither has sufficient cashlease
borrow due to stringent credit control, he has to take the asset on lease. The ren
deductible in computing the income.
2. Depreciation: When the asset is purchased or acquired under hire purchaseinstat
system,the depreciation is allowed in computing income. When the asset is taken
bution elowed
it is
allowed
depreciation is not allowed to the lessee, because he is not the owner of the asset,
to the lessor. Non-availability of depreciation to the lessee will increase his tax liabiity.
increase 0
If the asset is such on which depreciation is not allowed, e.g., land, the such where
decrease in the value of the asset in future must be considered. If the asset lease.
taken on obsolete
be
increase in the value is expected, it may be purchased otherwise it may becomes met
3. Obsolescence risk : When a plant or machinery is purchased and it can be
asset
earlier than its expected working life, it has to be replaced. The replacementofcost the
lease risk of
partly out of depreciation fund and partly by arranging further cash. In case mind the
will be replaced by the lessor. However, the lessor will also keep in
obsolescence and increase the lease rent to offset such a loss.
TAX PLANNING AND
4 Rosidal Value: When a person
MANAGERIAL DECISIONS 209
theasset at the end of any given period.purchases an ofasset,
In the case assethe with
has large residual
full rights to thevalue it isof
value
betterto
purchaSe it rather than taken on leAse.
5. Profft margin :Where profit margin is low, it is
ASset has been purchased by borrowed funds the cashbetter to purchase the
asset. If the
instalment, interest payment and
slightly outflow would be equal to loan
rent would be equal tO higher tax. On the other hand, in caASe of leasing
lease part of the
The cash outflow will becost of asset to lessor, interest on investment and
the the lessor.
proitto equal to lease rent less nominal tax saving. In
lease, the profit of the lessor will be the
sConsider proftayter tas : lt is an importantlo8sconsideration
to the lessee.
shoukd follow such a method for obtaining an asset which in tax planning. The assessee
profitsafter tax are greater. For this reduces his tax liability and the
purpose some people suggest
ed in purchase of an asset because interest on own funds is that oWn funds should Dot
income, whereas interest on borrowed funds is deductible. But not deductible in computing
het if own funds are invested outside the business, the interest earned one should keep in mind
payDent. Further, he must consider the difficulty involved in will offset the interest
inidental thereto. raising loans and Ithe cost factors
Conclueion : As far as possible the asset should be
borause the cost of use of the asset purchased is less thanpurchased and not taken on lease
the cost of lease asset.. However,
shere the assessee is suffering from a liquidity crunch and cannot invest in an asset
he avail substantial credit from the suppliers or nor can
Jease.
money-lenders, he should take an asset on
> Illustration 1
From the following information determine whether the assessee should purchase an asset
or take on lease :
1. Cost of asset 1,00,000.
2. Rate of depreciation 15%.
3. Rate of interest 10%.
4. Repayment of loan by the assessee 20,000 p.a.
5. Rate of tax 26%.
6. Residual value 20,000 after 5 years.
7. Profit of the assessee 1,00,000 before depreciation, interest and tax/before lease rent
and tax.
8. Lease rent 30,000 p.a.
Solution
L Asset Purchased : II III V Total
Proit before depreciation and

interest 1,00,000 1,00,000 1,00,000 1,00,000 1,00,000 5,00,000
Depreciation
Interest
(15,000) (12,750) (10,838) (9,212) (7,830) (55,630)
(10,000) (8,000) (6,000) (4,000) (2,000) (30,000)
Proft before tax 75,000 79,250 83,162 86,788 90,170 4,14,370
Tar @28% (19,500) (20,605) (21,622) (22,565) (23,444) (107,736)
Pront after tax 55,500 58,645 61,540 64,223 66,726 3,06,634
Loss on Sale of asset= 1,00,000- (55,630 + 20,000) = 24,370
CORPORATE TAX PLANNINGG
AND MANAGEMENT
210
II Asset taken on Lease : II III IV
V
1,00,000 1,00,000 1,00,000 1,00,000

Total
Profit before lease rent 1,00,000
Lease rent (30,000) (30,000) (30,000) (30,000)
70,000 (30,
70,000 0 5
00)(1;,0
150, ,0004
(18,200) (18,200) 70,000 3,50,00%
Profit before tax 70,000 70,000
(18,200) (18,200) (18,200)
Tax @ 26%
Profit after tax
51,800 51,800
3,06,634 - 24,370)
51,800
2,82,264.
51,800
(91,000)
51,800 2,59,0
When asset is purchased profit is (
2,59,000.
When asset is taken on lease profit is
Hence, asset may be purchased.
Own vs. lease of an asset can also be studied by considering net cash outflow under both
the situations.
Mustration 2
If the present value factor at 10% is : 2 3 4 5
Years :
0.909 0.826 0.751 0.683 0.621
asset shonli L
On the basis of information given in illustration 1 determine whether an
purchased or taken on lease.
Assets taken on Lease
Solution
Years
Particulars 1 2 3 5
1. Lease rent 30,000 30,000 30,000 30,000 30,000

2. Tax saved @ 26% 7,800 7,800 7,800 7,800 7,800
3.Cash outflow (1 - 2) 22,200 22,200 22,200 22,200 22,200
4. Discount factor @ 10% 0.909 0.826 0.751 0.683 0.621
5. Present value of cash outflow 20,180 18,337 16,672 15,163 13,786
Total net present value of cash outflows =84,138
Asset Purchased
Years
4 5
Particulars 3
20,000 20,000 20,000

1. Loan repaymnent 20,000 20,000
2. Interest paid 10,000 8,000 6,000 4,000 2,000
3. Cash outflow (1+ 2) 30,000 28,000 26,000 24,000 22,000
12,750 10,838 9,212 7,830
4. Depreciation @ 15% 15,000 9,830
5. Total 2 and 4 25,000 20,750 16,838 13,212 2,556
6. Tax saved on 5 @ 26% 6,500 5,395 4,378 3,435
7. Net cash outflow (3 -6) 23,500 22,605 21,622 20,565 19,444
0.621
8. Discount factor @ 10% 0.909 0.826 0.751 0.683
14,046 12,075
9, P.V. of net cash outflow 21,362 18,672 16,238
Total net present value of cash outflows = 82,393 12,420
Less: PV. of'cash inflow (asset sold for 20,000), ¿.e., 0.621 of 20,000 =
Net cash outflow = 82,393 12,420 =69,973 69,973
Conclusion : On lease the present value of asset is 84,138 and on purchase it is
Hence, asset should be purchased.
TAX PLANNING AND
tustratlon
a MANAGERIALDECISIONS 211
Decidewhichoneiin a bottor altornativo-lonAO or buy-in the following situationB :
Thxrate:
26%
capital:
12%
Costof
Depreciation rate (incomo tax): 26%
Leaserent: 32,000 por annum for b yoars (per 1 Inkh)
Present value of?1 diacountod @12% is as follows :
Year1 = 0.893; Year20.797; Yoar 3 0.712; Yonr 4 = 0.636; Year b 0.567.
Theresidual Value at the end of ffth year is estimated 6,000.
Makeany other suitable Assumption, if nocessary.
olutlon
Lease or Buy Decislon
Assumptions :
of the asset (machine) is 1,00,000.
1. The co8t
2. Itis 8old for 5,000 at the end of 5 years period. The residual value at the end of
fAh year is estimated 5,000.
The short-term capital loss is Bet-off against short-term capital gain at the end of 5
years period.
A. Evaluation to Buy'
(1) (2) (3)
Discounted Value @ 12% (Dep. x
Years Depreciation PV. Factor)
1 25,000 22,325
2 18,750 14,944
3 14,062 10,012
10,547 6,708
4
7,910 4,485
5
76,269 58,474
1,00,000
Cash outflow
Less :1. P. V. of tax Bavings on Ale of depreciation 15,203
on 58,474 @ 26% 2,835
Z. P.V. of machine sold (0.567 x 5,000)
3. PV. of tax savings on STCL
? 1,00,000 - 76.269 5,000 = 18,731; 20,799
2,761
0.567 x 18.731x 26% Net Cash outflow 79,201
B Evaluation to Lease'
(3)
(2) Discounted Value @ 12% LR, X
(1)
Lease Rent PV.Factor)
Years
28,576
32,000 25,504
2 32,000 22,784
32,000 20,352
4
32,000 18,144
5 32,000 1,15,360
MANAGEMENT
PLANNING AND
CORPORATE TAX
212
PV. of Cash
Less : P.V.
outflow---Lease Rent
of tax savings on 1,15,360 @ 26% Net Cash Outflow 1 5780
79,201.
Conclusion : cash outflow is
purchased net outflow is 85,366.
Wben the asset is net cash
taken on lease
When the asset is
be purchased.
Hence, the asset should
The cash price of
ltration 4
wants to acquire a new nmachine. the machine
management ofX Ltd. reserves to finance the purchase.
seelsThe
your advice,
IS 1,00,000. The
whether
company from
has enough
the cash
point of view
particulars,explain the
However
of tax planning, it should buy the machingit
suitability of
,
on lease. On the basis of the following each
or get it
alternatives.
i) Rate of IncomneTax :26%.
Income Tax Act : 25%.
(i) Rate of depreciation under the P.
(iii) Epected life of the machine : 9 years. Les
300 per year afterwari
(iv) Lease rent : 31,000 per annum for the first 5 years and ?
Two--0.769: Yeay
(v) Present value of 1 discounted at 14% : Year One 0.877; Year Co
Three0.675; Year Four0.592; Year Five0.519; Year Six0.456; Year Seven outrigh
0.400; Year Eighth 0.351 and Year Nine-0.308.
Solution
If
Evaluation to Buy expend
(1) (2) (3) asset c
Discounted Value @14% Dep. x in the
Years Depreciation F
PV. Factor
agset
1 other
25,000 21,925
2
18,750 14,419 Cost o
3
4
14,062 9,492 I
10,547
7,910
6,244
4,105
keepi
5,933 2,705 scient
8
4,450
3,337
1,780
1,171
Durir
busin
2,503
92,492
771 Cost
62,612
Cash outflow Cost of machine 1,00,00
Less : Tax saving on 16,979
account of depreciation on ? 62,612 @26% 88,721
Net Cas8h Outflow
8 TAX
PLANNING AND MANAGERIAL DECISIONS 213
Evaluation to Lease
(1) (2)
(3)
Years Lease Rent Discounted Value@14% L.R. x
PV. Factor
1
31,000 27,187
2 31,000 23,839
3 31,000 20,925
4 31,000 18,352
31,000 16,089
6 300 137
7 300 120
300 105
300 92
106,846
PV.Cash outflow 1,06,846

