1. Business in relation to tax plannig
Preparedby
Junaidmukhtar(15bba1133)
Faizan fayaz(15bba1037)
Ankush koul(15bba1172)
2. Tax Planning Considerations
in Relation to Business
Points to be covered
Tax planning and forms of
business
Tax planning and location of
business
3. The scope of income liable to tax
under the head “profits and gains of
business or profession” covered by
Section 28 to 44D of the Income tax
Act, 1961
4. For a new business following questions
related to tax planning arise
(i) Form of the Organisation
(ii) Nature of the business
(iii) Location
(iv) Financial Structure
(v) Acquisition of plant and machinery
and other fixed assets
(vi) Setting up and commencement of
business
5. Form of Business Organisation
The choice of the appropriate form of
business organisation will have to be
thought of and decided by the person
who intends to carry on business or
profession at the beginning itself,
because a change in the form of
business organisation after the
commencement of the business, may
attract liability to tax.
6. A new business can be
organised under any of the
following forms:
1.Sole proprietorship
2. Hindu undivided family
3. Partnership firm
4. company
7. The selection of a particular form of
organisation would depend not only on
the tax aspect but on other
considerations also, e.g., financial
requirements and resources,
requirement of limited liability and
many other practical considerations.
8. 1. Sole Proprietorship:
The sole proprietorship is the simplest
business form under which one can operate a
business.
Sole proprietors must pay the entire amount
themselves.The self-employment tax rate
is 15.3%
Deductions can be taken for himself and his
family on
health insurance.
Retirement Plans.
Monthly Utilities.
9. 2. Hindu Undivided Family:
Large undivided families operate a single business
Head of the business is called “karta” he is also the head
of the family
Investments can be made from HUF’s income. Any
returns from these investments are taxable in the hands
of the HUF.
An HUF is taxed at the same rates as an individual.
Deductions under section 80 and other exemptions can be
claimed by the HUF in its income tax return.
HUF can take an insurance policy on the life of its members.
10. 3. Partnership Firm:
Tax rate will be 30%.
Surcharge will be 10%(total income>1 crore)
Further educational cess 2%(primary
education)
1% cess on higher education
There will be no initial exemption and the
entire income will be taxed.
The shared income of a firm in the hands of
the partners of the firm is fully exempt to
avoid double taxation.
11. 4. Company
A company is a legal entity made up of an
association of persons, be they natural,
legal, or a mixture of both, for carrying on
a commercial or industrial enterprise.
Types of companies:-
1. widely held company
2. Closely held company
3. Domestic company
4. Foreign company
12. 'Closely Held Stock'
A company whose common shares
are owned by one individual owner or
by a small group of controlling
stockholders.
This is in contrast to a widely
held stock, in which thousands or
even millions of different investors
may own shares in a large company.
13. Domestic company
domestic companies have to pay
tax@15%
surcharge@10%
cess@3% on dividend declared,
distributed or paid except dividend
under section 2(22)(e).
14. Foreign company
The income-tax rate on foreign
corporations is higher at 50% or 40%.
surcharge 2%
5% surcharge if incom exceeds 10 crore
This is so because distributions by the
foreign corporations are generally not
liable to tax in India. Further, certain tax
incentives available to domestic
corporations are not available to foreign
companies.
15. Nature of the business:
Besides the form of organisation, the choice of the
nature of the business also calls for appropriate
planning with reference to the various special benefits
available under the taxation laws to the particular
kinds of industries which are not available to other
kinds. Some of these benefits are of such a substantial
nature that they constitute one of the major factors in
the determination of the nature of the business.
Broadly, business for this purpose may be divided into
two categories—trading and manufacturing business.
There could be a third category involving
combination of both. Deduction is available under
section 10AA to newly established units in Special
Economic Zones.
16. A taxpayer carrying on manufacturing or industrial
activities would be in a position to avail of the various
concessions such as depreciation under Section 32,
35ABB, 35D and 35E, tax holiday benefit under
section 80-IA/IB/IC/ID/IE.
An important aspect that requires consideration in
this context is the decision regarding type of product
to be manufactured. The manufacture of any of the
non-priority items specified in the Eleventh Schedule
to the Income-tax Act, 1961 might disentitle the
assessees, excepting small-scale industrial
undertakings, to the tax holiday benefit under the
provisions of section 80-IB. This is a major factor to
be considered while deciding the nature of the
business that an assessee should engage in.
17. While deciding the nature of the
business, the benefit of tax exemption or
concessional treatment available in
respect of certain types of income such
as agricultural income, business income
from hotel business, new industrial
undertakings, ships, business of repairs
to ocean going vessels, business of
exploration, etc. of mineral oils, etc.
should also be taken into account.
19. FULLY EXEMPTED
AGRICULTURAL INCOME
Agricultural income earned by a taxpayer in India is exempt
under Section 10(1) of the Income Tax Act, 1961. Agricultural
income is defined under section 2(1A) of the Income-tax Act.
As per section 2(1A), agricultural income generally means
Any rent or revenue derived from land which is situated in
India and is used for agricultural purposes.
Any income derived from such land by agriculture operations
including processing of agricultural produce so as to render it
fit for the market or sale of such produce.
Any income attributable to a farm house subject to
satisfaction of certain conditions specified in this regard in
section 2(1A).
Any income derived from saplings or seedlings grown in a
nursery shall be deemed to be agricultural income.
20. Tax Holiday for newly established
undertaking in Free Trade Zone:
us(10A) A free-trade zone (FTZ) is a specific class of
special economic zone. They are a geographic area where
goods may be landed, handled, manufactured or
reconfigured, and re-exported without the intervention of
the customs authorities.
First 5 Years – 100 % of profits and gains is allowed as
deduction
Next 2 Years : 50% of such Profit and Gains is deductible for
Next 3 Years : for the next three consecutive assessment years,
so much of the amount not exceeding 50% of the profit as is
debited to the profit and loss account year in respect of which the
deduction is to be allowed and credited to a reserve account (to
be called the ''Special Economic Zone Re-investment Allowance
Reserve Account'') to be created and utilised for the purposes of
the business of the assessee.
21. Sec. [ 80IA] : Deduction in respect
of infrastructure development
undertaking
Undertaking for the generation and
distribution of power if it begins to generate
power .
Undertaking starts transmission or
distribution by laying a network of new
transmission or distribution lines like
communication network.
Undertakings for renovation and
modernisation of the existing network of
transmission or distribution lines.
Deductions allowed is 100% or 30% of profits
from such eligible business.
22. Undertakings engaged in development of
(SEZ’S)
Special Economic Zones in India were
established in an attempt to accelerate
foreign investment and to promote exports
from India.
Assessee can claim 100%deductions in
respect of profits.
It can be claimed for any 10 consecutive
assessment years out of 15 at the option
of assessee
23. Industrial undertakings locatedin backward
states or districts
Deduction allowed for first 5 years
Company:-100% of profits
Others:-30% of profits
Deduction allowed for next 5 years
Company:-30%
Others:-25%
24. Undertakings in northern states
These include states like
J&K,himachal pradesh,uttaranchal etc.
Deductions allowed for first 5 years
Company:-100% of profits
Others:- 100% of profits
Deductions allowed for next 5 years
Company:-30% of profits
Others:-25% of profits
