-Sundar

Eligibility Comes from Efforts, Luck

Comes from Opportunities Shetty

L-1
NEWS TIME

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 Survey reveals sizeable number of Indian
respondents would rather not pay through
cash

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• According to a survey by Global Web Index, a
little more than half the respondents in India (52%)
said they would prefer to pay without cash.

• India ranks 10th in the world in this survey.

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 Lecture Outcome

• Understand the relevance to study this course.

• Comprehend the meaning and basic concepts of

corporate tax planning
Knowledge check MCQ Practice

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START
TIME’S
TIMER
UP!

Determine the status of Reliance

Industries Limited:

a) Company
b) A local Authority
c) A firm
d) An Individual
COMPANY
Meaning Of Tax Planning
Tax Planning involves planning in order to avail all exemptions, deductions and rebates
provided in Act. The Income Tax law itself provides for various methods for Tax Planning,
Generally it is provided under exemptions u/s 10, deductions u/s 80C to 80U and rebates and
relief’s.

Some of the provisions are enumerated below :

•Investment in securities provided u/s 10(15) . Interest on such securities is fully exempt
from tax.
•Exemptions u/s 10A, 10B, and 10BA
•Residential Status of the person
•Choice of accounting system
•Choice of organization.
Tax planning is the analysis of a financial situation or plan from a tax
perspective. The purpose of tax planning is to ensure tax efficiency, with
the elements of the financial plan working together in the most tax-
efficient manner possible.

Tax planning is an important part of a financial plan, as reducing tax

liability and maximizing eligibility to contribute to retirement plans are
both crucial for success.
The avid goal of every taxpayer is to minimize his Tax Liability. To
achieve this objective taxpayer may resort to following Three Methods
1. Tax Planning
2. Tax Avoidance
3. Tax Evasion

Tax Planning is resorted to maximize the cash inflow and minimize the
cash outflow. Since Tax is kind of cost, the reduction of cost shall increase
the profitability. Every prudence person, to maximize the Return, shall
increase the profits by resorting to a tool known as a Tax Planning.
How is Tool of Tax Planning Exercised ?
Tax Planning should be done by keeping in mind following factors :

•The Planning should be done before the accrual of income. Any planning done after the accrual
income is known as Application of Income an it may lead to a conclusion of that there is a fraud.

•Tax Planning should be resorted at the source of income.

•The Choice of an organization, i.e. Taxable Entity. Business may be done through a
Proprietorship concern or Firm or through a Company.

•The choice of location of business , undertaking, or division also play a very important role.

•Residential Status of a person. Therefore, a person should arranged his stay in India such a
way that he is treated as NR in India.
 Short Term Tax Planning :
Short range Tax Planning means the planning thought of and executed at
the end of the income year to reduce taxable income in a legal way.

Example : Suppose , at the end of the income year, an assessee finds his
taxes have been too high in comparison with last year and he intends to reduce it.
Now, he may do that, to a great extent by making proper arrangements to get the
maximum tax rebate u/s 88. Such plan does not involve any long term
commitment, yet it results in substantial savings in tax.
 Long Term Tax Planning
• Long range tax planning means a plan chalked out at the beginning or the income
year to be followed around the year. This type of planning does not help immediately
as in the case of short range planning but is likely to help in the long run

• Example: If an assessee transferred shares held by him to his minor son or spouse,
though the income from such transferred shares will be clubbed with his income u/s
64, yet is the income is invested by the son or spouse, then the income from such
investment will be treaded as income of the son or spouse. Moreover, if the company
issue any bonus shares for the shares transferred , that will also be treated as income
in the hands of the son or spouse.
 Permissive Tax Planning
Permissive Tax Planning means making plans which are
permissible under different provisions of the law, such as
planning of earning income covered by Sec.10, specially by Sec.
10(1) ,

Planning of taking advantage of different incentives and

deductions, planning for availing different tax concessions etc.
 Purposive Tax Planning

It means making plans with specific purpose to ensure the

availability of maximum benefits to the assessee through
correct selection of investment,

making suitable programme for replacement of assets,

varying the residential status and diversifying business
activities and income etc.
Knowledge check MCQ Practice

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• Is tax planning legal or illegal

• a) Legal and Ethical

• b) Legal but not Ethical
• c) Illegal but ethical
• d) Illegal and not ethical
• Answer : A
TAX AVOIDANCE
 TAX AVOIDANCE
Tax avoidance is an art of dodging tax without actually breaking the law.
It is a method of reducing tax incidence by availing of certain loopholes in the
law. The expression Tax avoidance will be used to describe every attempt by
legal means to prevent or reduce tax liability which would otherwise be
incurred, by taking advantage of some provision or lack of provision in the law.