1,06,846 @26% 27,780
Iess :P. V. of Tax savings on 79,066
Net Cash Outflow
saving is more as compared to
Conclusion : In case of lease cash outflow is less and tax
machine should be taken on lease.
witright purchase of the machine. Hence,
SCIENTIFIC RESEARCH
SALE OF ASSETS USED FOR
asset for scientific research related to its business, the
f an assessee purchases an such
deductible during the previous year in which it is incurred.orIfuse it
penditure incurred is sell it
any use for scientific research purposes, the assessee can
et ceases to be of
uthe business for some other purpose. such
whether it is beneficial to sellsome
view, we should consider for
rom tax planning point ofbe sold after using it for some time in the business
nmediately or it should
ther purposes. business purposes : The seling price upto the
using it for
elng the asset without computed
M8t of asset is deemed business income Ws 41(3). capital gain which can be
the excess shall be
I
selling price exceeds the cost, 50A. in June 2013 for
ieping in view the provisions of Sec. purchased at a cost of 2,00,000 was allowed in
2013-14.
Ror example, a capital asset was 2,00,000
business. The deduction of without using it in the
buriMuientngniesfics Previous
research related to the ? 2,50,000 under :
asset is sold for shall be computed as
the Year 2022-23 the incomeloss
for other purpose. Thetaxable
at any and 2022-23,
331. 2,00,000
inflatioBusiness
1 n income
index for 2013-14, 220
whichever isless)
price,
(Cost of asset or selling 2,50,000
Long-term capital gain/Moss 3,00,909
Selling price 331+ 220) LTCL(- 50,909
Less : Indexed cost ( 2,00,000 x
these allottedto conduct
of orexpenses
are may employer
only and pointliabilityemployees Income
orchargeable income
and head under
the income an is
cost the case astaff benefits a
not Expenses servant, employer
on significant The
ofrepair, 2. 1. Under
be directs Employee. In
Employer,2.
and 1. of ln
penses buildings,
Expenses amountquarters Expensesdeductible
of paid case view case he the remuneration of
staff
the businesS8,
(on and
Income of
canwhich
shouldother concern, a
partly what but of of REMUNERATION
MANAGERIAL TAX should
land:
are paid,
remuneration) Incurred employee.
employee's :tax
satisfy part
relating is reluting to in are be hand from
revenue, and planning
also deductible.
the f forsuch the
at inTax case given prepare this of
all. cash when wholly
the Other PLANNING
ctible. rent repairs, employees Act as of th e
its to
to use In will
the managerial
to remuneration and no remuneration,
'contract the staff. atax expenditure.
buildings
unicipal of buildingsof a regarding or
partSources'head salary
are ceiling thing increase
the land the partly case partly liability
fully of Profits
buildings of salary structure
buildings revenue, business has is of of
taxes taken deductible,
owned in service' to
'contract exempt he personnel the If CHAPTER
employees ofgets
the been to be the inthe and tax part a
and is on whoseis form staff done the the
municipal treated by provided relationship
this from for
Gainsliability
rent:Where
eductible.
urance The for employees form of
employer certain of but maximumremuneration the and IN
residence perquisites Governmentrelationship remuneration tax.
as alsoservice', of of
staff other
on Lakshmi Business or
RESPECT
Thus such
emium
Further, the
taxes use
or Where : are the how between
possible is real
in
employees
11
and fthere within
remuneration. there allowances,
without minimumremuneration. such
Narayan of it burden of
buildings the and Hyderabadshould exists. or is
insurance is it disallowed a
in if purposes isspecified the has deductions
Profession' way
necessary benefits. notwo
espect he employer A incurring of
has are relationship
Ram bepersons
master to
perquisites, possible.
amenities that a
premium of
(1954) done.
Gopal be business
limit The viewed
agreed However, or in in OF
25 and computing
oftaken business. allots any
such for remuneratou is must computing
under
Itincome
the and ITR Son & one allowances
means enterprise
onreheto as additional
fromthe
buildings. bear (Sec.resp30) in bulaus? efnele certa certa 449 Ltd. master bewho Hence
(SO" vs. n0t as the the
the of his
t
TAX PLANNING IN RESPECT OF 309
MANAGERIAL REMUNERATION
3. Expenses relating to machinery, plant and furniture : Where fans, air-conditioners,
refrigerators, furniture, etc. are
considered that these assets haveprovided by the employer at the residence of employees,
it is
been used for the purposes of business. Expenses incurred on
repairsand insurance premium in respect of such (Sec. 31)
4. Depreciation on buildings, plant, machinery assets and
are deductible.
furniture: Where buildings, plant,
machinery and furniture are owned by the employer and given to the staff for personal use (as
discussed under points 1 and 3), depreciation is allowed on such assets as provided in Section
32. (Sec. 32)
B. Insurance premium on the health of emplovees : The amount of
employer by any mode of payment other than cash for insurance on theany premium
health of his paid Dy a
employees
llowed as a deduction provided it is in accordance with a scheme framed by the
General
Insurance Corporation of India and approved by the Central Government or any other insurer
and approved by the lnsurance Regulatory and Development Authority. (Sec. 36(1Xib))
6. Bonus or Commission : Any sum paid to an employee as bonus or commission for services
rendered, where such sum could not have been payable to him as profits or dividend if it had
not been paid as bonus or commission is deductible. However, if the shareholders are actually
the employees of the company and are given bonus based on their salary, the payment of bonus
is deductible. (Sec. 36(1Xii)]
Loyal Motor Service Co. Ltd. vs. CIT (1946) 14 ITR 647 (Bom.))
It is to be noted that bonus or commission to staff is deductible on actual payment and not
on acerual basis. However, if it has been paid by the employer on or before the due date applicable
in his case for furnishing the return of income u/s 139(1) for the relevant previous year and
evidence of such payment is furnished along with the return, the deduction will be allowed in
the same previous year to which the payment relates. (Sec. 43B)
7. Interest on loans : The employer may grant loans to employees, either free of interest or
at concessional rate, to acquire assets. If the employer has borrowed funds, interest paid or
payable on such loans is deductible in computing his income provided the borrowings are not
made specifically for the purpose of granting loans to the employees. (Sec. 36(1Xiiü)]
8. Contribution towards approved funds : Any sum paid by the employer by way of
contribution towards a recognised provident fund, approved superannuation fund and approved
gratuity fund, subject to prescribed limits, is deductible in computing his income.
(Sec. 36(1Xiv\v)l
8A. Contribution towards Pension Scheme :Employer's contribution in a pension scheme
(referred to in Sec. 80CCD) on account of an employee upto 10% of salary in the previous year
is deductible. (Sec. 36(1) (iva)l)
company and it has incurred revenue
9. Expenses on family planning : If the employer is a
expenses for the purpose of promoting family planning amongst its staf, such expenses are
deductible. Where such expenditure is of a capital nature it shall be spread over five years and
Shall be allowed as a deduction in five equal annual installments commencing fromn the previous
year in which the expenditure is incurred. (Sec. 36(1)(ix)]
In case of employer other than a company the revenue expenses on family planning are
eductible u/s 37(1), On capital expenses, incurred for promoting family planning, he can claim
depreciation ws 32.
employer on entertainment are
10. Expenses on entertainment : Expenses incurred by
deductible in full ws 37(1).
1l. Expenses on holiday homes and guest house : Bxpenditure on one or more holiday homes
and guest houses are deductible in full ws 37(1).
I2. Any other expense: Any sum paid to the employees (Salary and allowances), expenditure
their welfare is deductible in full. [Sec. 37(1)]
incurred to provide perquisites or benefits or for
EMPLOYER
TAX PLANNING FOR
by the employer from his employees as
to any provident Funds:
1, Employees Any sum received
fund, superannuation fund, any fund set-up under the provisions of the
Employee's State Insurance Act, 1948, or any other fund for the welfare of the employees mus
be deposited to the employee's account in the relevant fund or funds on or before the due date.
contribution
be treated
it bywillwhich as the income of the employer and liable to t
Note is
lfit : Due so deposited,
not date means the date the assessee is required as an employer to credit an employee's contribution
to the employee's account in the relevantfund under any Act, rule, order, notification or underrany standing order,
ISec. 2(24Xx) and
award, contractTax
The term of service or otherwise.
referred shall include and shall be deemned to have 361Xvall
ws 40(a)(ii), always
no dedu
included any surcharge or cess on such tax, by whatever name called. Therefore, 40a e
cess paid on the Tax as specified ws
allowed
2. Tax
shall be deducted respect
with at source:Ifany salary is or
to the surcharge payable outside India, the tax should be deducted
disallowed expense. In case of salary
payment shall be treated as
on it at source otherwise suchalso be deducted at source on it otherwise he shall be liah
payable in India, tax should amnount of tax which he failed to deduct ws 192
penalty ws 271C, a sumn equal to the
[Sec. 40(aXiü)
that the remuneration paid or pavahla
Ercessive payment : T'he employer must ensure fai
3.
or to an associate concern is not excessive or unreasonable having regard to the
to a relative it willbe treated as disallowed expense.
market value of the services. If it is excessive, [Sec. 40A(2))
a dav) to an
Payment exceeding 10,000 : Where the payment (remuneration in cash in or by
4. by a crossed cheque or a crossed bank draftnot
employee exceeds 10,000 it should be madeaccount of the employee concerned. If it is
depositing the amount directly in the bank expense. [Sec. 40A(3)
paid, the payment shall be treated as disallowed in respect of any sum paid by the assessee
5. Contribution to funds :No deduction is allowed
contribution to any fund or trust for any purpose,
as an employer towards the setting up of, or as of recognised provident fund or an approved
except where such sum is so paid for the purposes to a fund established under any other law for
superannuation fund or approved gratuity fund or ensure that the payment is not made to a
the time being in force. Hence, the employer should [Sec. 40A(9)
non-statutory fund. commission ete : The
6.Contribution towards approved funds and payment of bonus or
deduction for the payment of :
(i) bonus or commission to staff;or
(iü) encashment of earned leave at the time of retirement of employees; or
(iii) tax, duty, cess or fee; or
(iv) interest to scheduled bank on any loan or advance; or
or a State Financial
(v) interest on loan or borrowing from any Public Financial Institution
Corporation or a State Industrial Investment Corporation; or
(vi) contribution towards recognised provident fund, approved gratuity fund and approveu
previous
superannuation fund is deductible even if the payment is not made within the
year but it is paid on or before the due date of furnishing the return by the assesse
without
Thus, the employer can utilise such amount for the purposes of business
incurring any additional liability.
Sometimes from tax planning point of view it is in the interest of employer either et
pay above mentioned payments on or before the due date of furnishing the return oIn suchh
payment not to furnish the evidence of such payment along with the return of income. andthe
a case the expenditure will be treated as disallowed expense for that previous year
employer may get the benefit on two counts :
(a) If there is a brought forward business loss and this previous year is the last year for its
Gains
set-off. By non-payment of bonus or commission the profits under the head Profit andpart, may
Business or Profession' will increase and the brought forward business loss, whole or
TAX PLANNING IN RESPECT OF 311
set-ofifagainstit. The
MANAGERIAL REMUNERATION
amount of bonus or commission etc. can be deducted in the next previous
be
pear: Wherethere was a loss and the return could not be filed on or beforethe due date. In
(b)
a
casethe assessee will lo0se the right tocarry forward and set-offthe loss. If non-claiming
ech
ofbonusor oommission etc. converts the loOss into profit. it is better not to claim guch deduction
belated return of positive income. The can be
sndfile inthe next previous year. amount of bonus or commiggjon etc.(,Sec. 43B)
deducted
offsalary in the form of allowances and perquisites : It is heneficial to the employer
7. Part of salary
part in the form of allowances and perquisites rather than the consolidated
togive a
salary. The retirement benefits (contributions to provident fund, gratuity, pension, etc.) are
hasedon
the basic pay. If basic pay is higher, the retirement benefits payable would also be
orrespondingly higher. Hence, to reduce that future liability regarding retirement benefits, it
isadvantageousto pay a part of salary in the form of allowances and perquisites.
The employer may pay tax on the value of
8. Payment of tax: perquisites (not provided for
byway
of monetary payment) provided to an employee at the option of employer on behalf of
employee.. However, such payment is not deductible in computing the income of employer.
[Sec. 40(aXv)]
From tax planning point of view the employer should pay income tax allowance to the
Rnlovee instead of payment of tax on his behalf. The income-tax allowance paid to the employee
bll be deducted in computing the income of employer. This will reduce his tax liability without
aneasing the tax liability of the employee. Suppose the employer wants to pay tax ? 100 on
whalf of the employee on the value of perquisites, the employee is liable to pay tax (i) @20%,
i@ 30% and employer @30%. In case (i) instead of payment of tax 100 he may pay 125 as
ineome-tax allowance and in case (ii) he may pay 143 as income tax allowance. The net
advantage to an employee and employer shall be as under :
(i) (ii)
Amount paid as allowance 125 143

