Corporate tax planning

CORPORATE TAX PLANNING
Presented by,
THANGAVEL S
JAYAVARATHAN B
SARAVANAN J
BALAJI LOKESH S
GIRINATH CHANDRAN P

Presentation Outline
• Introduction
• Canon Of Taxation
• What is Tax ?
• Types Of Taxation
• Direct tax Vs. Indirect Tax
• Common Practices To Save Taxes
• Methods of Tax Planning
• Methods of Corporate Tax Planning
– Tax Planning in Respect of Employee`s Remuneration
– Tax Planning in Case of Amalgamation
– Deduction of tax at source
– Tax Consideration on capital structure
– Tax Planning in Respect of Bonus Shares

Presentation Outline
• Corporate Tax Management Managerial & Financial
Decisions
• Deductions
• Income Tax
• Different Sources of Income
• Computation of Income Tax
• Rates of Income Act for Assessment Yr 2015-16
• Grievance Redressal Procedure Under IT Act

Introduction
• Constitution - Supreme
– All other laws, including the Income-tax Act, are subordinate to the
Constitution of India
• The Constitution provides that ‘no tax shall be levied or collected
except by authority of law’
• Corporate tax planning provides strategies that are significant in
minimizing taxes. Some valuable ways to save include:
– sponsoring a retirement plan
– writing off company assets
– claiming depreciation expense
– Taking deductions on business automobiles
– office expenses & self employment health insurance

Introduction
• A company owner needs to be aware of anything that might
impact taxes paid
• Corporate tax planning sources suggests making sure that write-
offs are legitimate business expenses
• Business tax planning includes taking advantage of
opportunities to provide :
– Tax relief, when possible
– Tax exemption, like Charitable contributions are a great way
for a company to save on taxes and help those in the
community

Canon Of Taxation
• Canons of Taxation are the main basic principles (i.e.
rules) set to build a 'Good Tax System'.
• Adam Smith gave following four important canons of
taxation, they are:
– Canon of Equity
– Canon of Certainty
– Canon of Convenience
– Canon of Economy

Canon Of Taxation
1.Canon of Equity:
Every person should pay to the government depending upon
his ability to pay
Rich people pay high ?
because without the protection of the government authorities (Police,
Defence, etc.) they could not have earned and enjoyed their income
2.Canon of Certainty:
The tax which an individual has to pay should be certain, not
arbitrary
The tax payer should know
In advance how much tax he has to pay
At what time he has to pay the tax, and
in what form the tax is to be paid to the government

Canon Of Taxation
3.Canon of Convenience:
The mode and timing of tax payment should be as far as
possible, convenient to the tax payers
 For example,
land revenue is collected at time of harvest
income tax is deducted at source
4.Canon of Economy:
 This principle states that there should be economy in tax
administration
 The maximum part of tax collection should be brought to the
government treasury

What is Tax ?
• "Taxes are dues that we pay for the privileges of
membership in an organized society."
• Tax is a compulsory payment made to the Government
for services it provides us, though people may not be
completely satisfied or convinced with these services.
– eg: Income tax is an instrument used by the government to
achieve its social and economic objectives

Common Practices To Save Taxes
• Taxpayers generally plan their affairs so as to attract
the least incidence of tax
• Taxpayer spares no efforts in maximizing 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
– Tax Evasion
– Tax Avoidance
– Tax Planning

TAX PLANNING
• Tax planning can be defined as an arrangement of one’s
financial and economic affairs by taking complete legitimate
benefit of all
– deductions
– exemptions
– allowances and
– rebates so that tax liability reduces to minimum
• Tax laws are fully complied within its framework
• Not taking form of colorable devices
• Having no intention to deceit the legal spirit
• Planning of tax must be correct both in form and substance

TAX PLANNING
• Objectives of Tax Planning
1. Increase in disposable income
2. Shield against high taxation
3. Inequity in tax burden
4. Maximum deductions allowed to business persons,
minimal to others
5. Avoidance of litigation
6. Curb on tax evasion

TAX AVOIDANCE
• Tax avoidance is reducing or negating tax liability in
legally permissible ways and has legal sanction
• Tax avoidance is sound law and certainly not bad
morality for anybody to so arrange his affairs in
such a way that the brunt of taxation is the minimum
• This can be done within the legal framework even by
taking help of loopholes in the law