It excludes fraud, concealment or other illegal measures. In other words, it is a

device which technically satisfies the requirement of the law but in fact it isn’t
in accordance with the legislative intent.
 Substantial loss of much needed public revenue, particularly in a welfare state like ours
 Serious disturbance caused to the economy of the country by piling up of
mountains of black money directly causing inflation
 Sense of injustice and inequality which tax avoidance arouses in the breasts of
those who are unwilling or unable to profit by it.
 Ethics(or lack of it) of transferring the burden of tax liability to the shoulders of the guideless,
good citizens from those of artful dodgers.

One may not agree with the issue of generating black money by avoiding of tax. In legal tax
avoidance the money neither goes out of books nor it is spent unnecessarily but it is used for further
expansion of business.
When a person reduces his total income by
making false claims or by withholding the
information regarding his real income, so that
his tax liability is reduced, is known as tax
evasion. Tax evasion isn’t only illegal but it is also
immoral, anti-social and anti-national practice.
Therefore under the direct tax laws provisions have
been made for imposition of heavy penalty and
institution of prosecution proceedings against tax
evaders.
CASE STUDY
 CASE STUDY
• Gross total income of Mr.P for A.Y. 2019-20 is Rs.5.5 Lakh and tax on the
same is Rs.22, 500. To reduce his tax liability, he deposits Rs.60,000 in
public provident fund account. Consequently, his taxable income and tax
liability reduces to Rs.4.9 Lakh and Rs.12,000/-. This is Example of what?

• a) Economic Planning
• b) Tax Evasion
• c) Tax Planning
• d) Tax Avoidance
• ANSWER : C
 LEVEL OF LTAXES – HIGHER
 SOCIAL PSYCHOLOGICAL TAX PAYER- STIGMA, REPUTATION
 THE COMPLEXITIES OF THE TAX SYSTEM
 MISUSE OR MISMANAGEMENT OF REVENUE FROM TAX- MEDIA EXPOSE DAILY
 INEQUAL DISTRIBUTION OF AMENITIES
 NATURE OF ECONOMY-AGRICULTURAL
 COMPLEXITY IN LAW-LACK OF INFO
 UNWILLINGNESS OF TAXPAYERS TO PAY TAXES
 CORRUPTIONS IN TAX ADMINISTRATION
 UNDERGRPUND ECONOMY- BLACK MONEY
 ABSENCE OF SPIRITE OF CIVIL RESPONSIBILITIES
 THE INSTABILITY OF TAX LEGISLATION AND MULTIPLICITY OF AMENDMENTS
 TAX PENALITIES-LOWER/HIGHER, HARSH
 POLITICAL CORRUPTIONS
 DOUBLE TAXATION
 TAX PLANNING
 Is an act within the r corners of the
act to achieve certain social and economic
activities and it isn’t a colourable device to
avoid tax.
 Is a legal right and a social responsibility-
certain social and economic objectives are
achieved.
 It requires through knowledge of the
relevant acts, social, economic and political
situation of the country .
 It helps in economic development of the
country by providing additional funds for
investment in desired channels.
 A tax planner enjoys his fruits freely and he
doesn’t suffer from his blood-pressure
TAX EVASION
 It is a deliberate attempt on the
part of tax payer by misrepresentation of
facts, falsification of accounts including
downright fraud.
 Is a legal offence coupled with penalty and
prosecution.
 It requires boldness to infringe
the law.
 It generates black money which is generally
utilised for smuggling, bribery, extravagant
expenses or on luxury
 A tax evader remains always in anxiety of
search and seizure
Knowledge check MCQ Practice

44
• Is tax planning legal or illegal

• a) Legal and Ethical

• b) Legal but not Ethical
• c) Illegal but ethical
• d) Illegal and not ethical
• Answer : A
• Any Query ???????????????