Tax @ 20%/30% 25 42.9 say 43
Net tax incentive 100 100
Benefit toemployer:
(i) (ii)
125.00 143.00
Amount paid 37.50 42.90
Less : Tax @ 30%
87.50 100.10
Net liability instead of ? 100
SALARY STRUCTURE FROM EMPLOYEE'S POINT OFVIEW
Whle framing salary structure of the employees two important factors can be kept in view.
frstly, present versus future benefits, and secondly, consolidated salary versus pay, allowances,
Jerquisites and benefits.
n the first case a major part of salary can be paid every month and a minor part of it can
De accumulated for future. This amount will be paid to the employee either on his retirement or
t s death to his nominees Wwhen such amount is received after retirement/death, in some
Cases the whole amount is exempt while in some cases a part of it is taxable.
In the Second case when consolidated salary is paid, the whole amount is liable to tax. But
when a part of it is paid in the form of allowances, perquisites and bernefits, some of the items
are fully are added partly in salary income for tax
Thus, theexempted
tax incidence can beof the
while some reduced to some extent. The income tax provisionspurposes.
items
in this
cOnnection are discussed here briefly.
isprovident
whole fund
is aforesot
8001 exemp taxahl
[Sec.
10(10)| pension:
the 10(10A))
Sec. after
is
period actual 10(10AA)
[Sec.an the
etc.) intewamot to of
contribution accommodauo Rule
the
Sec. exemnt
: under: ofone-half leave :exempt of respect
the
salary assessee
10(13A),
Colleges,while
the is is
retirement the service year immediately of
the
receives received
and
Fund, earned ntextent
exempt, to 12) is
amounts as exempt.
: ofone-third exempt.
is every the[Sec.
recognised
University,
contribution
the
Provident
employee
10(11)X exemptextent of
value the amounts in of
amount by
employee gratuity after during
of
anyyear the if period
if: OCcupied
is following encashment is for period
fully ISec.
following is received commuted received leavesalary amount
following
of income.
previous to
MANAGEMENT Semi-Government,of pension of
received exempt of
in is subscription
Statutory such service; value leave 10% relevant accommodation
was
employer
A/cthe days months 3,00,000.salary or
ofthe
relevant
thecommuted
amount
BENEFITS
FUTURE S.P.F. When of the
amount pension
of gratuity,earned amount the
Fund:The
the is less Chennai;
of to However, 30 BENEFITS
PRESENT employer
AND of limit. of year value exempt of of ten during
in accommodation
received: the
to
PLANNINGcase ofcontribution of least whole of whole
leastbasis of received: :Government included
of
credited commuted
Government. receiveEncashment
sDecified whole completed
amount of and
the amount gratuity, basis Superannuation
emnployer from respectdue
in
respect which
said
the
In (Government, the is tax.
the thethe allowance Delhi
theemployee, it
TAX :
fund interest the employee to :extentemployee,
employee, employee,on the encashmentnot received
in
upto : servant each Thethe not
receives liable due on is residential
Kolkata,
CORPORATE Further, due
the 80C.gratuity the However, does : following employer; salary the thethousand place.
during
leave leave
sectorfor pension sector
provident exempt : by H.R.A,rent salarysalary of
sector,
The Government employee
employee and by period;
ws by Government sector
Government specified
Approved
by
employer exempt, (i)salary
specified
received;
Amount
Death-cum-retirement earned
income of
averageleave fund house Mumbai, other
the
period
salary. deduction private equivalent fifty : of of
privateis
A/c
of Salaries'
Half-month private
. the privatethe retirement;
his
of superannuationallowancerespect relevant
amount amount
of40%any
in value with amount
amount lakh of
of R.PF. Amount thethe of to exempt
salary months to amount at at Relevant means
period'
Contribution is
Commuted Encashment
pension. Contribution Allowances
(A)
of 12% amount to of of of of WhenWhen of of service one in situated situated
case entitledcasecase headcase case casecase cash rent of of
paid the
year.
previous
uptothe theis 10 the the
upto actualrespect
:following 50%
In in whole In In (ii)(iii) theIn In (i) (ü) retirement
In In (i) (iü) (iiü)(iv) House
credited to approved (i) (i1)
exempt
exempt.
is 2. (a)(b) (a) (b) assessee
1. 3. under 4. added(a)(b) 5. 1. (a)(b) (c)
fund the
312 the :Note
of
313 research 2BB(1)(e))
actual profit
purchase2BB(1)X)] tne 2BB(2)(4))
anytheto with
3,Z00upto2BB(2)(5)]
per2BB(2)(6)]
place an of refresher
taking
employee
servicesany exceed com years of employee the
clause. of place member
in p.m. or by
of working
employmentinperformed
However, exempt
upto
?
child
handicapped of income thanten
of is
exempt
300 basis employee approved
academic,Rulethe Rule
extent this
Rule Rule Rule to his not
of the
per does (other any
medical
on the
salary residenceperform period
by
10(14),
incurred 10(14), in 10(14), p.m. 10(14),
upto10(14),
on
aggregate
the placeless. or incurred
an duty exemption
emplovee given of asset
a
or
theto (Sec. oroffice 100 exempt
orthopaedically employee
employer. to use for authority
exempt [Sec. bis is (Sec. be
expenditure another
to 10.000p.m..
whichever
[Sec. [Sec.
are
relevant.
the
from employee
REMUNERATION
Education
2.encouraging during
shall upto allowances in personal movable it
using expenditure
any
Any :family
an to is an scholarship.in
of entitled exempt
allowance allowance included
not the
place). employer loan anemployer;employee
local
the perquisites. a after
pursuits
is duties granted
to Denditure
place
for to his
institution purpose. are
Uniform
3.the
those by fees for of of free
MANAGERIAL or allowances phone.
paid enable, of or
for be (work employer
amount employer
employee
of
meet one not
dumb is But
the as providedmembers
the governmen
granted performance the transport Such
allowance not pays
its
ex fromis 2BB. children treated b)
ofin
research forallowance factory
to shall mobile by to of by respect
personalhe children: employer the of
OF granted
incurredtransport or
and
allowance,
such
Rule
Perquisites providedorder value by an the maintained
treatment treatmen
allowance view perquisites if and
RESPECT deafthe 10(14) their
or including are by
in theprovided
the allowance Such 10(5). loan, to
year. himself
and allowance :
Any his of office expenses consideration
car) employer by
the maintained
lower
extremities, forchildren
during
expenses or allowance: Ws point or thecourseon concessional
previous
i
India
IN educational meet conveyance and
Any
PLANNING
such daily
blind
allowance
exempt ws
in employees
versa.
employer hospital medical
purpose.
wear alowance of of
such Tax-free
planning
following telephonesIf management
concession
provided
household.
computers
items within of
: Any to runnng
actualsystemreceives vice
etc. Such treatment
twoalso
allowance
: for
is children courses,
the
any for
TAX the allowance 70%% employee educaton aretax
expenditure 1.
benefits.
Medical and electronic
without any by hospital governm
in funiform of
maximum
from
Important to of efficiently.
the hisor during benefite
of allowances
the snacks Scholarships Interest-free Medical
benefits: in paid
for
incurred the()
espenses extent Transport
of employee
transport
course
of disability
of travelon
Expenses employment
facility by and (i)
Fully
exemptof family medical
of,mAintenance extent twO Hence, or
Refresher paid
of value Sum
traiandning the Children
p.m. ofmaximum
Hostel other Some
of
value Leave or more
Laptops
courses member
Transfer
20,000 more. Medical
puters,
Or a
in
toexempt
iS a posting. Tea The Tax Theis Vn (2)
Tf upto
Some
:employee
GY The 2. 3. 4. 5. 6. 7. 8. 9. 10. Il. (A) (a)
K B child of (B)
ar s
tate
i as extentemplovee
anv connection Proviso)is
(Sec.
17(2) astax termina 3(1)
[Rule valuation annumemployee.prevo
aL besy familw above emplovee 2,00.000
from by licence
Government
will radio be
bw or for
(employee the provided the perguisite will the
approved
hisan from
income the surviving
incurred per
his (b) an assistance under the
on an in to exceed after
during
sets,thefurniture
under of and the
employee patientexempt of the be 10%
to
member
(a) case accommodation to
undertaking by
hospital of patient or actually Central for the providedemployee
to television
two taken
family clauses treatment be theexpenditure) does
not or service cases: framed equal
the:extent connection
this employees of the
the any shall concession than perquisite.
theaccompanies (fully)
only
in the be value for
any
byhis or in stated abroad :
years from expenses morefollowing willrules
amountappliances)
payablethe
MANAGEMENT
in paidof employee medical of following
exempt. of or
categories: refrigerators,
abroad employees
residential the by
ailments,member retirementfor body house
non-government
travel calendar thefurnished,
an payable
of
premium those stay
of the
available charges value
the thefully staywho theand shall
exempt
be exemption
in
The any with by household
unfurnished
AND
PLANNING than India; amount in Valuation increased
any on is India.this
(excluding
income receive apply twothe with
or of to
on attendant
treatment four after of or the
diseases India,
other expenditure
anyof treatment exempt be into
value include is (including
accordance hire paid
insurance
expenditureof in deputation accommodation be
may of place the not not
of Bank block India their divided other is shall
the
CORPORATEemployer clinic
TAX :Indiaoutside to shall
shall 1.10.1998: the as rent-free then amount
prescribed onebe medicalexpenditure
on
travel employee
:
The any child. These employer
medical
or shall Reserve his a in restricted
family. and determining considered equipments,balanmce
in andfurniture
health
home
anyfamily
outside anyand in to place rule
exemnption one been on
the it on performed
leave Perquisites
1.
Residential:
Accommodation the Government
basis any
commissioner. incursincurs family)
treatment, gross anyservice. thisbefore have Government
Employees the the
the bythe thenursing member the total after of the if
ofhis expenditure
If treatment himself on to is
and
for However, are accommodation.
residential
value If abovethe value,
on 80D.
/s
scheme
of Reimbursement
Exemption: employer employer
by exemption
proceeding the bornbirths of employees or by
residences.
and
respect or his permitted concession
Travel proceeding Government of planthired
hospital, journey his 1.10.1998 Other purpose aGovernment.Thethe the
Government
State reduced
above
insurance of such whose of Children
Multiple of cost
chief Medical member The (ii)
The tion employee. Employees Valuation:
by
is
on air-conditioning
in the the with travel. Some thethe furniture
theyear
Two computed
original shall
be
(i) No any If any
If (i) (i) (ii) The W.e.f.
of
determined
allotment
account.
into
From
(ii) (B)
employer
(a) Foremployer,
(1) such
(c) at (a) (b) : (a)
under (b)the (b) (C)
314 done such
of of be the
315 per exceeding
2001
as duringlease of hire during
whichever
of the the:under
previous actualreduced
andnil. previous provided
The=79,600 areaor power feet. municipalityemployee
while
one expiry or or or includes
for ship apartment
value cost
the by as rent.
site
remote square for availablethereof,
employeeof
another
exploration
a posting
taken the home,
provided
as
be taken
amountbe the
the be employer thethe be been as ths or
lakh
not
twenty-five of shall or shall
to be for provided) mon
hotel a site 800
any
an
of of be
accommodations.
after part
mobileservice
but will accomnmodation
annum has in dam place
transter shall be accommodations,
or
0ccupied
the Actual is value shall
place payable employee
the 2 located exceeding of shall house
lakh hy vable lower, the employee accommodation he of oil limits caravan,
one and to salary a
onshore new perquisite notel,
REMUNERATION employer: perby its value or 60,000 is
or
of benefit farnm
ten is hired perquisite. from paidis the 2,40,000 accommodation
hotel,
project) local the
account
10% daysthe accommodation of not of
exceeding
exceeding the salary
less.by 24% an area the nil. at accommodation
The suchflat,house,nature
was cases)is a transfer or the of the house,
furnitureby
of thein
account. is payable paid be from as on value both
MANAGERIAL the
aceommodation payable
value employee of whicheveris shall sitecommissioning plinth taken
Where above.
both guest the
population by salary,both Where fifteen employer
employee nmining
population his 24% away the for a apartment,in
rent
theintoor the on taken
or purposes the having be :
ocCupy
charged
place, discussed
accommoda
includes
(inIf exceed such paid Where kilometre Transfer
OF censu8, on of paid Hotel:
taken be
the provided hotel, perquisite.
The a shall
place, or l5% furnished
of7.5% less. with to
RESPECT
employerhnving
having
value. shall non-Government)
is
to be which is an at
working
and accommodation other continuesIt
amount of tax
months. is site: of which: provided be service
the lease or not shall such :Accommodation
Explanation
whicheverstage nature
200)Tother be amounta as shall
value.
salaryincome of
employerabove will balance
in is does during eight the determined
IN
PLANNING cities cities per
whichon
is value to of
accommodation at area, Time perquisite licensed
by any furniture
for provided any
payable value two employee
provided thesite or at lower Ifhe motel,
temporary
AcommoBat
a) ton
owned
TAX Bmployees:
in in in
as during
lakh
2)OthersnlaryAalarysalary (oi)
taken
Acommodatton
is
the
the any
to value,if
the
and Accommodation
aggregate
theperiod if
case, value,
the
annual
for
for
hotel
60,000,
accommodation
than board; theis accommodation
off-shore remote
(upto
less such
he
at another.
Aecommodationhas
days.
hotel,
oftheyeRr:pretviheoUS aYmmoshall
datipayabl
onchar. ees
five by added
reduced or or be Suppose Accommodation
an site
cantonment be
eriod
rpect the
Government
in the shall not a which of90
shall of (a)her floating
structure.
of, other paidabove a to an a
of censUs,twenty above in of value a
16% 10% pav the
the period
(for in payment execution
providedor
of located value
being located to atOMmodation period : in It
orpad Where the be Where any chargesbalance sCommodation
Example: place value :
(i) (ii) furnitureFrom amployer
shall the vear
In
the
From the
site
is
neration is
a
0r is
the
the
retains
the
days
aOmmodation
Hotel
Biest
house.
O) Une
YNaximum
b) mntal (3) h) the of actual4) itis project ) 9)
The b)
nà ralue nd 90
t
(c) Remote area : An areathat is located at least 40 km away from atown
having population
not exceeding 20.000 based on latest published all-India census. Off-shore sites of.
a
do not have to meet any requirement of distance.
allowances, bonus, commission, payable monthly
si
or
milar nature
(d) Salary: It includes pAy,
i
any monetary payment, by whatever name called from one or more employers, butit
the following
otherwise
does not includeor
of
(i) dearmess allowance which does not enter into the comnputationemployment.
of the emplovee concerned or which is not under the terms of retirement benefita
(ii) employer's contribution to the provident fund account of the employee:
(ii) allowances which are exempt from payment of tax, e.g., travelling allowance for tour
or conveyance allowance;
(iv) the value of perquisites, specified in Sec. 17(2);
(v) any payment or expenditure specifically excluded under medical benefits [Ser 17io
proviso]:
It means the amount reimbursed for treatment shall not be included in salar.
computation of value of accommodation.
(vi) lump sum payments received at the time of termination of service or superannuat:
or voluntary retirement, like gratuity, severance pay, leave encashment, voluntar
retrenchment benefits, commutation of pension and similar payments.
2. Motor Car
(1) Car ouned or hired by the employer : Car is used wholly and exclusively in the
performance of his official duties. Value shall be taken as nilprovided the prescribed conditions
are satisfied.
(2) Car owned by employer and it is used exclusively for the private or personal purposes of
the employee or any member of his household :
() Actual amount of expenditure incurred on the running and
maintenance of motor car
(ü) Remuneration, if any, paid to the chauffeur
(iüi) Depreciation @ 10% p.a. of the actual cost of the motor car/cars
Less : Amount charged from the employee

