Patel College of Management

Master of Business Administration (Semester III) Assignment : Tax Planning in Management (303 F)

Name : Deepak Singh Solanki

Enrollment No. : DC/06/12718

Q. 1. Introduction and Importance of Direct Taxes : Ans. A direct tax is one, which is paid by a person on whom it is legally imposed and the burden of which cannot be shifted to any other person. The person from whom it is collected cannot shift its burden to anybody else. The term direct tax generally means a tax paid directly to the government by the persons on whom it is imposed. However, there are other definitions as well, under which taxes paid directly from individuals to the government are not legally classified as direct taxes. A tax that is paid directly by an individual or organization to the imposing entity. A taxpayer pays a direct tax to a government for different purposes, including real property tax, personal property tax, income tax or taxes on assets. Direct taxes are different from indirect taxes, where the tax is levied on one entity, such as a seller, and paid by another, such a sales tax paid by the buyer in a retail setting. A direct tax cannot be shifted to another individual or entity. The individual or organization upon which the tax is levied is responsible for the fulfillment of the tax payment. Indirect taxes, on the other hand, can be shifted from one taxpayer to another. In the general sense, a direct tax is one paid directly to the government by the persons (juristic or natural) on whom it is imposed (often accompanied by a tax return filed by the taxpayer). Examples include some income taxes, some corporate taxes, and transfer taxes such as estate (inheritance) tax and gift tax. In this sense, a direct tax is contrasted with an indirect tax or "collected" tax (such as sales tax or value added tax (VAT)); a "collected" tax is one which is collected by intermediaries who turn over the proceeds to the government and file the related tax return. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be." In direct tax burden of tax cannot be shifted. The disadvantage of direct taxation are mainly due to administrative difficulties and inefficiencies. The extent of direct taxation should depend on the economic state of the country. A rich country has greater scope for direct taxation than a poor country. However direct taxation is an important aspect of the modern financial system. Following are the importance of Direct Taxes : (i) Equity :There is social justice in the allocation of tax burden in case of direct taxes as they are based on the principle of ability to pay. Persons in a similar economic situation are taxed at the same rate. Persons with different economic standing are

(ii)

(iii)

(iv)

(v)

(vi)

taxed at a different rate. Hence, there is both horizontal and vertical equity under direct taxation. Progressive direct taxation can reduce income inequalities and bring about adequate social & economic justice. For example, in the Indian Budget of 2007, individual with an income of upto Rs. 1,10,000 are exempted from payment of income tax and in the case of women tax payer, the exemption limit is Rs. 1,45,000. Certainty : As far as direct taxes are concerned, the tax payer is certain as to how much he is expected to pay, as the tax rates are decided in advance. The Government can also estimate the tax revenue from direct taxes with a fair accuracy. Accordingly, the Government can make adjustments in its income and expenditure Relatively Elastic : The direct taxes are relatively elastic. With an increase in income and wealth of individuals and companies, the yield from direct taxes will also increase. Elasticity also implies that the government's revenue can be increased by raising the rates of taxation. An increase in tax rates would increase the tax revenue. Creates Public Consciousness: They have educative value. In the case of direct taxes, the taxpayers are made to feel directly the burden of taxes and hence take keen interest in how public funds are spent. The taxpayers are likely to be more aware about their rights and responsibilities as citizens of the state. Economical: Direct taxes are generally economical to collect. For instances, in the case of personal income tax, the tax can be deducted at source from the income or salaries of the individuals. Therefore, the government does not have to spend much in tax collection as far as personal income tax is concerned. However, in the case of indirect taxes, the government has to set up an elaborate machinery to collect taxes. Anti-inflationary: The direct taxes can help to control inflation. During inflationary periods, the government may increase the tax rate. With an increase in tax rate, the consumption demand may decline, which in turn may reduce inflation.

Q. 2. What is long term and short term capital gain. Ans. At the time of sale of any Asset, tax is liable to be paid on the Gians earned on the sale of Asset. Such gains could either be short term capital gains or long term capital gains. The basis of such classification in the income tax return has been play a important role: 1. Short Term Capital Gain (STCG) : If the asset is held for less than 36 months. 2. Long Term Capital Gain (LTCG) : If the asset is held for more than 36 months. The classification of short term & long term capital gains and their tax rates is different in case of Shares and Mutual funds. Short Term Capital Gain (STCG) :

A profit on the sale of a security that has been held for one year or less. Short-term capital gains are taxed as ordinary income. A capital gain realized by the sale or exchange of a capital asset that has been held for exactly one year or less. Short-term gains are taxed at the taxpayer's top marginal tax rate.

