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Meaning of Tax Planning

 

INTRODUCTION

The  avid goal of every taxpayer is to minimize his Tax Liability. To achieve this objective taxpayer may resort to following Three Methods :

    • Tax Planning
    • Tax Avoidance
    • Tax Evasion

It is well said that “Taxpayer is not expected to arrange his affairs in a such manner to pay maximum tax “ . So, the assessee shall arrange the affairs in a manner to reduce tax. But the question what method he opts for ? Tax Planning, Tax Avoidance, Tax Evasion !
Let us see its meaning and their difference.

5.1.      MEANINNG 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.

For availing benefits, one should resort to bonafide  means by complying with the provisions of law in letter and in spirit.

Where a person buys a machinery instead of hiring it, he is availing the benefit of depreciation. If is his exclusive right either to buy or lease it . In the same manner to choice the form of organization, capital structure, buy or make products are the assesse’s exclusive right. One may look for various tax incentives in the above said transactions provided in this Act, for reduction of tax liability. All this transaction involves tax planning.

5.1.1.   Why Every Person Needs Tax Planning ?

Tax Planning is resorted to maximize the cash inflow and minimize the cash outflow. Since Tax is kind of cast, 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.

5.1.2.   How is Tool of Tax Planning Exercised ?

Tax Planning should be done by keeping in mine 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.

  • Choice to Buy or Lease the Assets. Where the assets are bought, depreciation is allowed and when asset is leased, lease rental is allowed as deduction.

  • Capital Structure decision also plays a major role. Mixture of debt and equity fund should be balanced, to maximize the return on capital and minimize the tax liability. Interest on debt is allowed as deduction whereas dividend on equity fund is not allowed as deduction

5.1.3.   Methods Of Tax Planning

Various methods of  Tax Planning may be classified as follows :

1.         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.

2.         Long Term Tax Planning :       Long range tax planning means a plan chaled 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 ;

e.g.      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 shards for the shares transferred , that will also be treated as income in the hands of the son or spouse.

3.         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.

4.         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.

 
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Various Authorities
Power Of Income Tax Authorities Relating To Search And Seizure [ Section 132 ]
Application Of Seized Or Requisitioned Assets [Section132(B)]
Power Of Survey [ Section 133a ]
Provision Relating To Power To Collect Certain Information [Section 133b]
Disclosure Of Information Regarding Assessees To Certain Authorities [ Section 138 ]
Payment of Tax
Modes of recovery of Tax
Refunds
Introduction- Deduction of Tax at Source (TDS)
Deduction of Tax from the “Salary” [ Sec-192]
Deduction Of Tax From Interest On Securities [ Section-193]
Deduction Of Tax From Deemed Dividend [ Section-194]
Deduction Of Tax From Interest Other Than Interest On Securities [ Section 194A]
Winning From Lottery Or Crossword Puzzle Or Card game And Game Of Any Sort [Section 194B]
Winning From Horse Race [ Section 194BB]
Payment To Contractor And Sub-Contractor [ Section 194C]
Tax Deducted At Source From Insurance Commission [ Section 194D]
Payments To Non-Resident Sportsmen Or Sports Associations [ Section 194E]
Commission, Etc., On The Sale Of Lottery Tickets [Section 194G]
Commission Or Brokerage [ Section 194H]
Payment Of Rent [ Section 194 I ]
Fees For Professional Or Technical Services [ Section 194J]
Time Limit For Filling Return Of Income [ Section 139(1)]
When Return Of Loss Should Be Filed [ Section 139(3)]
Can Return Be Filied Beyond Time [ Section 139(4)]
Can Revised Return Be Filed [ Section 139(5)]
What Is A Defective Or Incomplete Return [ Section 139(9)]
Who Should  Sign The Return Of Income [ Section 140]
Permanent Account Number (PAN)
Why Every Person Needs Tax Planning ?
How is Tool of Tax Planning Exercised ?
Methods Of Tax Planning
Tax Avoidance
Tax Evasion
The Difference Between ‘Tax Planning’ And ‘Tax Management’
The Difference Between ‘Tax Avoidance’ And ‘Tax Evasion’.
Procedure for imposing Penalty [ Sec. 274]
Various Types Of Penalties In The Event Of Default.
Prosecutions
Salient Features Of FBT

Important Points Relating To Fringe Benefit Tax
Characteristics Of FBT
Classification Of Employer For FBT
Classification Of Not Employer For FBT
Direct Fringe Benefit
Deemed Fringe Benefit
Payment Of FBT To The Government
Filing Of FBT Return
Service Tax – Key Provisions At A Glance
Applicability Of Service Tax
Service Tax Rate
Registration Formalities
Payment & Refund Of Tax
Filling Or Returns
Assessments
Central Value Added Tax (Cenvat) Credit
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Certificate of TCS
TCS Exemptions
Payment of TCS to the Government
Electronic TCS (e-TCS)
Filing of TCS Returns
For removing any Asset, Books of account, documents etc. found during search in contravention of order served under [Section 132 (3)]
Removal, Concealment, transfer or delivery of property to avoid tax recovery [Section 276]
Default on the part of Liquidator [Section 276 (A)]
Failure to comply with provisions regarding transfer of immoveable property [Section 276 AB].
Failure to pay the tax deducted at source [Section 276 W]
Failure to pay the tax collected at source [Section 276 (BB)]
Willful attempt to evade Tax, Penalty, Interest etc. [Section 276 C (1)]
Failure to furnish return of income (Section 276 CC)
Failure to furnish return of income in search cases u/s 158 BC (Section 276 CCC)
Failure to produce accounts and documents [Section 276 (D)].
False Statement in Verification [Section 277]
Falsification of books of account or document, etc. [Section 277A]
Abetment in False Return (Section 278)
Punishment of Second and Subsequent Offences (Section 278 A)
Punishment not to be imposed in certain cases (Section 278 AA)
Offences by Companies (Section 278 B)
Offences by Hindu Undivided Families. (Section 278 C)
Presumption as to Assets, Books of Account etc. in certain cases. (Section 278 D)
Prosecution to be at the instance of commissioner [Section 279]
Meaning of Settlement Commisions
Setting Up Of Settlement Commission
Constitution Of Settlement Commission [Section 245B]
Jurisdiction And Powers Of Settlement Commission [Section 245BA]
Vice-Chairman To Act As Chairman [Section 245 BB]
Transfer Of Cases [Section 245 BC]
Decision To Be Majority [Section 245 BD]
Application For Settlement Of Cases [Section 245 C]
Calculation Of Additional Income-Tax [Section 245C (1A)]
Bar On Making Application [Section 245C (1E)]
Procedure On Receipt Of Application [Section 245D]
Payment Of Additional Income-Tax [Section 245D (2A)]
Power Of Settlement Commission To Order Provisional Attachment To Protect Revenue [Section 245DD (1)]
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