Value of Perquisite
(3)Car is taken on lease and it is used exclusively for the private or personal purposes
employee or any member of his household :
(i) Amount spent on running and maintaining the car
(ü) Remuneration, if any, paid to the chauffeur
Less : Amount charged from the employee
Value of Perquisite and
(4) Car owned or hired by employer : Car is used partly in the performance of duties
partly for private or personal purposes of employee or any member of his householdborne
: by
(a) Jf the entire expenses of maintenance and running of the motor-car are
employer: 1.800 p.m.
i) Small car (Cubic capacity of engine of the car does not exceed 1.6 litre) 2.400 p.m.
6i) Large car (Cubiccapacity of engine of the car exceeds 1.6 litre) 900p.m.
If chauffer isals0 provided, add purpose are
met
(b) If the expenses of maintenance and running for his private or personal
by the assessee (ie., the employee): 600p..
(i) Small car 7 900p..
(iü) Large car p.n.
7900
If chauffeur is also provided, add
o s TAX PLANNING IN RESPECT OF
(5) Employee uses more than one MANAGERIAL REMUNERATION 317
isOwned orhired by the employer andcar
thefor
employee
private orpurposes
any member
: Whereof more
his household
than oneismnotor
allowed
car
theuseofCech motor cars (otherwise than wholly and exclusively in the performance of duties),
perquisite shall be:
ihe value of
(a),In respect offone car:
(i) Small car
(ii) Large car 7 1,800 p.m.
If chauffeur is also 72,400 p.m.
(b) In respect of other car(s): provided, add 900 p. m.
Assuming the car(s) 1s providedexclusively
Note: Where more than one car is used for private
privatepurposes
for official and purpOses las expenses
and the discussed
incurred
underin relation to
(2)/3))
9r are more than the expenses
incurred in
Okor car is large, the rules do not provide relation to other car or out of thoge cars, one car is grnall
the
method of valuation in such a situation. ana tne
cars may be determined in such manner which is beneficial to the employee.
Hence, the value of the
6) Car owned by the employee :
IA) The actual running and maintenance charges
-reimbursed
met or by the employer and such (including chauffeur's remuneration)are
reimbursement
exclusively for official purposes-Value shall be taken as nil is for the use prescribed
of the car wholly and
aresatisfied. provided the conditions
(B) Where reimbursement of expenses of the car is wholly for
omnlovee or any member of his householdValue shall be taken egualpersonal purposes of the
to amount reimbursed.
(C) Where reimbursement of expenses of the car is partly for
official
for personal purposes of the employee or any member of his household : purposes and partly
(i) Small car:The value of perquisite shall be the actual amount of expenditure incurred
by the employer less 1,800 per month + 900p.m. for chauffeur, if any, provided
the prescribed conditions are satisfied.
(ü) Large car: The value of perquisite shall be the actual amount of expenditure incurred
by the employer less 2,400 per month + 900 p.m. for chauffeur, if any, provided
the prescribed conditions are satisfied.
(7)Automotive conveyance other than car owned by the employee :
(A) The actual running and maintenance charges are met or reimbursed by the employer
and such reimbursement is for the use of the vehicle wholly and exclusively for official
purposes-Value shall be taken as nil provided the prescribed conditions are satisfied.
(B) Where reimbursement of expenses of the vehicle is partly for official purposes and partly for
ersonal purposes of the employee Thevalue ofperquisite shall be the actual amount of expenditure
Meurred by the employer less 900 p.m. provided the prescribed conditions are satisfied.
Prescribed conditions :
Where it is claimed that vehicle is used wholly and exclusively in the performance of official
forayofficial
orthe Purposes
actual expenses onthan
are more running and maintenance
prescribed amount (Carof the1,,800/2,400
vehicle, owned
p. m.byasthe
theemployee.
case may
and other automotive 900 p.m.), the following documents should be maintained:
a) Complete details of journey undertaken for official purpose which may include date of
jpurn(b)ey, Adestination, expenditure incurred.
mileage and the amount of
certificate of theemployer to the effect that the expenditure was incurred wholly and
exchus
3. ively the
for performance of official duties.
Sweeper, gardener, watchman or personal attendant [Rule 3(3)]

Where the employer provides to his employee or his household services of a sweeper, a
gardener, of salary paid or payable by the employer or any other person on his behalf, less the
arnount à watchman or a personal attendant, the value
of the perquisite shall be the total
anount paid by the employee for such services.

