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It is concerned with quality of finance basically the crux of
capital structure decision is the optimum mix between Debts &
Equity.
Focus is attaining the optimum capital structure .
An optimum capital structure is one which maximize
shareholder¶s wealth.
Capital structure decision is a matrix of 3 consideration:
a} Risk
b} Cost of capital
c} Tax planning
The tax planner should properly make a balance between
risk, cost of capital and tax saving consideration in such a
manner, which ensure maximum shareholder¶s return with
optimum risk.
cope of tax planning as per Income
Tax Act 1961
As per the provisions given in Income tax Act
1961:
È Dividend on shares is not deductible;
È Distributed profit is subject to dividend tax;
È Interest paid on borrowed capital is allowed as deduction
u/s 36(1)(iii);
È Cost of raising fund through borrowing is deductible in
the year in which it is incurred;
È Cost of issue of shares is allowed as deduction in 5 years
under section 35 D.
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