Beruflich Dokumente
Kultur Dokumente
Topic
: Tax Planning
Paper
: Corporate Taxation
Program : MBA
OBJECTIVES OF TAX
PLANNING
Basic principles
There are many perfectly legal and socially
acceptable ways to increase your wealth in a
tax efficient manner. Some of these methods
are very powerful. Legitimate methods of
increasing your tax efficiency are called tax
planning.
Methods that are unlawful are categorised
under two different labels:
Tax avoidance is where you set up contrived
accounting structures and strategies that abuse a
loophole so you can claim large tax deductions or
take advantage of some benefit that was never
intended to be used in such a way.
Tax evasion is where you deliberately try to hide
income from the Tax Office, by various methods
including secret bank accounts, not recording cash
transactions, cooking the books etc.
Review Question
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Review Questions
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Review Questions
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Illustrative instances of
tax-planning measures
Diversion of income by
overriding title and
application of income
Diversion of income is at source by an overriding title before it
reaches an assessee.
It can take place either under a legal compulsion or under a
contractual obligation or otherwise.
An obligation to apply the income in a particular way before it has
accrued or arisen to the assessee results in the diversion of the
income.
An obligation to apply income which has accrued or arisen or has
been received amounts merely to the apportionment or
application of the income and not to its diversion.
Sometimes the dividing line between diversion by overriding title
and the application of income after it has accrued is somewhat
thin.
By diversion, the assessee can avoid payment of taxes but tax has
to be paid before application of income.
IMPORTANCE OF TAX
PLANNING
Rebates and deductions not available at the time of
appeal
Severe penalties in case of tax avoidance and tax
evasion under various laws
Activities and programmes, which are of public
interest and good for a civilised society are
encouraged by the Government and incentives
provided in the tax laws.
With increase in profits, the quantum of corporate
tax also increases and it necessitates tax planning.
Essential to bear the burden of inflation
Needed for capital formation
Very important in credit squeeze and dear money
conditions
ESSENTIALS OF TAX
PLANNING
upto date knowledge of tax laws,
judgments , circulars, notifications,
clarifications and administrative
instructions
disclosure of all material information
sham transactions or make-believe
transactions or colourable devices,
entered into just with a view to circumvent
the legal provisions, must be avoided.
Hutch-Vodafone deal
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Capital or Revenue
Expenditure
Tests
The test of enduring benefit
Creation of fixed capital
Whether or not a new business/asset
comes into existence
Whether deduction of 100% of the
capital expenditure is available under
section 35AD
Whether the expenditure is illegal
expenditure
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Review question
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of machinery,
which broke down several years ago, to make the same
functional and increase
its useful life by replacing many vital parts, overhauling and
repairing of its
power transmission unit, replacing electronic panel,
geometrical aligning and
In Bharat Gears Limited
the assessee has
paintingv.ofCIT,
machine.
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SOME OTHER
EXAMPLES.
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Depreciation
Section 32
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Additional Depreciation
Additional Deprecation @ 20 % of Actual Cost of
Machinery acquired after 31.03.2002 for
a) New Industrial Undertaking
b) Existing Industrial Undertaking
Note : If the Asset is put to use for less than 180
Days in the year, depreciation will be allowed at
50 % of the eligible rate.
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New Section 32 AC
Manufacturing companies investing more than Rs.
100 crore( investment in one previous year Rs. 25
Crores for 2015-16 to 2016-17 u/s Sec) in new plant
and machinery during the period from 1.4.2013 to
31.3.2015 entitled to investment allowance@15%
The investment allowance@15% under this section
is in addition to the depreciation and additional
depreciation allowable under section 32(1). Further,
the investment allowance would not be reduced to
arrive at the written down value of plant and
machinery.
Investment allowance can be claimed only after
installation of the plant and machinery.
Provisions illustrated in V K Singhania para 110.3
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New Section 32 AC
The new plant and machinery in respect of which
investment allowance has been claimed under section
32AC cannot be sold or otherwise transferred for a
period of 5 years from the date of installation. If it is
sold or transferred within this period, the deduction
allowed earlier would be deemed as income
chargeable to tax under the head Profits and gains of
business or profession of the previous year in which
such new plant and machinery is sold or otherwise
transferred. This would be in addition to the taxability
of gains on transfer of such plant and machinery.
In case of amalgamation or demerger, this restriction
would continue to apply to the amalgamated company
or resulting company, as the case may be, as it would
have applied to the amalgamating or demerged
company.
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Example
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Solution
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Review Question
Solution
Review Question
Solution
Decision making
Estimate the cash flows associated
with borrowing and buying the asset
Estimate the cash flows associated
with leasing the asset
Compare the two financing methods
to determine which has the lower
present value.
Decision making
Solution
Review Question
Discuss the facts and decision in the
case of ICDS vs. CIT as decided by
Supreme Court recently.
Review Question
Solution
Solution contd
Make or buy
Tax incentives u/s 10A, 10AA,32,
80IA, 80IB and 80IC to be kept in
mind.
Sale of plant and machinery- section
50 to be kept in mind.
Problem