reatment. exemption
any indetermined
concessional underas 7. Note be value for
employee in
Transport
Facilities
expenditure provided
6. infree 5. the unit
them to of 4. 318
60.00) 20.000-The
Rule any Education the the Gas,
Prescribeddeducted th e employment
insurance
medical
scheme,
For Where (B ) (A) Where (i) In: any If Where (B) (b) educational amount
(a) (A ) However,
incurred (ii) (i)
at from employee,
agency
3A WhereInterest-free case conveyance purpose
which Educational Where electric
(7
example, or institution without
to
Educational Wherever
free Educational
(ii) (i) Where Where
,00,000 He shall(e.g., the amount
of
from to anincurred the institution if if so other any
loan education
received Joans value employer
fringe an suchundertaking of any p.m.-Nil; th1,000
e th e facility paid in supplying
by such the
cancer,
not the employee children educational
facilities of the energy
to the transport owned, any
cost cost both the
the apply benefitis member the that
amount
areshall Concessional
th:e benefit or
aforesaid paid facility deduction
by facility
in
employer. supply employer
shall
outside. value
40,000)
employeetuberculoSis, employee of
or to in or facility
value of
employer, the
or
or an leased the of near the or such are be the
40,000 to made be or or of of is the value cases, ofwater
Bo takennil.as of any Airline provided institution
provided employee near providedallowed deducted agency), gas, the CORPORATE
is
51au or
recovered passengers engaged
amenity his employer. the of education made provides
much available loans otheramenity
value. or employee education
of benefit
or household locality [CIT exceeds
th e the if electric
under has
be
or made employee
AlDS, any loan the 1,000 value from
aX-tree taken a the of in person Railways, is in in to Vs. wouldlocality to in is from th e TAX
the
member offered or
from available the any Director, any shall gas,
medical
etc.Theloan aggregate
for
goodsThe f or
or lessother p.m.facility children or itself
the
value energy
resources PLANNING
carriage otherother the shallother eloctric
medical on the be less1,000 is be
and loan
as the byprivate household the
Delhi per the value owned aforesaidpayirng of orthe
nsurance employee be:
onfrom has ofhis value the by household
educational amount exceeds
p.m.Cost
child.value
th e educatiTnal of perquiaite: water. AND
behalf
his any of (rw arnunt energy
treatment undertaking journey Public arnount the and
40,000 beenvalue household.
during of
value
passengers of
any ned MANAGEMENT
trans other rmermbers: enplryee: #uch
mairntainei value.
scheme. his has for recovered Schsl of try paird r
reimbursedshall of members-The perquisite 1,000 rrifstunt 3 ahall the:
employer
shall port such
arrangement the free recveri beefit of inatitutiti water
previous
in made institution:
be facility benefit or #uch efnplrerwihurt ta: on
respect the to of 2011, p.m., that frir
beThe taken benefit the costgoods Cost The if the
available from per try
liable value in rejk
to vear shall
or of2í2 euztin
the the frun
i.
2 vale atnut.)
benefit
the as of pubic. or
and educatin the
chiid rythe
1,00,000
to diseases of be amenity or bvat Educatima Tazrruinnvalue hasa valuE rann
th e eriarer
tax. of
employee nil. does
benefit
interest-free amenity. concesELA
ezenp the it ernpiry dsa ehzll H
However. prori ettIpiara
interest for not Rulk
37.! underai
shall shal
in
14 in ter i ut te #
.
ta
cane
0
spuecified ez
shau I te
2
W e ?
&
e ..
w y
employee
(including
-card) card
be theby Christmas, equal
New employee irough Joints-The an
0r shall raid
aken ggregate educedDusiness themployer
e tn member this or the L.the
The
However, (v) ne Gift
(iv) e 1n
installation-Nil. (C)
off-shore (B) (A) The (iü) or In oth
It er
employees employees, household halance EjoymentHoliday (i ) equal
Where to case be expenses all D) C) means B) rule (A) The Ist (C)
Expenses
toamount the valueexemption paid premises
by Free Free Tea value recovered
as Free Where Where reimbursed for in to
or or the shall of Where shall The day theLoan
(i) under: agencies
during the
Eplanatinotnerest,terest
be amount byvoucher ofvalue food and Food,
uniformly,
his ur the shall each ifinterest of
the any of an the food aforesaid
of if val u e purposerelevant the
ovided gifts incurredhousehold any be an valuesuch not by anyshall for
Year,
gifts member any assessee snacks free from such be loan
alue Charged ofprevious providedamount and officialemployee the to apply any
made
thereof orand etc. travelling,
kpensesthe the of actually:
Maximum
member through food thefacility computedbe
expenses th e are of gift shallnotbe non-alcoholic the value th
tac1litye ofemployer
amount as purpose TAX
by such non-alcoholic provided cases, benefit computed
householdhis of or in public. to on
ofthe in given opting in paidshall and
employee tour value 'Leave PLANNING
to
of anniversarycash year relation
accompanying of is the paid previous
te. voucher
gift. respect paid 1s
a or non-alcoholic the is on 1sshall outstanding eXcept
ployer to amenity. maintained
of touring,of
for last at
including his Credit would or available. recovered be during amount extended maintained expenditure by the
the for vouchers official the travel on
ousehold,convertible concessional
or the beverages for to be any day the the year RESPECT IN
rate
discussed
such
of beverages
Card employees
be of free amount
benefit taken
holiday employee of
or occasionstokenon working such so tour concession'
accommodation, maximum charged in
exempt, theceremonial food which himTheas by each
therwise
membership from beverages determined extended monthly respect OF
into in provided benefit. a and shall by toincurred the
and vacation, be availed MANAGERIAL
under
which organization, on lieu taxation the provided
ofare hours-Nil. theemployer month.
beyond
cash, non-alcoholic the be the outstanding or per
expenditure employer balance' any of
social of
[Notification employee, not provided period amount nil. value under loans annum (A)
paid is
which expenses by
fees like transferable during shall the the by
charged or regime the any memher REMUNERATION and
which and during of
value and Sec. for
etc., be at
employer other by (B)
such working by stay of and employee
is
105) means the
it and which
mbursed and gift religious
cheque such or beverages No. reduced expenditure are not monthly
of the
annual
to woul underincurred the of
otherwise, gift GSR (ii) working orthe incurred it ex th e his same State The
a aldgifts and employer available
such and
may hours vacation. is However, behalf. in household. value
credit fees ete., Occasions beDiwali,like section benefit
by made this or aggregatebalance
415(
provided 50 usable
by facilities Rule
shalltaxed upto the any India,
Bank
be E) per the hours in paid
for or shall
incurred shall dated in amount, incurred available uniformly 2B.
employer received 1l5 to will respect as of
not as 37\iv)]
[Rule employer [Rule
an member 37i)) (Rule advanced
3(7%v))
Rule 5,000 by meal. only remote a 37Xiii)]
at are outstandingreduced be
perquisite. be be
26.06.2020] BAC be
the employer at
office employee the
exempt. limited offered
by in by of eating if byof to to borne
of
shall the the sum the the as
area any. the any
assum
319
or all all his bybyon
320
transaction
the employee on 10% washing
@digital wear
by under as: to for value Rlof e th
enjoyed e employee periodicalthe
annual prescribed
or details and benefit
determinedemployer,
shall the
employer
the 20% the such value Expenses Club (vi)
ployee The (ix) of (C) (B) and (A) Where (viii)
However, (b) (a) Whereand (vii) Bxceptions (2) (1) initial WhereHowever, from
such
Exception However,basis suchinstead Electronic employer employee Where Where or
Any diaries Computers use Asset taken
nil.
as
However,thAssete benefit the uniformly Use WhereWhere by
value being Motor
Any machines, tear Transfer laptops amenity
ofcost the shall the fee the the for on of
employer the
as other
other of paid such that
benefit
reduced
by : in ofcar and @50% fromtaken belonging employer Movable
of thstraight
e gadgets on employer or the such employeeIn:
employer expenses
xpensest he be all 50%.
for microwave : be and to account.
Benefit
considerationany printers. the and any shall
be: employer to the benefit fee shall
loyer the eachasset Same
of
of the on
reduced. computers) expenditure
all acquire shall
basis Movable value pays the
by other cases, line : in such member
electronic value
rent-Rent employees.
toprovides Asset following or ofthecertificates be
on the or completed Actual as this transfers any; has shall From be amount,
are
method. cost ofthe the or reduced
phones
mployee's Amenity from discussed ovens,They of Asset so provides such CORPORATE
shall benefit W.D.V. perquisite
employer-10% obtained bethe club)
on for cost case for of determined for any is
cases member reimburses incurred
actual
the mixers, do items: his or corporate reduced in are
not the such each any th e incurred value and the
or value
year of
charges movable a TAX
be the under
notmeansmethod. household, the the ofhis club
maintained, amount the
uding
ibution, basis
amenity, asset during completed movable for use amount
ed include
hot Actual facility value
corporate and so
by any wholly PLANNING
so asset data the of membership. balance
shall (A)
plates, an wholly household,determined the
determined
of paid employee asset th e
cost cost amount asset per of expenditure of and paid
which toexcept storage
household thasset
e of employee the AND
as service, be the year or annum (other benefit
and membership balance
expenditure shall or
e obile to ovens value health
if reduced. employer such of
belonging payable used value
the the
the
exclusivelyMANAGEMENT
any. the the and during the paid or exclusively recovered be
one right etc. for of than shall shall
asset rate asset of any club, ofperquisite include
value amount incurred or of the
employer amount appliances th e or the by
handling by assets incurred
which recovered
more member be of be anyperquisite fovalue r
ly privilege or the isless of to
benefit to the actual sports taken the the from
depreciation
put the him, thanten for paid
paid normal employer years already (including
household. member of) perquisite.
official ofthe
underlengtian employer useto such business clubvalue
(i.e.,
devices employer directly cost of and as or or
halfof or shall recovered
shallemployee
asset from his nil reimbursed purposes
recovered white of similar shall
and of
wear
by be [Rule for household.
such specifiedthisin : the the be
provided shall like the 3/7Aviü)
[Rule purposes hi37vi)
s [Ruletaken
isdetermined
less or such
on arms' 3(Rul7)\e(ix) the and
put indirectly not
facility ben am0unt
gooas) 3(7Xviü! employee be
wouldasset. facilitias from and for
becomputer, by as
by from taken w nor asset. such
tear the the the nìl. the
the is of
@
upto tofund part Vote connection: thisin Ea in
purposes.
tfaoxr salary t upto
Onorecognised expenditure deductfl owiiongns ;
employer
(a)
lieu exempt and gratuity get employee) Any : (b) Eatertainment (3) 2) ) The
may interestempl-freeoyee. be 12% (1) 5. Itthe or 4. 3. of 2. 1. To
whichTax-freereduce In orIn Deductlons respeitcerence Where
Eor ofbe the (2) Provi liablesion Paymnent1,50,000 Some should pay The Taxable Allowances entertainment
Entertainment
Employment income Standard salaries.
th e (ii) th e
from of an
However
di f ference ,the in come of the is is it,
mple,such whileinterest deductionemployee
Advance is toprovident is
between security
(3).grl oantwances
ed exempt tax salary other be incurred the not case caseincluded employer on
llowance, Some Hence,or of of (which amount perquisites perquisites
taxable. taken 5,0 00 deduction the the
paid at chargeable
liberally. the
a salary pensioron is partaspectsa noted from Pay : tax of of Allowance Tax
date fair or TAX
ment by in st e ad upt o liable exempt fund, should by liability expenses
in to
(whichever any a
that
is as the a Government under Allowance offerssweatPLANNING
the of
versusof nomi alprevious
in these not :consideration other (S ec. on
market
speci
versusfied tomay salary for thegross life
gratuity : part As TAX upto under
employee
suchWhere facility
between rate of tax further includible deposit
employer, Al lo w incurred :
are advance lo an reduce the insurance
contribution total offar of Amount
the 16(iii)). whichspecifiedequity
a eofinterest. year at in salaryPLANNING the employee: is (Sec.50,000 value IN
and case exempt
allowances :W e lim it s. a and purpose such as head the the RESPECT
Meals on the in : lower the atfuture employees at byemployee less). share8
in
income the e.g., possible
facility t he salary whi cWhere
h the in all. the granted 16(ii); head option and
security
upto have interest present
rate pension. premium amount
perquisites the 'Salaries' [Sec.
instead amount The
ti m e :Asalary of of facility
ws employee Nil the OF
arealready
shouldspecified employee it and part ta x the form allo w FOR is MANAGERIAL
charged amount
a is
income) 80C in the (i) : as 16(ia)l:Salaries' amount
lo an
taken.
salary. ofTheplanning
the receipt of employer or and exercised or
of fully of recognised
upt o
ofthe following ofsuch
EMPLOYEES (whether entertainment
Amount
be
discussed loan sweat
lunch taxable limit. may takescommuted After salary
