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Presentation on

Tax planning of Reliance


industries ltd
Prepared by: Dhaval Devmurari
Jayesh Motivaras
Ketan Bhutiya

Submitted to: Dr. Ashish C. Mehta

Introduction of Reliance
Founder:- Mr. Dhirubhai Ambani
Industry:- Petroleum

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Reliance Industries Limited is an Indian
conglomerate
holding
company
headquartered
inMumbai,
Maharashtra,
India. Reliance owns businesses across India
engaged in energy, petrochemicals, textiles,
natural
resources,
retail
and
telecommunications. Reliance is the second
most profitable company in India

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Reliance industries ltd (Jamnagar)
is a private sector crude oilrefinery.
The refinery was commissioned on 14
July 1999 with an installed capacity of
1.24 million barrels per day. It is
currently the largest refinery in the
world. On 25 December 2008,
Reliance Petroleum Limited (RPL)
announced the commissioning of its
refinery into a Special Economic Zone
in Jamnagar, Gujarat, India.

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The
second-largest
publicly
traded
companyin India by market capitalization and
the second largest company in India as
measured by revenue after the governmentcontrolled Indian Oil Corporation. The company
is ranked 215th on the Fortune Global 500list
of the world's biggest corporations as of
2016.RIL contributes approximately 20% of
Indias total exports. It is ranked 8th among the
Top
250
Global
Energy
Companies
byPLATTSas of 2016.

What is Tax?
A compulsory contribution to state
revenue, levied by the government on
workers income and business profits or
added to the cost of some goods,
services, and transactions.

What is Tax Planning?


Exercise undertaken to
minimizetax liability through the best
use
of
all
availableallowances,deductions,exclu
sions, exemptions etc .

What is tax management?


Tax management deals with filing
return in time, getting the accounts
audited, deducting tax at source etc.

Type of Tax
Direct Tax
Income Tax
Wealth Tax
Indirect Tax
Central Excise Duty
Service Tax
Custom Duty
VAT
Central Sales Tax

Methods of corporate tax


planning
1. Tax planning in respect of Employees
remuneration
2. Tax planning in Case of amalgamation
3. Deduction of tax at source
4. Tax consideration on capital structure
5. Tax planning in respect of bonus share

Tax planning in respect of Employees


remuneration

Tax Planning Considerations for Salary


Income,The scope for tax planning from the
angle of employees is limited. The definition of
salary is very wide and includes not only
monetary salary but also benefits and perquisites
in kind. It includes,
Salary
Insurance policies
Leave travel facility:
House RentAllowance (HRA)
Pension:

Tax planning in Case of amalgamation


Mergers and acquisitions are an important tool of economic
development and every effort should be made to incentivize
the merger process in the country. Fiscal statutes form an
important means of economic development by providing
benefits to the concerned businesses.
In India, the Income Tax Act, 1961 is the primary legislation
dealing with taxability of income arising in the hands of an
individual or business entity. An important question that
arises here is: What are the benefits available under the
Income Tax Act, 1961, to companies going in for merger or
acquisition. These benefits are available in the form of
allowable deductions from the income in the hands of an
individual or companies. The Income Tax Act, 1961 contains
special provisions so as to minimize the ambiguities in
ascertaining the tax liabilities of the merged entity.

Income Tax Act defines amalgamation as merger


of one or more companies with another
company or merger of two or more companies to
from one company. Let us take an example of X Ltd
and Y Ltd. Here following situations may emerge

X Ltd Merges with Y Ltd. Thus X Ltd goes out of


existence. Here X Ltd is Amalgamating Company
and Y Ltd is Amalgamated Company
X Ltd and Y Ltd both merges and form a new
company say, Z Ltd. Thus both X Ltd and Y Ltd
goes out of existence and form a new company Z
Ltd. Here X Ltd and Y Ltd are Amalgamated
Company and Z Ltd is Amalgamated Company.

Deduction of tax at source

Tax Deducted at Source(TDS) is a means of


collectingincome taxinIndia, under the Indian
Income Tax Act of 1961. Any payment covered
under these provisions shall be paid after
deducting prescribed percentage. It is managed
by theCentral Board for Direct Taxes(CBDT) and
is part of the Department of Revenue managed
byIndian Revenue Service (IRS). It has a great
importance while conducting tax audits. Assesses
is also required to file quarterly return to CBDT.
Returns states the TDS deducted & paid to
government during the Quarter to which it relates

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TDS on Dividends:
TDS provisions under this section are attracted only in
respect of deemed dividend u/s 2(22)(e), If such dividend
exceeds 2500 in year.
Rate of deduction of tax in respect of such dividend is 10%.
TDS on immovable property
This provision is applicable in respect of transactions
effectedon or afterJune 1, 2014.
It seeks deduction of tax at source on transfer of certain
immovable property other than agricultural land
Any person being a transferee who is liable to Pay to a
resident by way of consideration for transfer of any
immovable propertyexceeding 50 Lakhsshall at the
time of credit of such sum to the account of the transferor
or at the time of payment in whatever manner, has to
deduct tax at source at1% only

Tax consideration on capital


structure
The equity part of the debt-equity relationship is
the easiest to define. In a company's capital
structure, equity consists of a company's
common and preferred stock plus retained
earnings, which are summed up in the
shareholders' equity account on a balance sheet.
This invested capital and debt, generally of the
long-term variety, comprises a company's
capitalization and acts as a permanent type of
funding to support a company's growth and
related assets.
If the company wants to get tax benefit, then
company use debt because it is tax deductable.

