2. WHAT DO YOU MEAN BY
TAX PLANNING?
Tax planning can be defined as an
arrangement of one’s financial and
business affairs by taking legitimately in
full benefit of all deductions, exemptions,
allowances and rebates so that tax liability
reduces to minimum.
3.
4. KEY POINTS TO BE
REMEMBERED
It is not avoidance to payment of tax.
Tax planning should not be done with an
intent to defraud the revenue.
All transactions with respect to tax planning
should be in correct form and substance.
Tax planning works within the framework of
law and its not illegal.
5. RIGHT TO PLAN TAX
LIABILITY
The Supreme Court held in case of McDowell
& Co. v. CTO(1985) 154 ITR 148(SC) has
said that it is true that planning may be
legitimate provided it is within the framework
of the law.
Using dubious methods to avoid the payment
of tax is not permissible.
It is obligation of every citizen to pay taxes
honestly without resorting to subterfuges
6. TAX AVOIDANCE AND TAX EVASION
Taxpayers generally plan their affairs so as to
attract the least incidence of tax.
Taxpayer spares no efforts in maximising his
profits and attracting the least incidence. The tax
gatherer, on the other hand. Tries to break the plans
whose sole objective is to save taxes.
Three common practice to save taxes:
a) Tax Evasion;
b) Tax Avoidance;
c) Tax Planning.
7. a)TAX EVASION
Tax evasion refers to a situation where a
person tries to reduce his tax liability by
deliberately suppressing the income or by
inflating the expenditure which results into
showing of income lower than the actual and
resorting to various types of deliberate
manipulations.
An assessee guilty of tax evasion is punishable
under the relevant laws.
8. b)TAX AVOIDANCE
There is a thin line of difference between Tax
Avoidance and Tax Planning.
Any planning done according to legal requirements
defeats the basic intention of Legislature behind the
statute could be termed as Tax Avoidance.
Tax Avoidance is done in such a manner that no
infringement of taxation laws and by taking full
advantage of loopholes to attract least incidence of
tax.
Earlier tax avoidance was considered completely
Legitimate, but at present it may be illegitimate in
certain situations.
9. c)TAX PLANNING
It means arranging the financial activities in such
a manner that maximum tax benefits are enjoyed
by making use of all beneficial provisions
mentioned in the law.
Tax planning is permitted and not frowned upon
by law.
Tax planning is different from Tax Avoidance and
Tax Evasion as it is a systematic and scientific
planning of company’s operation to attract
minimum tax liability.
10. OBJECTIVES OF TAX
PLANNING
a) Reduction of tax liability
b) Minimisation of litigation
c) Productive investment
d) Healthy growth of economy
e) Economic stability
11. IMPORTANCE OF TAX PLANNING
No tax planning would lead to least benefits.
Tax planning is more reliable as Tax Evasion and
Tax Avoidance are wrong means to save taxes.
Government has provided companies with
incentives in tax laws so planner gets the
advantage to use such incentives.
With increase in profits, the quantum of corporate
tax also increases and it necessitates the devotion
of adequate time on tax planning.
12. It helps to deal with the burden of direct and
indirect taxation during inflation.
Helps in proper expense planning, capital budget
planning, sales promotion planning etc.
Availability of accumulated profits, reserves and
surpluses and claiming such expenses as revenue
expenditure are possible today because of Tax
Planning.
In these days saving tax can be seen as non-
repayable interest-free loan taken for government.
13. ESSENTIALS OF TAX PLANNING
Up to date knowledge of tax laws and awareness of
judgments made through various decisions of the
courts.
The disclosure of all material information and
furnishing the same to the IT department.
Tax Planning should not just comply legal
provisions as stated but should be within the
framework of law.
A planning must be capable of attainment of
business objectives and be amenable to its possible
future changes.
14. TYPES OF TAX PLANNING
a) Short-range and Long-range tax planning
b) Permissive tax planning
c) Purposive tax planning
15. AREAS OF TAX PLANNING IN
CONTEXT OF INCOME TAX ACT, 1961
At the time of setting up of new business entity:
i. Form of organisation/ownership pattern;
ii. Locational aspects;
iii. Nature of business.
16. AREAS OF TAX PLANNING IN CONTEXT
OF INCOME TAX ACT, 1961
For the business entities already in existence:
i. Tax planning in respect of corporate restructing;
ii. Tax planning in respect of financial management;
iii. Tax planning in respect of employees remunerations;
iv. Tax planning in respect of specific managerial
decisions;
v. Tax planning in respect of Foreign Collaborations
and Joint Venture Agreements;
vi. Tax planning in the light of various Double Taxation
Avoidance Agreements.