contribution is
purchase car.allowances t h en pai d
provided. of shall
AEMUNERATION
taxableperquisites
shall theby loan of This
be not to
owance. salary retirement the mayunder 1,50,000. an should government received; the byequity
by
The be increases takenis anational
provident be
and that State value amount be part
approved
the valu e following the or
treated not in of whi c h allowance computed employee, recoveredshares
allowances a
certain Bank employer paid head for be
facility addedfromadvance, of the of whi c h (i)
as of the pension of in
deduction savings fund, whi c h either con employee
anmount the 1/5thdeduction
allowances taxableIndia inthe tax superannuation future
'salaries' sidered
are to
canwhich the fund in to after shall from
employer it public are or of an an
be on liability is and of
provident certificates is tax-free.
employee,
income
salary pension may lesstax-free non-government : basic employee the
provided perquisite.
are similar added th e is inare ws
th e is making be
exempt. 80C. provident than employee [Rule3(8)
(Sec.16)included
exempt ar e amount f or m : salary; allowed
in
fully loan either the ofthe fund fund etc. the or the
in of a by the 321
each thhouse Case 2 Solution
Case 1 > 322
e voluntary of option.
rent-freehis
employment, llustration 1
Salary
D.A. Ilustration case tax
2 However, (5) In 15% Hence, (3) received HR.A.
(2) (1) The In 15% of H.R.A.
Hence, (3) received (2) (1) The H.R.ASFR.V.Allowances
In Salary It House rent(4)
rent this this is
incidence. 50% Rent least 50% Rent least both
Case is retirement.Dearness of Case
clear house
allowance case (1,20,000
32,000) In
required. case Salary taxable(3,00,000-
30,000) 4,40,000 the
D.A.
of paid
of
Salary taxable ofpaid-
of some
it Salary Salary from or
allowance it the it the cases of
Hence, increases is is cases house
as ? HR.A. following
10% is H.R.A, following
10% the allowance
It Further, better6,00,000 better rent-free
orper house
rent-free
is followinghouse rent
employment
clearbefore of of
Computation
to 1,50,000=7 = Salary Computation
to = Salary
contribution
itincreasesthe the perastake take is
is
house allowance,CORPORATE
from 3,00,000 Computation situated rent versus
demandhouse exempted exempt : 1,20,000 exempt for
Computation
terms
rent-free H.R.A.
example
3,00,000 3,20,000 the
the allowance rent-free TAX
provided in - of Assessment : in the
following certain of amount of of
1,50,000
employmnent:Whenever Value instead 88,000
Value Delhi :employee PLANNING
D.A.as house of of is
Taxable of Taxable beneficial house
cases
by of of
= Year and
illustration per the of
instead Rent-free AND
gratuity, Rent-free rent-free 32,000. should :
2024-25) rent If
increases
terms
employer employer of an
Value H.R.A. Value HR.A. MANAGEMENT
of paid and
H.R.A.
calculate
employer
in
96,000
96,000 of
encashment ofHouse house. ofHouse is
employment,: some
1 and the in Rent-free Rent-free equal
DA. his
in tax a
recognised
providentfund. is to casesprovides
tax
certain
incidence 1,20,000
1,20,000
received
of House House H.R.A. 3,20,000 the
liabilitv
96,000
96,000 an
2 earned 1
a rent-free
cases
careful / option
in as before
reSpe leave per 1,60,000 1,20,000 3,00,000
3,00,0003,00,000 of
decreases
study 2,70,000 3,00,000
1,50,000 66,00066,000 88,000 house.
givingeither
90,00090,000
96,0 096,000 in a e
taxable. be
Insurance
exceedingtwo neither
madeentitled be Solution not Solution is
ensured (i) (i) Illustration
asFR.V. (ü) (i) as
Interest Where It
(6) Salary15% of Compute DA.
Salary 3 In In cases
per allIn Rent
paidH.R.A
to is DA. 15% DA per cases case DA D.A .
the to the
Provident received
(c) H.R.A.
(b) (a) received
(b) (a)
(c)H.R.A.
better terms terms
deduction that not of as of TaxableH.R.A. Least 50% Taxable
H.R.A.
not Least 50 as
Plancontribution
it Exempted H.R.A. Rent Exempted H.R.A. Rent
ing/received General is Salary per rent-free 2lit
lakhand as the and is as Case
per
of not the that of of paid-
of Case per of paid
of house
ofthe is
the fund:At per terms value better Salary Salary employment:
termms
employment. 3 the the
ProvidentpOssible wsfund D.A. + it terms -
Unit terms D.A. house TAX
fifty of is above 10% above 10% of
80C to is is of better that + PLANNING
Trust recognised. this the not employmentStatement rent-free ofemployment DA.
employment
of :
thousand regarding to of situated of situated
Delhi. in
timeemployment D.A.
from Fund get fund received for that Salary Salary Computation (for of(ii)
of
the is IN
India. the is of house + the D.A.
RESPECT
of in D.A . not D.A. Assessment
Assessment
aset-up contribution
rupees recognition,
Recognized deductible his If : is
as Value Delhi received
the is not
subscription. per : if received
:
by provident (i) OF
in of D.A.
as
Compute t he
REMUNERATION
MANAGERIAL
a the terms Taxable HRA per
in Year
Rent-free as Year
Previous
ProvidentCentral the the and
of is asper 2024-25) terms
subscription 2024-25) as
contributions hands fund
employment. Value Value perterms
per
Yearon
Government House terms amount
of of
is terms 20,40024,000 96,000
10,800 10,800 24,000 employment. 30,000 24,000
Fund ofnot of of 20,400 48,000
3,600
of 13,200
employer Rent-freeRent-free employment. 1 1
a of
afteroron andrecognised to ofemployment.
a employment; taxable
H.R.A.
employee provident
subscriptions or 48,00048,000 60,000 60,000 96,000 60,000
nor House House 12,000 86,400 60,000 96,000 76,800
April,lst to
the Nil
provident the fund
contributions Linked Unit employee fund,
(iü)
2,00,0003,00,000 1,00,000 .
2021 1,00,000 D.if()A1,00,000
may 45,000
it 45,000 75,000 75,000 90,000
D.A. 52,000
48,000 48,000
86,400 23,20076,800 96,000
76,800 96,000
must 3 3
will 323
be is is
more outflow
hands commission,
individual
income Occupation intendedlives has
theofnotional
disposal tax. by tax.years
fund However,
recognised
provident ifemoluments,
whoGovernment,
isa Act,
Sector
anotherliability.tahxe he as 324
eighty emoluments possesses
application retirement 1s30% which is from
ofemployment
the also earned provided
5,00,000
Next on
Next-Balance 2,00,000
Next on Spouse(11) held is
It been
in (10) may (9) a (8 ) connection
on thisEncashment In the (7of
)
alance5,00,000 On citizen
at5,00,000
2.Next3,00,000
on On 1. Conclusion
or other and company,
Local losing
Individual
any : yearsSenior fromthe of income. it Change Voluntary
of provided to
Surrender recognised
member of management
nominal
atechnical the
has a or be receives 5,000.leaveemployment
the be is
Authority, not in
time at insuch of fees not, transferred employer, exempt Central
he interest because
citizen: spouse Delhi
Highby used section
any the income:employee, of may any taking
Ifand
employer. In : accommodation.
substantial or its by obtains hethe
employment savingheis
during time valueknowledge
form and or it
value of retirement:
other he
Super brief, shall other the fund, and Government
upto take ondoes 10(10AA). it
(resident professional should accumulated
the after to or
Wherever residential
employer
Co-operative the earned is
e during for of from company,
this willretirement.save
thsenior Rate
allowances, remuneration,
it not he is amount voluntary not added
which Court that added
be 5,00,000 taking amount retire employee CORPORATE
previous may beotherwise
interest, be will employment
old with by take the
the in of surrendered before
the balancetheprovidentin Where fullleave
Tax clubbed possiblethe be house
and
employment a
is
experience.
qualifications in isbalancemember voluntary
Society,
or an the after tax.
previousIndia, added
deemed not retirement. u/s a for Inin : TAX
year): perquisites
for statedthat th e put Notifiedauthority an Suppose
twenty should al s0 Earned
where a following
encashment this
salary
(resident Assessment with
if liable tax. to 10(100). employee PLANNING
who
for in salary atnot furnd,
in of
year): cash the University, case
is tax spouse of to intended fundth e th
recognisede retirement income. leave
the disposal to changes Institute Further,
years. Mr.
in of accommodation havehousehas income
employment employer,
new to other fund, established
The twenty a AND
the purposes and the income and the or A major
[CIT is ofconsider
India, Year employees other may income inenjoyed earned ? can may
age th e income Hence,
transferred to
is the amount sure This
MANAGEMENT
individualshould anvs.
kind, of of to employment provident his Indianof from years, not
be get part
2024-25 of benefits and
income of Bawa th e an amount Management) that the
who sixty e used
under may be
thshall
it, employee, the received Institute the leave
suppose of
is accrues
employee. which ,000 loss encashed the be
which individual, from Singh
even (Schedule IV he
of years is accumulated also
who is existing
the be a Where : received fund Central, can he of
encashed
which solely tS amount
do be clubbed. concernChauhan if to reduce such wil interest
he
age whether : or of get is
or not given he him If before Where during
are
attributable placed
been a Technology,
receivable almost employerState beliable year
of more result where receive not is such
residental Partmaintained would employment much exemptwould after
be
tax-free (1984) to A amOunt as
the on
eighty a However, in not maintaining
the fund a
balance
but of
part64(1Xü) avoid
house the incidence expiry ofan on or encashme
1,500 to resignation the
in [Sec. the which in be Provinciol more pay
150 employee Rule
8(iü) employee. the (a period
less higae a in physica liable on a but
20% @5%
years @30% @ spouse
to suchsalary ITR theat tax is house in such sarmeStata pubk wit% tha tax@
@30%@20% than theu the the thne onnot the fv e he of
Ni or Nil 8! of to
deduction
cho0se1 assessee,000 vent alternate be
Education lakh Stav
The Above
crore 5 Above crore 2 Above Exceed prescribed
eme, entitled TdisiduaVHUFIAOP/artificial Next-Balance
AnAllowance, nvailing
Individuals InHealth No Income on?
Mereinal Rate 2,50,000
Next2,50,000 On3.
inance Per "Income navable Next onOther
either (Other case marginal 7
individual an
and
under minor minimum to Cess erore 1 limit of
individual 15,00,000 I9,00,001
12,00,000
Above 7 to ? ? and
a 12,00,001 6,00,001
3,00,001
3,00,000 to
Up a of 50 Surchargeindividual-HUE,
Act, of
other than deduction
Tax an (including Relief: 5,00,00
new @ should
2023 the section interest
child and individual Education
for Slabs exceed The crore
4%relief crore exceed The than
exceed The crore exCeed The
tw o or Blab tax a
(w.e.f. deductiong to
toco-operative shall
HUF in has to Total
Financial The on TAX
tax
HUFg 9,00,000 6,00,000 Income not
80CCD2) respect on (AMT). rate 15,00,000
will bythetotal bytotal bythetotal the thetotal
the Burcharge)
Inent to under from more more more amount purpose Income PLANNNG
regimes who resident be be amount
total amount amount
total amount
total excesd
housingforgoexerci8ing Cess total
is tcharged.
he allowed than than
one than
doesprovided of Year the : amount amount arnount armount AOP
or all amount On payable payable payable payable
of juridical the Ta:See of IN
Year each income time society) New in the the the incone due PESPECT
80CCH(2) not loan tax India, marginal
anount
4-25) 2023-24 the amount
on armount armount r
yearhave non-revocable benefits option payable payable payable payable tw BOI:
Tax Health as ag asthat
in of on
whoseof amount a8 increAHe
Chapter
pending self-0ccupied or OR
income incorme incorne incorme incorne pTHOTn OF
minor (AssessmentRegime of ezceedg
anysections
80JJAA shallor under BOI of ag ofas as Murginnl relief MANAGERIAL
provided incorne
and income incorme incone a8Relief increHe of
total of incoTNe incoTne inMe
busines8s child or tax tax taz tax tax (for in 9
80C, Education
income-tax is
section an for income
payable that and that the twtal to
upon process. Applicable
RateTux and that and 50 and
Artificial taz tax taz ta% in
clubbed orfor Individuals Jakh. AseHATnETt engure PEMUNERATION
Year surcharge
exceede #urcharge
and exceede urcharge
and exceeda and #urcharge (on total
their
income 80D, vacant inoorne
Leave 30% 20% 15% 10% 5%Nil does net
claimed.beFurthermore,115BAC up gurcharge surcharge #urcharge
tax 80E in 2024-25) and Cess. incrne. that
would
tonot z incosne of
property,
the Travel Juridical Surcharge,
5 on 2 on
l on on
liability and or12,500.
exceed crore. crore. anthe
are #uch guchcrore. Buch wuch Yuar
hands HUF on on on f54) aeaee
have 80TTA. concession, not inerease
net
incoIne net
incorme net
income inone2024-25):
under exemption if Person or
an ofavail1ng liable 115BAC)
(Sec. 5,00,000, incone incme incorme lakh
the AOP (Sec.
87A) Health heyond
eachoptionHowever, shall #hall ahall shall in
ty
parent House to of f amount 30% (0 O
shall rnore
one of this pay and not not fnt
not 20% @5%
to ? 5 2 1 the Nil 325
Education
ha Cess @ prescribed taxof business
income. exercised of 326
Above2
crore Exceed
lakh tothe all
entitled erore
Above 1 exerCise them.
InHealth Marginal (vi) (iv) (iii) subsequent year
No Individual/HUF/AOP/artificial Income (v) () ()Rate
case marginal payable
members,
115BAC, "Advance
Further, "Advance-tax"; ofthe provisions
In
rupees, having rupees, having provisions
rupees having provisions in
However,
to of limit provisions rupees having of cannot
section case
total Surcharge option which
a an and 50
duction (including
individual Education shouldRelief: income where but a at abut abut a assessment be