Long Term Capital Gain (LTCG) : Profits or gains arising from the transfer of a capital asset made in a previous year is taxable as capital gains under the head Capital Gains. The important ingredients for capital gains are, therefore, existence of a capital asset, transfer of such capital asset and profits or gains that arise from such transfer. A profit on an individual security or openor closed-end fund that has been held for a period exceeding one year. Long-term gains are usually subject to a lower federal tax rate than short-term capital gains. Long term Capital gains, if the assets like shares and securities, are held by the assessee for a period exceeding 12 months or 36 months in the case of other assets. Units of UTI and specified mutual funds will now be eligible for treatment as long term capital assets if they are held for a period exceeding 12 months. Long term Capital gains are computed by deducting from the full value of consideration for the transfer of a capital asset the following : - Expenditure connected exclusively with the transfer; - The indexed cost of acquisition of the asset, and - The indexed cost of improvement, if any, of that asset. In the case of shares, expenditure in connection with the transfer includes the stock brokers commission but the salary of an employee is not deducted in computing capital gains though the employee may have helped in the transfer of the shares. Cost of acquisition, in such cases includes the price-paid, cost of share transfer stamps, cost of postage for sending the shares for transfer to the transfer-agents of the company, legal expenses etc. Indexed cost of acquisition means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee. Q. 3. Explain the income from salary. Ans. Meaning of Salary : Salary, in simple words, means remuneration of a person, which he has received from his employer for rendering services to him. But receipts for all kinds of services rendered cannot be taxed as salary. The remuneration received by professionals like doctors, architects, lawyers etc. cannot be covered under salary since it is not received from their employers but from their clients. So, it is taxed under business or profession head. In order to understand what is included in

salary, let us discuss few characteristics of salary. Characteristics of Salary 1. The relationship of payer and payee must be of employer and employee for an income to be categorized as salary income. For example: Salary income of a Member of Parliament cannot be specified as salary, since it is received from Government of India which is not his employer. The Act makes no distinction between salary and wages, though generally salary is paid for non-manual work and wages are paid for manual work. Salary received from employer, whether one or more than one is included in this head. Salary is taxable either on due basis or receipt basis which ever matures earlier: Due basis when it is earned even if it is not received in the previous year. Receipt basis when it is received even if it is not earned in the previous year. Arrears of salary- which were not due and received earlier are taxable when due or received, whichever is earlier. Compulsory deduction from salary such as employees contribution to provident fund, deduction on account of medical scheme or staff welfare scheme etc. are examples of instances of application of income. In these cases, for computing total income, these deductions have to be added back.

2. 3. 4. i) ii) iii) 5.

Definition of Salary : 1. Basic salary : All employees are entitled to a basic salary which is fixed as per their respective terms of employment either as a fixed amount or at a graded system of salary. Under this graded system, apart from the basic salary at which the employee will start, annual increments to be given to the employee are pre fixed in the grade. For example, if a person is employed on 1st May, 2004 in the grade of 12000 300 15000, this means that he will start at a basic salary of Rs.12000 from 1 st May, 2004. He will get an annual increment of Rs.300 w.e.f. 1st May, 2005 and onwards every year on the same date till his basic salary reaches Rs.15, 000. No further increment is given thereafter till he is promoted and placed in other grade. Advance Salary, if received in previous year for next year is taxable on receipt basis in the same previous year. 2. Fees, Commission and Bonus : Any fees or commission paid or payable to an employee is fully taxable and is included in salary. Commission payable may be at a fixed amount or a fixed percentage of turnovers. In both the cases, it is taxable as salary only when it is paid or payable by the employer to the employee. When commission is based on fixed percentage of turnover achieved by employee 3. Taxable value of cash allowances :