TAX EVASION
• All methods by which tax liability is illegally avoided
are termed as tax evasion
• Tax evasion may involves:
– untrue statement knowingly
– submitting misleading document
– suppression of facts
– not maintaining proper accounts of income earned
(if required under law)
– omission of material facts on assessment

Tax Planning Vs.Tax Management

Methods of Tax Planning
• Various methods of Tax Planning may be
classified as follows :
1. Short Term Tax Planning
2. Long Term Tax Planning
3. Permissive Tax Planning
4. Purposive Tax Planning

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 assesse 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

Long Term Tax Planning
• Long range tax planning means a plan charted out
– at the beginning of 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 assesse 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 treated as income of the son or
spouse
• Moreover, if the company issue any bonus shares for the shares
transferred, that will also be treated as income in the hands of the son
or spouse

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.

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.

Methods of
Corporate Tax Planning
1. Tax Planning in Respect of Employee`s Remuneration
2. Tax Planing 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 Employee`s
Remuneration
• Factors are considered in case of remuneration planning :
– One has to ensure that while calculating business income
of the employer, remuneration paid to employee are fully
deductable
– One has to see that remuneration received by the
employees is taxable in their hands at concessional rates

Tax Planning in Respect of Employee`s
Remuneration
• Deduction of remuneration in hand of employer:
– Remuneration to employees engaged in carrying on scientific
research
– Insurance premium on health of employees
– Bonus& commission to employees
– Employers contribution towards PF & Gratuity fund
– Employees contribution to staff welfare scheme
– Family Planning expenditure
– Payment of salary, allowances, perquisites
– Salary payable outside India
– Payment of salaries to relatives
– Payment of salaries exceeding 20,000 Rs.In cash or bearer cheque

Tax Planning in Case of Amalgamation
• Meaning of Amalgamation under the Income Tax Act [Sec
2(1B)]
"Amalgamation", in relation to companies,
– one or more companies with another company
[or]
– the merger of two or more companies to form one company
Tax Concessions
• Tax concessions are available if an amalgamation satisfies the
conditions of Section 2(1B) and the amalgamated company is
an Indian company:
– Non-chargeability of capital gain on the transfer of a capital asset
including shares held by a shareholder at the time of amalgamation

Tax Planning in Case of Amalgamation
– Eligibility of amalgamated company for the deduction in respect of
any asset representing expenditure of a capital nature on scientific
research
– Eligibility of the amalgamated company for the deduction in respect of
acquisitions of patent rights or copy rights
– Similar deduction in respect of expenditure on know-how as provided
in
– Amortization of expenditure for obtaining telecom licence fees
– Amortization of certain preliminary expenses
– Amortization of expenditure on amalgamation
– Amortization of expenditure on prospecting etc. for certain minerals
– Writing off bad debts

Tax Planing in Case of Amalgamation
– Deduction in respect of any expenditure for the purposes of
promoting family planning as
– Computation of written down value of the transferred fixed assets in
the case of amalgamated company.
– Continuance of deduction available
– Benefit of carry forward and set-off of accumulated losses and
unabsorbed depreciation

Deduction of tax at source
• In certain specified cases of income, tax at source
should be deducted by the person responsible for
making payment of such income
• Income-tax Act provides that such tax must be
deducted from the amounts of both residents and
non residents according to the rates prescribed in
Finance Act of that year.

Tax Consideration on capital structure
• A company's capital structure is the method a company uses
– finance its operations and growth utilizing various sources of funding.
• Capital structure is a mix of a company's long-term debt,
specific short-term debt, common equity and preferred
equity
– Two options for capital are debt and equity.
• Debt receives a tax break but increases the financial risk of a
company
• Equity does not share those same qualities

• Cost of Capital and its tax treatment for Debentures:
– The cost of capital for loans and debentures refers to
interest payable to lender or debenture holder
– An interest rate is the rate at which interest is paid by
borrowers for the use of money that they borrow from
a lender