4%relief crore exceed The crore exceed The than exceed The the in tax"111A, total total under it in
and of the total of not total of not of withdrawn,
shallbe rate
the is
section section section section was respect
will bytotal bytotal the total not The having in the income income
rateexceeding income
exceeding income :
from the the surcharge) case
respect includes
section not this
exercised
more more the amount prpose of provisions yearS
resident Cess be amount total amount amount
total
exceed of
total surcharge of covered 111A, 111A, 111A, 111A, section, CORPORATEof
the charged. allowed than than (including(excluding 25% (including(including an
amount
its an 112
and In
:On amount amount of any two one
amouu payable payable of
payable juridical the income
of section of
section section section individuals
and such
in the the income due association that and
marginal income ofunder such except can
nla, the amounton amount
amount crore crore
payable payable payable on sub-section
part
thereafter, be a TAX
Health to section case, PLANNING
amount as as that as chargeable the 112 the
"advance-tax"; 112 the 112 the 112 the
uncomewhose person increase rupees, rupees, withdrawn
where
income income income of by clauseincome and income
and income income or
of as of
Advance
relief of way and and an
income
ofasexceeds Marginal as Relief increase income112A HUFs
and income
income income persons section section th e option AND
total income (for sectionat section at such
tax of tax tax tax in is of
(1A) (iii)
Education
income to dividend of by bythe bythe by individual onlyMANAGEMENT having
ayable
income that and that and and the total to shall individual once
tax 50tax tax" tax th e ofabove, way way way way
tax ensure
in consisting 112A 112A rate 112A rate 112A
exceeds
surcharge surcharge surcharge
lakh. Assessment total section once
and exceeds and on income shall under not Act, of of of of exercised
tax of
business
does
up net or dividend of of
dividend dividend dividend of of of
Cess.surcharge surcharge the at orfor
and income. that not exceedincome
115BAC the the 15%o the 10% the ceases
H1UF or
to income sub-section
of the HUF a
not of rate Act) Act) Act) prevous
crore.
2 on 1 on
crore. on an exceed
the Act)
of income,
would
25.000.
eveeed surcharge, Year only rate of
such such such
assessee
beyond the 15%. under or such such
or or shall
on on of increase of exceeding exceedingexceeding or exceeding
T surcharge
are income income 1income
underthe income
net
income net
income income50 2024-25) companies
15%. never year bethe
z (1A) applicable the
of "advance-taw. "advance-tav.
100.000, income income lakh 15% have toapplicabl
Health other option
shall shal shall in of provisions twunder
o under
two one under
fifty be
(S87A)ec by of
o more
: amount section on eligible
of as such Crore crom crore lal th o
sh a <. n no not the and the the th
its
Rent
Add 6,92,500:"Taxon Less 50% received H.R.A.Bonus
H.R.A.Least A.
D.
: Salary Add Less Salary
Solution
Net 6,31,300Taxon ValueBonus D.A. He
Whichallowance
House
Rent-free
(FR.V.) A.
renthouseBonus D.Salary
On on on on will RamhasMr.
nlustration 4
: of cash Health :2,50,000 :
Health : On On Standard2,16,000-
36,000)paid-
? ( of Standard of
3,60,000 the 1,31,300
2,50,000 rent-free should
offer pay
1,92.5002,50,000
20% @
2,50,000 5%@ in
10%
following hand rent
and and
Computation received
deduction deduction ?
ucation of Education
=2,88,000 @ house
@5% 18,00
he TAX
3,60,000exempt 20%
accept offers PLANNING
(15%
for p.m.
Cess Cess of from
: + of the
Salary and IN
3,22,500 @ RESPECT
@ 3,12,000) Assessmnent why? the
4% 4%
Offer B OfferIncome
A employers
+ OF
24,000 MANAGEAIAL
Year for
2024-25)
Selection of
40,310 Delhi
REMUNERATION
for
= of
service
Income
Salary Income
Salary an
5,94,190.
Offer
1,80,000 1,08,000
1,80,000 8,50,500 2,16,000 2,88,000
3,22,500 as
38,500
12,500 26,260
12,500 24,000 underA
Nil Nil
:
7,42,500
6,92,500 3,22,500
3,60,000 6,81,300 3,22,500
6,31,300 2,88,000 8,50,500 3,60,000
1,08,000 3,22,500
51,000
3,0402,040 50,000 60,000 40,310 38,760 24,000
50,000 46,800 60,000
1,550 B
327
328
Notes Solution
nlustration
Mr. 5He
Which 3. 2.Other Mobile
emnployer salary
Basic
by (for H.R.A.
phone Travelling
theallowance Net
Note He The :
Deduction Less Salary
Salary
1.Contribution
Hence, :S.D.
Exempt)
Less Phone H.R.A.
Travelling
Less Contribution Salary HeHeHis Xshould cash
H.R.A.
(ii) (i) Theshould
(ii)received 5,000
p.mn.
(iü) (ii) (i)least coming has
Exemption : :
Information
offerneeds will in
deductible
amount
Hence, (
25% Rent
exempted 50% Rent least Deduction : 78,000 ofDeduction
Deduction income qualifying
of paid the Ws 6,50,000 received accept hand
of
paid accept
of should apay to
Salary the allowance Total following80GG
to
to
-less mobilehouse office =5,81,460
=73,60,000
55,000)
Income being approved
amount les8followingH.kA. of
offer 10% w/s ws Less
Computation offers offer
10% ws A.S.F. rent he savings are
is from
of paid
deductible 80GG G.T.I. acceptphone rent : A.CORPORATE
hus 'B.
of80CSavings (Not
in total
80C S.D. : from
34,000. salary is In +
exempt been excess has (for /s residence
superannuation
Exempt income Savings50,000: and fo6,500
r this3,22,500
computed
(? been Rent 80C companies
: the of
TAX
78,000 private case
of computed paid
Assessment
Salary why? p.m. will +
w.e.f. and PLANNING
- as 1,50,000 Offer B
SalaryOffer A and 60,000
under be of
44,000) Incomepurposes. back) tax
A.Y. as fund Delhi
under: Income Year 50,000. + AND
: liability
2019-20) 1,08,000-
2024-25) and for MANAGEMENT
6,00,000 Tax service is
lesser
2,16,000-53,040
Salary
G.T.I.
being Payable Total
as
Income
Total Income
Total under offerB.
6,50,000 6,50,000
50,000
23,000 :
A
1,20,000 4,40,000
5,27,00073.0006,00,000 6,50,00022,400 19,600 48,000
2,20,00034,00048,0 0 3,73,60050,4,02003,60050,4,07003,600 19,60014,4,04000,000 23,00060.1,00037,50023.000 B
Nil Nil
00 A
12000
5,27,0 73,00 6,00.0
4,2360 504,078,60 NN19.60 14,40,400,0 23,00 60,.0M1.37.50 23,0!
HR.A.-Exempt
(Tax-free)
Computer o.allowance
Uniform
6. 5. Bonus D.A.
Salary
3. 2. 1. allowance
Medical 7. 6. H.R.A. 5. Bonus 4. 3.
Solution
D.A. 2. 1.
7. 4. Þ.
Less : allowance Uniform
8.allowance 6. K Bonus 3.D.Salary
A.2. 1.
Alternative Less
Reimbursement BstimatedExempt Hostel Refrigerator, Uniform
LessT6,00,000 Amount
40% received
Rent facility
paid LeastEducation upto Salary Refrigerator,
Computers
Which Bstimated 7. H.R.A. Hostel
Cast
Less: Reimbursement Mr.
1,000 Medical
packtlustratlon
ages: 6
Deduction : Deduction
S.D. Estimated : of of of Zis
theof expenditure offered
expenditure Salary p.m. the allowance cducation (Rent
II expenditure altermative expenditure
is TV., 1,80,000
following per T.V. payable an
better S.D.
of expenses 6,00,000 child of employment TAX
etc. and of
medical a
allowance allowance PLANNING
medical -
exempt is fans
child?
from on (10% 10% should 1,80,000)
exempt Computation (for bills on in
tax uniform of of uniformemployer's IN
bills-Not ? : the of for by
RESPECT
Salary Z
point 50,000) Assessment opt a B,
Alternative I private one
Alternative II keeping Co.
of of 3,000) school child LAd., OF
view. Exempt Salary clinic MANAGEAIAL
Year Ghazinbad,
in
2024-25)
Income view
w.e.f. AEMUNERATION
his
A.Y. tax with
liability? the
Salary
Income
2019-20) Income
Salary following
6,00,000
1,08,000 4,68,000)
2,40,000 1,08,000
1,20,0001,08,000 50,000 15,000 2,500 5,400 72,000
3,0002,500
3,0002,5003,6005,400 two
alternative
6,00,000
4,68,000 7,20,000
1,08,000 3,48,000
11,56,800
11,06,800 3.48,000 11,10,00011,60,000
7,20,000 72,000 50,000 15,000 72,000
72,000 l5,000 2,500 5,400
50,000 15,000 50,000 5,000
1,800
A.D. Notea:1.
3
1,60,0003,00,00025,000
7,50,000 15,000 60,000
17,280 (50,000
64.800 3,95,920 1,80,000
1,51,200
1,15,200 Offer
B
willoforder B H.R.A 2,88,000
Offer 24,000
51,840)
Other month's ofahouse R.FH.
accommodatio
she
beXin
20,000 4,700 17,5001,25,000
p.m. H.R.A.,
one to
accept
Mrs.
rent. for
1,44,000
6,00,000
3,00,000
24.000: Offer 24,000
51,840
A R.FH. 2,88,000 3,80,512
17,28049,392(50,000) Offer
A
Bonus opt :under
for by
or optsopted
unturnished Offer should
of salary), p.m. as
salary X of
expenses)
Mrs.should an
15,000 she service
place
MANAGEMENT the of
If
rent-free Selection Hence, purposes
basic accommodation. 2024-25)
of for the
part rent optionstwo
Jaipur
(estimated
a less. 3,00,000) between
at forming
(not a for Year personal
AND takethe
Ltd. Income is 28,800) of
PLANNING : Assessment A 3,00,000) hours purposes
ABCare to bear the offer 64,800
companies commuting
own
companypay.either
directly 1,80,000- payable working
days)
hours and
by pay one Salary 17,280) of under:
TAX basic out private
employment optionfind
Which case = payable work
CORPORATE basic the 1,15,200
from 250
upto working
the of would of for + as (
in computed (Rent
and Computation 24,000 salary during
for for of
of 6%Xan income
deduction exempt reimbursement place
of 18% 2,88,000 offers and
company
.m. (Rent
house
Rent-free
allowance day allowance
rules :
Mrs. p. as ofless 1,80,000-
10% duringallowance
Lunch
offiial
allowance + salaries
from
Income is snacks
allowance
Medical per the
an allowance:15.000 2,88,000 received
Project H.R.A. Salary received
p.m. beenfollowing
allowance
to
offered gives
according the 15.000
bill? house(Taxable)
Standard
Rent-free has
HRA Salary
(G) 70
food Large
car
for
and
paid
Rent
(iü) = 8 Illustration rent and
Illustration
7 company tax Conclusion:
HRA.the of H.RA. Ganesh (COst Transport
Free residence
Project of
which 40% 1. Medical
Salary House Tea
her
is Dearness allowance SalaryBonus 15%
(of of
:Less least
Taxable D.A.
X allowances DA. (iü)Taxable (a)(b)
Mrs. for paym1nimise
pay,The Solution The Mr.
Bhopalto 2. 3. 4. 5. 6.
basic Note:
renthave
330 to
10,85,000
8,87,800 9,45,000 3,00,0002,25,000
90,000
10,35,000
50,000 3,00,000
90,000 14,00,000 7,50,000 75,00025,000 15,00060,000
1,60,000
331
B
Offer
8,37,800
50,000 7,65,800
72,000
7,200
72,0001,00,000
2,400 14,00,000
7,200 90,00020,000 5,000 28,800
6,00,000
1,44,000 75,000.
Offer
A
REMUNERATION ´A':. =2,25,000
fund ? offer
liability
accept
superannuation
Income
2024-25) 2,400 2,400
7,200 7,200
-=73,00,000
MANAGERIAL
(Subseription
of
Salary) tax
(Exempt) should
salary his Salary
Year
view Assessment
OF of of approved he HRA
approved
12%
12%
RESPECT children in Computation phone Hence,
exempt) G.T.I.
RPF or
RPF phonekeeping
including
mobile
two
children 6,00.000 RPF
employer
to
mobile
received taxable
IN to to totwo for
the
250
salary)
to child child being RPF less. salary7,50,000
toSubscription
80C:
PLANNING
employee
employer
employer accept
of Medical
(Exempt)
reimbursement 12)
(Not employer
1,50,000
upto
Exempt per allowance
75,000) Hence,
for house
15% x of fund
per including
9. childrenchildren income
superannuation
allowance
Education
is
of income
allowance
allowance
for
10. 70-50)× allowance
2,400 129% p.m. p.m. ws
10%
TAX he allowance
Medical allowance Deduction of
salary
Lunch 10.
allowance
Hostel
of ofof should HRA Snacks
note)
(See of
ofContribution
7. upto rent-paid3,00,000
Contribution
Contribution Contribution 100 300 Salary exempt.
Telephone
Education (7
(food carTransport
two twoTelephone
:S.D.
Less
total
Tiouse of
offer
Hostel. Rent-free
and
(Exempt for
Exempt Exempt
for Rent 40%
WhichSolution
Salary Large :Less
A'
? is
A.D. max. max.
TeaFree offer Least
8. 9.
1. 1. 2. & 5. 6. 8. 11.
7,50,(0 25,0
2
15,0 0 60 0
In Notes:1. 3
M r so
.Xre
inr BHRA 2,8600
Offer 51840 17280
24,00 64,800(50,00
3.95.920 1.80,01,0051,1.2015,200 Ofer 00L,60 0 0J00
B
commotaim
HRAhe R.EH.
or
A 0 0 2 2 0 0 0 0 0
76,000
5,76,000 6,02,00012,500
6.52,000
50,000 20,400 1,31634,216
32,900 6,17,784 7,00,000 5,60,000Nil 12,512,000
1,40,000 00 25,45,8034,520
00 24,5980
two: month: lakh.
has be7 tax
he per will
] ?view
48,000 2023-24 which
and Taxable
Salary Tax
Liability 60,000
12,000 50,000
Taxable
18,000Income Tax
Liability
receipts of service.
2023 point 2024-25
salary Year
April, annual
tax join Financial
MANAGEMENT monthly Income should
Year
1st gross
of Assessment
education
the his the2023-24
Year
Assessment he the
situation. month
1,500
per for Hence, for
AND on
PLANNING Hospital
annum. choose the
income
medical this month more.
during
Government be 4% following
TAX perin per should 34,216 is
clinic @
his
CORPORATE 76,000 compounder5,000 Cess
expenses hand tax
premium
completed self:follow expenses annual hand6,52,000- (ii)
Compounder
salary as
operation Education in the
month
Operating deduction
Standard
Less: 20% Salary payable
cash estimated
in allowance
as 5% other @5%20% 4%
50,000 insurance
Service be @@ I
has willper other 2,50,000 (iv)
Medicines 2,50,000@
and 25,480
option
PPF
which Service:
Option-
I 6,02,0001,02,000
and clinic
Option-own
II. Tax
on
5,60,000:@
Cess Hand
60,000
from amount
Oswal 1,000 and
expenses him.
9Illustraionnon-practicing
Option 2,50,000
on Gross
Receipts
Rent Elec. 10 has in
Illustration
Option to Medicines
that Health
in on
2,50,000 E in In
income
deposit
life
job:
for
options Electric
Salary (iii) 5,60,000 Harish
Suggestion. theby
F on on cash :(i)
Less & Cash pay opted
B.R. SecondRent Suggest Salary on on on H Compute
First Clinic : Taxable
SolutionNPA Tax NextNext
Add Net :
NextNext Add Net
willwill
Dr. (i) (ii)(i)
(iv) Shri
T He He be
and should
332