Allowance is a fixed monetary amount paid by the employer to the employee (over and above basic salary) for meeting certain expenses, whether personal or for the performance of his duties. These allowances are generally taxable and are to be included in gross salary unless specific exemption is provided in respect of such allowance. For the purpose of tax treatment, we divide these allowances into 3 categories: (i) Fully taxable cash allowances (ii) Partially exempt cash allowances (iii) Fully exempt cash allowances 4. Taxable value of perquisites : 5. Retirement Benefits: Q. 4. Write a Short Note on income from house property : Ans. The annual value of any property you own is taxable under the head 'income from house property'. While there are a few deductions available from this income, income from a property is not taxable under the head 'income from house property' when... (i) The property is used for one's own business or profession. (ii) The property is self-occupied. (iii) It is income from a farmhouse. (iv) It is the property income of a local authority. (v) It is the property income of a university or an educational institution. (vi) It is the property income of a trade union. (vii) It is property held for charitable or religious purposes. (viii) It is the property income of a political party. (ix) It is the property income of an approved scientific research association. Any Income from house property should be a part of your total income from other various sources such as salary, capital gains, business/profession and other income like winning from lottery, horse race etc. Mostly such Income from house property are in the form of rental income, even some time these incomes can be negative; for example, you have taken a home loan and you are paying the interest on the outstanding loan principal amount. If the house property is self occupied where obviously no rental income can be generated then these interests paid will be treated as loss (negative income) from house property. And the best part is you can claim such losses to reduce your net tax liability, but upto certain limit. The term House property consists of buildings or land belongs to such buildings. Income from letting out of vacant plots of land when there is no adjoining buildings will not be taxed under this head (but will be taxed as income from other sources). The existence of a building is therefore an essential prerequisite for taxation of Income from House Property. Building will include residential house (whether let out or selfoccupied), office building, factory building, godowns, flats etc. But, the purpose for

which the building is used by the tenant is also immaterial. It does not make any difference at all if the property is owned by a limited company or a firm. However, if the building or part thereof is used by the owner himself for the purpose of his own business then there will be no income from such portion of the house property. In order to calculate income from house property, you need to know the Annual Value of the house property. As per Section 23(1)(a) of the Income Tax Act, Annual Value of a house property is the sum for which the property might reasonably be expected to be let out from year to year. So it is the notional rent which could be received if the property were to be rented. There are two types of tax deductions available on income from property apart from the actual municipal taxes paid. The first is standard deduction of 30%. This means 30% of the rental income can be reduced as a standard deduction for repairs, maintenance etc. irrespective of the actual amount spent, if at all, during the financial year. The second deduction, which is over and above the 30% standard deduction, is to do with interest u/s 24 on mortgage finance if the property is purchased on mortgage for the purpose of acquisition, construction, re-construction, repairs, renovation etc. Deduct Municipal Tax From Gross Annual Value, deduct Municipal Taxes (including Service Tax) levied by any local authority in respect of the house property. Municipal Taxes are deductible only if, 1. these taxes are borne by the owner , and 2. are actually paid by him during the previous year. Municipal taxes, levied by local authority but not paid by the assessee during the previous year are not deductible. The remaining amount left after deduction of Municipal Taxes is Net Annual Value (NAV) Deduction Under Section 24 As stated above there are basically two types of deductions are available under section 24, such as Standard Deduction u/s 24(a) and Interest on Borrowed Capital u/s 24(b). No deductions can be claimed in respect of any expenditure which is not specified in Sec. 24. For instance, no deduction can be claimed in respect of expenses on insurance, ground rent, land revenue, repairs, collection charges, electricity, water supply, salary of liftman, etc.

A. Standard Deduction [Sec. 24(a)]: 30% of net annual value id deductible irrespective of any expenditure incurred by the taxpayer. B. Interest on Borrowed Capital [Sec. 24(b)]: Interest on borrowed capital is allowable as deduction, if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property. 1. If capital is borrowed for the purpose of purchasing a plot of land, interest liability is deductible even if construction is financed out of own funds. 2. Interest on borrowed capital is deductible on accrual basis. It can be claimed as deduction on yearly basis, even if the interest is not actually paid during the year. 3. Interest on unpaid interest is not deductible. 4. No deduction is allowed for any brokerage or commission for arranging loan. 5. Interest on a fresh loan, taken to repay the original loan raised for the aforesaid purposes , is allowable as deduction. 6. In case of let-out property interest on borrowed capital is deductible fully without any maximum ceiling. In case of Self-Occupied Property For self-occupied property, rental income will be taken as NIL in the above calculation. The rental income is zero because you stay in that property and it doesnt earn any rent. Thus, the income from a self-occupied property will always be zero or negative (to the extent of interest paid or the specified limit, whichever is lower). Accordingly, you cannot subtract municipal taxes nor can we deduct any standard deduction. But, you can still deduct the interest paid on the loan availed subject to a specified limit. This loss from self-occupied property can be adjusted against your income from other sources such as salary, capital gains, business, etc and hence reduce your overall tax liability. If you own more than one property, you can designate any one of these as self occupied property and pay tax on the others. It is advisable to choose the property where you have to pay minimum municipal tax as self occupied property. You can change the self occupied property every year For the self occupied property, there is a limit to the interest that you can deduct. If the property is acquired or constructed after April 1, 1999 (and such acquisition/construction is completed within three years) then you are allowed to claim deduction of interest up to Rs. 1,50,000. For loans taken to reconstruct the house (and those taken prior to April 1, 1999), the limit is only Rs. 30,000. In case of a self occupied house, since the annual value is NIL and only the interest is allowed as deduction (subject to a maximum of either Rs. 1,50,000 or Rs. 30,000), the income is negative to the extent of the actual interest.