• Tax treatment of interest:
– Interest on loans or debentures is 100% tax deductible while
calculating business income.
– In following cases ,interest will be allowed as deduction
• paid during the previous year itself
• if not paid, it must be paid on or before due date of furnishing of
return of income
– Interest on loan from any public financial institutions like
IDBI,ICICI,SFC.
– Interest on any loan taken from a scheduled bank
including a co-operative Bank

• Cost of Capital and its tax treatment for equity and preference shares:
– Dividend signifies cost of capital for owned capital
• Tax treatment of Dividend:
– Dividend paid to shareholders is not deductible as business expenditure.It has to
be paid out of after tax profits
– Such dividend distribution tax shall be payable @ 15% + surcharge @ 5% +
education cess @ 2% + SHES @ 1% of amount so declared, distributed or paid
• The amount referred to in IT Act Sec. 115-O, i.e. dividend to be distributed shall be
reduced by
– The amount of dividend, if any, received by the domestic company
during the financial year, if
• dividend is received from its subsidiary
• subsidiary has paid tax under this section on such dividend
• domestic company is not a subsidiary of any other company

Tax Planning in Respect of Bonus
Shares
 Bonus share are issued to the equity shareholders, the value
of the share is not taxed as dividend distributed.
 Bonus are issued to preference shareholders, on their issue it
is deemed to be dividend and liable to tax
 Redeemable preference share are issued as bonus share on
their redemptions, the amount shall be taxed distributed
 Expenses on issue of bonus shares allowed as deduction as
per supreme court judgment.

Corporate Tax Management
Managerial & Financial Decisions
 Location & Nature of Business [NEW]
 Deemed Dividend
 Lease or Buy Decisions
 Repair, Replace and Make or Buy Decisions
 Capital Gains on Distribution of Assets by Companies in
Liquidation
 Sale of Scientific Research Asset
 Tax Management With Reference To Capital Structure
 Conversion of Firm / Sole Proprietorship to Company

Deductions
• AVAILABLE TO CORPORATE Under Sec (80C to 80LA)
• Company assesses are entitled to claim following deductions
u/s 80 out of total income:
– Deduction u/s 80G for donations
– Deduction u/s 80GGA certain donation for scientific research or rural
development
– Profits from new infrastructure undertakings u/s 80IA
– Deduction to developers of Special Economic Zones (80IAB)
– Profits from new industrial undertaking u/s 80IB
– Deduction for setting up undertakings in special states U/s 80IC

Deductions
– Deduction in respect of profits & gains from business of hotels &
convention centres in specified area u/s 80ID.
– Deduction in respect of profits & gains of certain undertakings in
North-Eastern State u/s 80IE
– Profits from processing of bio-degradable waste u/s 80JJA
– Deduction in respect of employment of new workers u/s 80JJAA
– Deduction for income of offshore funds u/s 80LA

Income Tax
1. In Income Tax Act, 1961
(a) Income tax in India is governed by the Income Tax
Act, 1961
(b) It came into force w.e.f. 1.4.1962
(c) The Act contains 298 sections and 14 Schedules
(d) The Finance Act shall bring amendment to this Act.
(e) The Law provides for determination of taxable
income, tax liability and procedure for assessment,
appeal, penalties and prosecutions

Income Tax
• The act is administered by Central Board of Direct
Taxes (CBDT) which is empowered to frame rules to
ensure proper governance of the Act.
• CBDT issues timely circulars to clarify any doubts
regarding the scope and meaning of the act and to
act as a guide for officers and assessees

Different Sources of Income
• Income includes :
– Profits or gains of business or profession
– Dividend
– Voluntary Contribution received by a Charitable / Religious
Trust or University / Education Institution or Hospital
– Export incentives, like Duty Drawback, Cash Compensatory
Support, Sale of licences etc.
– Interest, salary, bonus, commission or remuneration
earned by a partner of a Firm from such Firm.

– Profits and gains from the business of banking
carried on by a cooperative society with its members.
– Winnings from lotteries, crossword puzzles,races including
horse races,card games and other games of any sort or
from gambling or betting of any form or nature
whatsoever
– Deemed income u/s 41 or 59.
– Amount received under Keyman Insurance Policy including
bonus thereon.
– Capital Gains chargeable u/s 45

– Amount received under agreement for (a) not carrying out
activity in relation to any business, or (b) not sharing any
knowhow, patent, copyright etc.
– Gift as defined u/s 56 (2)(vi) (w.e.f. A.Y 2008-2009).
Any sum of money exceeding 50,000, received by an
Individual or a HUF from any person during the previous
year without consideration on or after 1.4.2007, then the
whole of aggregate of such sums will be taxable.