Unit 3 Cor Tax

Uploaded by

Copyright:

Available Formats

You might also like

Unit 3 Cor Tax

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Unit 3 Cor Tax

Uploaded by

Copyright:

Available Formats

CHAPTER

TAX PLANNING AND

Share Capital (Equity) 40 20 30

employed @40% 8,00,000 8,00,000

Corclusion : The company should choose option C.

Explanation 2: Accumulated profíts include all profits of the1stcompany uptoorthe dateof

However, the shall not be liable to pay tax on such buy-bac of

Withdrawal of Concessional Rate of Tax on Dividend Received by

TAX PLANNING IN RELATION TO DIVIDEND

declared in future and adjusteddividends declared by the Company in future. declared

Less : Amount deemed dividend :

Accumulated profits of the company 80,000

The dividend. (H.UE), the beneficial owner of shares,

A preference shareholder may first convert preference shares into

Company should distribute dividend.

Long Answer Type Questions

TAX PLANNING IN RESPECT OF OWN OR LEASE

Proit before depreciation and

1,00,000 1,00,000 1,00,000 1,00,000

1. Lease rent 30,000 30,000 30,000 30,000 30,000

20,000 20,000 20,000

PV.Cash outflow 1,06,846

Amount paid as allowance 125 143

Less : Amount charged from the employee

Sweeper, gardener, watchman or personal attendant [Rule 3(3)]

anount paid by the employee for such services.

You might also like