Q. 5. Define the deduction of income from salary. Ans. Deduction under income from salary : The income chargeable under the head salaries is computed after making the following deductions: 1. Standard deduction [section 16(i)] of the Act: From assessment year 2006-07, standard deduction has been withdrawn. 2. Entertainment Allowance [section 16(ii)] of the Act as given earlier, entertainment allowance received from employer is first included in gross salary and thereafter, a deduction is allowed to government employees (State or Central Government) to the extent of least of following 3 amounts: (i) Rs.5000 (ii) 20% of basic salary (iii) Amount of Entertainment Allowance actually received during the year. 3. Professional Tax [Section 16(iii)] of the Act : Professional tax or tax on employment levied by a State under Article 276 of the Constitution is allowed as a deduction only in the year when it is actually paid. If the professional tax is paid by the employer on behalf of the employee, it is first included in gross salary as a perquisite (since it is an obligation of employee fulfilled by employer) and then the same amount is allowed as deduction on account of professional tax from gross salary. 4. Payment of Medical Insurance Premia (Mediclaim) or contribution to Central Government Health Scheme. [Sec. 80D]: Deductible upto a maximum of Rs. 15,000 (Rs. 20,000 in case the person insured is a senior citizen). Besides, an additional deduction upto Rs. 15,000 (Rs. 20,000 in case the person insured is a senior citizen) [The age limit for a senior citizen from A.Y.2013-14 is 60 years or more] shall be allowable in respect of medical insurance premium for parent(s). W.e.f. A.Y. 2013-14, deduction can also be availed for any payment for preventive health check-up of the assesses, his family and parents, subject to a limit of Rs. 5,000 within the aforesaid ceilings. 5. Interest on Loan taken for Higher Education. [Sec. 80E]: Any amount paid by way of interest on a loan taken from any financial institution or any approved charitable institution for the purpose of pursing his higher education, is deduction without any limit.

Patel College of Management

Master of Business Administration (Semester III) Assignment : Project Management (302 C)

Name : Deepak Singh Solanki Q. 1.

Enrollment No. : DC/06/12718

What is project management ? Explain objective and characteristic of project management.

Ans. Project management is the application of knowledge, skills, tools, and techniques to project activities to meet the project requirements. Project management is the process and activity of planning, organizing, motivating, and controlling resources to achieve specific goals. A project is a temporary endeavor designed to produce a unique product, service or result with a defined beginning and end (usually time-constrained, and often constrained by funding or deliverables), undertaken to meet unique goals and objectives, typically to bring about beneficial change or added value. The temporary nature of projects stands in contrast with business as usual (or operations), which are repetitive, permanent, or semi-permanent functional activities to produce products or services. In practice, the management of these two systems is often quite different, and as such requires the development of distinct technical skills and management strategies. It is the way of managing change. Everything from the Olympics to organising a wedding can be considered a project. It describes the activities that meet specific objectives and can be used to introduce or improve new or existing products and services. The primary challenge of project management is to achieve all of the project goals and objectives while honoring the preconceived constraints. The primary constraints are scope, time, quality and budget. The secondary and more ambitious challenge is to optimize the allocation of necessary inputs and integrate them to meet predefined objectives. Traditionally, project management includes a number of elements: four to five process groups, and a control system. Regardless of the methodology or terminology used, the same basic project management processes will be used. Major process groups generally include: (i) Initiation (ii) Planning or design (iii) Production or execution (iv) Monitoring and controlling (v) Closing d