Tax planning in respect of bonus


share
When bonus share are issued to the equity
shareholders, the value of the share is not taxed as
dividend distributed. However where redeemable
preference shares are issued as bonus shares, on
their redemption the amount shall be taxed as
dividend distributed.
Where bonus share are issued to the preference
shareholders on their issue it is deemed to be
dividend and liable to tax.
Expenses on issue of bonus shares is not allowed as
deduction since capital expenditure.

Importance Of Tax planning

For Tax payer :Tax payer has to pay less tax by


using tax planning because he is using
all available exemptions, deductions,
reliefs, and rebates. All is done within
the boundaries of Law.
For Government :To use deduction or exemptions you
have to invest money in some
scheme which results that you
money is transferred back to

For Society :If government invest or start any


new project or even tax payer invest his
saved money so he will generate
employment, Government can invest in
better projects which develops society.

Reliance Income
The company'spetrochemicals,refining,
and oil and gas-related operations form
the core of its business; other divisions of
the company include cloth, retail
business,
telecommunications
andspecial
economic
zone(SEZ)
development. In 201213, it earned 76%
of its revenue from Refining, 19% from
Petrochemicals, 2% from Oil & Gas and
3% from Other segments

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After announcing plans to invest
$30 billion (Rs 1.8 lakh crore) till
2016 across businesses, Mukesh
Ambani-led Reliance Industries Ltd
(RIL) is gearing up for another big
investment of $13 billion (Rs 78,000
crore) to set up its third refinery-cumpetrochemical complex at Jamnagar
in Gujarat.

Differed Tax liability


Adeferred tax liabilityis an
account on a company's balance
sheet that is a result of temporary
differences between the company's
accounting andtaxcarrying values,
the
anticipated
and
enacted
incometaxrate,
and
estimatedtaxespayable
for
the
current year.

Example

A company purchases an asset


for $1,000 which is depreciated for
accounting purposes on a straightline basis of five years of $200/year.
The company claims tax depreciation
of 25% per year on a reducing
balance basis. The applicable rate
ofcorporate income taxis assumed
to be 35%. And then subtract the net
value.

Year 2

Year 3

Year 4

Accounting
$1,000
value

$800

$600

$400

$200

Tax value

$1,000

$750

$563

$422

$316

Taxable/
(deductibl
e)
temporary
difference

$0

$50

$37

$(22)

$(116)

Deferred
tax
liability/
(asset) at
35%

$0

$18

$13

$(8)

$(41)

Purchase

Year 1

Differed asset liability


Deferred tax asset is an accounting term that
refers to a situation where a business has
overpaid taxes or taxes paid in advance on its
balance sheet. These taxes are eventually
returned to the business in the form of tax
relief, and the over-payment is, therefore, an
asset for the company. A deferred tax asset
can conceptually be compared to rent paid in
advance or refundable insurance premiums;
while the business no longer has cash on
hand, it does have comparable value, and
this must be reflected in its financial
statements.

Example
A computer manufacturing company estimates,
based on previous experience, that the probability
a computer may be sent back forwarrantyrepairs
in the next year is 2% out of the total production.
If the company's total revenue in year one is
$3,000 and the warranty expense in its books is
$60 (2% * $3,000), then the company'staxable
income is $2,940. However, most tax authorities
do not allow companies to deduct expenses based
on expected warranties, thus the company is
required to pay taxes on the full $3,000.

Tax benefit taken by


Reliance
RIL has already availed Sales Tax
incentive benefits worth Rs 8000
crore by the end of last financial year
2004-05. The company is expected
to start repayment of deferred
portion of ST incentives worth Rs
4,500 crore by 2007-08, according to
RIL sources.

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The ST incentives were offered
to Jamnagar refinery, which is
considered as the largest grass route
refinery in the country, under the
1995-2000 incentive scheme.
TheGujarat
governmenthad
given ST incentive in the form of an
option for ST exemption or deferment
for 16 years, when the company set
up its refinery at Jamnagar.

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Reliance Industries (RIL), India's largest
private sector company, has asked the
government to convert its existing refinery
at Jamnagar into an export-oriented unit.
Early indications are that the commerce
ministry may be favourably inclined to the
proposal. This would entitle the company
to get various tax exemptions, including
automatic duty-free import of crude oil.
Also, the company will be entitled to dutyfree imports of equipment if RIL was to
expand or upgrade the refinery.

Companys tax saving


Particulars

Year 2015-16
cr.

Year 2014-15
cr.

Profit before tax

35,701

29,468

Actual tax (W.N-1)

11031

9106

Less: Current tax

7,802.00

6,124.00

Less: Differed tax

482.00

625.00

Tax saved by
company

2747

2357

(W.N-1)Calculation of actual tax


2015-16

PBT
35701.00
Tax@30% 10710
E.C@3% 321
Total Tax 11031

2014-15

PBT
29468.00
Tax@30% 8840
E.C@3% 266
Total Tax 9106

Total income tax saved by


Company
Particulars

Amount of
tax

% of tax
saved

Total tax
saved
Total actual
tax
Tax saved (%)

2747

2357

11031

9106

24.90%

25.88%

Sec. 80 IB (2016-17
Edition)
1. It Should Be New Undertaking, not formed
by transfer of machinery and plant used
previously.
2. Undertaking should be anywhere in India.
3. Commence production after march
31,1997 but before April 1, 2017. Refining
during Oct 1,1998 and March 31, 2012 ,
And in case of Natural Gas After April 1,
2009 But Before April1, 2017
4. Deduction- 100 % For First 7 Year.

References
www.investopedia.com/terms/d/ deferred
taxasset.asp
www.moneycontrol.com
www.incometaxmanagement.com
www.watts-gregory.co.uk
www.en.wikipedia.org
Income tax 2016-17 edition by Dr.Vinod K.
Singhania & Dr. Monica Singhania

Thank you