Income Tax
EXEMPTION Vs. DEDUCTION
• If an income is exempt from tax, it is not included in the
computation of income
• Exemption can never exceed the amount of income
• Deduction is generally given from income chargeable to tax
• Deduction can be less than or equal to or more than the
amount of income
• If amount deductible is more than the amount of income, the
resulting amount will be taken as loss

Rates of Income Act for Assessment Yr
2015-16

Grievance Redressal Procedure Under IT Act
The following are the appellate levels provided under the
INCOME TAX ACT…
1.Commissioner of Income Tax (appeals).
2.Appellate Tribunal.
3.The High Court.
4.The Supreme Court.

Appeal to Commisioner of Income Tax
• From 1st
oct 1998,the appellate level at deputy commissioner
will stand abolished and all appeals will only heard by
commissioner of appeals.
• Appeals related to assessment, refunds, penalty willl be
handled by commissioner.
• Admission of an appeals is made subject to the conidition that
the assessment paid the tax or paid advance tax.
• The commissioner may in any appeal against an order of
assessment ,confirm,reduce or cancel the assessment.

Procedure In Appeal
• The appeal will fix the date and then place of hearing and
give notice of the same to the appellant and AO(Assessing
Officer) against whose order appeal has been made.
• At the hearing both the Appellant & AO will have the right to
be heard.
• Appeals may take any further inquiry before disposing an
appeal.
• His order on disposal of the appeal will be in writing and state
the points of determination,his decision and the reason for
the same.
• He will communicate his order on appeal to the appellant
and to CIT.`

Appeal to Appellate Tribunal
• The I-T appellate Tribunal(ITAT)is appointed by the central
government.
• It may consist of as many judicial and accountant members as
the central government may think fit.
• The central government shall have power to appoint one of
the vice presidents to the president of the appellate tribunal.
• An assessee aggrieved by the orders or an order passed by
CIT are eligible to appeal to ITAT.

Procedure for Filling Appeal
• Appeal against an order of commissioner must be filed within
6Odays of the date on which the order is communicated.
• In some cases appeal should be 30 days.
• The appeal must be in the prescribed form and accompained
by the prescribed fee.

Function and Powers Of Appellate
Tribunal
• Hearing and decision on appeal may be within 4 years.
• The tribunal may,at any time within 4 years from the date of
passing of the order on an appeal ,amend such order with a
view to rectifying any mistake apparent from the record.
• It may also amend the order if the mistake in question is
brought to its notice by assessee or the AO.
• For discharging its function ,tribunal has all powers vested in
the I-T authorities and any proceedings by it shall be regarded
as judicial proceddings.
• As the relevant provisions of the IPC and code if criminal
procedure the tribunal will be a civil court.

Appeal to High Court
• There can be direct appeal to high court against any order
passed by tribunal in appeal.
• The hearing of appeal will be by atleast two hedges and
decided in accordance with their opinion or by majority.
• The high court will decide the question of law as formulate by
it and deliver its judgement.
• PROCEDURE:
• Both an assessee of commissioner shall file an appeal.
• It should be filed within 120 days of the receipt of the order
of the tribunal.
• The memorandum of appeal should preciesly state the
substantial question of law inlvoved in the case filed.

Appeal to Supreme Court
• An appeal against a high court judgement will be to the supreme court,provided
the high court certifies the cases to be fit for appeal.
• Certificate of fitness is essential for making an appeal to SC.
• Appeal to SC ,may also be by way of special leave petition granted under special
circumstances under the article of constitution.
• Jurdsdiction of the SC on disposing of an appeal is advisory .
• Judgement of SC is binding on all courts and officers within the territory of india.

Corporate tax planning

More Related Content

What's hot

Viewers also liked

Similar to Corporate tax planning

More from Saravanan Murugan

Recently uploaded

Corporate tax planning