Corporate Tax Planning &

Management
Q1. What is tax planning? Discuss its
characteristics and importance?
Ans :-
What is tax planning?
As an honest citizen of the country, it is your duty to pay your taxes.
However, every investor is looking to save as much tax as possible. This can
be made possible through tax saving investments. The need of tax planning is
absolutely necessary to save a substantial amount of your finances. This is
because taxes can eat a big chunk of your total investment returns every year.
Therefore, through proper tax planning, you can create a strategy that allows
you to minimise your tax liability every year.
Tax planning is a process of analysing and evaluating an individual’s
financial profile. The aim of this activity is to minimise the amount of taxes
you pay on your personal income. In short, employing ways that the
government has provided to save tax is a perfectly legal method to cut down
your annual tax liability. There are a number of tax saving investments in
India that are useful in saving money.
There’s more to tax than investments. It affects every single aspect of your
life—from salaries and income sources to expenditure to financial decisions.
And this is a key aspect of tax planning—it helps you make decisions that
lower your tax burden.
 characteristics
 Some of the best tax plans originate with client generated ideas.
Taxpayers who inform themselves about the basic tax laws and start
brainstorming or passing ideas by their tax advisor typically end up
with excellent tax results.

 A tax advisor who is curious and asks questions about your

information is likely a competent tax advisor. This is the same person
who probably has been to your business and wants to know what you
have planned for the upcoming year and can offer suggestions while
discussing your circumstances.

 Typically there is not one single tax saving strategy that reduces
your taxes, but rather it is a combination of several techniques that
produces good results. For example, wisely using accelerated
depreciation methods while taking advantage of tax credits can
produce a low tax burden in year #1 which also reduces estimated tax
payments for year #2.

 Many good tax results are from a tax advisor who explains why
an area of the tax law is not clear cut and is able to offer the client
options on how to proceed. There are circumstances where both the
taxpayer and the IRS can be correct. Many times a good tax result is
from taking a justifiable position, even though the IRS could assert tax
law to the contrary.

 
 Good tax planning does not waste tax deductions. There are
circumstances when a taxpayer should not take a deduction in year #1
because the tax savings is not as great as it could be by saving the
deduction for a later year. Some deductions are deferred by making
elections while others are deferred by delaying expenditures.

 Sometimes the focal point of a good tax plan is simply deferring

paying the taxes. For example, there are circumstances where taxes are
going to be due, but flexibility exists in timing the year they are due.

 Good tax planning sometimes dictates paying some taxes now

because paying now will be less expensive than paying in a latter year.
This is especially true when a taxpayer is currently in a low bracket
year. In these cases, the optimal tax strategy may be to recognize
income earlier than what you originally planned or delaying an
expenditure.

 Sometimes losses, especially flow-through losses from

partnerships and S corporations, are not deductible in the year
incurred. Good tax planning can help determine the best year to
deduct losses. A similar theory applies to capital loss carry forwards.

 Tax planning should also consider how to reduce payroll and

self-employment taxes.
 Good tax planning always considers the non-tax aspects of the
circumstances and merges tax laws with financial prudence.
Importance
 Tax planning is an integral activity conducted by every person earning
through salary, professional or other activities and organizations in
India. Tax planning is crucial for budgetary efficiency. It facilitates the
smooth functioning of the organization for corporates; a sound
financial plan is a must in order to deliver maximum tax efficiency. In
addition, paying taxes is a method of contributing towards the
country’s development.
During every financial year assessment, be it individual or corporates
files taxes and submits the same to the Income Tax Department of
India.

Tax Planning in India

The Government of India has provided a list of deductions which can
be availed by every individual for saving taxes. It is advisable to take
benefit of the following deductions:

1. Deductions available under Section 80C to Section 80U of the

Income Tax Act, 1961
2. The deductions assist in mitigating tax liabilities which would,
otherwise, be directly deducted from the taxpayer’s income
3. In addition to tax deductions, there are tax credits which can be
obtained by engaging in environment friendly activities

Corporate Tax Planning

Tax planning for corporates comprises of means for reducing
companies tax liabilities. The simplest way to achieve this is by taking
into account expenses made on health insurance of employees, office
expenses, business transport, employee child care expenses,
charitable contributions retirement planning, etc.
By taking full benefit of various tax deductions and exemptions
available under the Income Tax Act, 1961 corporates can
considerably bring down their tax burden. Higher the growth of the
corporate firm means growing profits of the corporate house resulting
in higher taxes for the corporate firm. Under such a scenario a proper
corporate tax planning activity it becomes of extreme importance.
Corporate firms account team must take into account all the available
sections of the income tax act, 1961 to bring down their tax burden.
Proper and efficient tax planning activity by a corporate house leads to
a reduction in payment of their direct and indirect taxes.

Advantages of Tax Planning for Individuals

Here are the key advantages of tax planning:

1. Tax planning facilitates the smooth functioning of the financial

planning process
2. Compliance regarding tax payment reduces legal hassles
3. Tax planning helps channelize taxable income to various
investment plans
4. Tax planning helps you save money
5. Tax planning enables corporates to contribute towards the
economic growth of our country
6. Promotes economic stability
Q 2. What do you understand by tax
deduction at source (TDS)? Discuss
the payment on which tax is deducted
at source. Any ten.
Ans :- TDS or Tax Deducted at Source is income tax reduced from
the money paid at the time of making specified payments such as
rent, commission, professional fees, salary, interest etc. by the
persons making such payments. Usually, the person receiving income
is liable to pay income tax. But the government with the help of Tax
Deducted at Source provisions makes sure that income tax is
deducted in advance from the payments being made by you. The
recipient of income receives the net amount (after reducing TDS). The
recipient will add the gross amount to his income and the amount of
TDS is adjusted against his final tax liability. The recipient takes credit
of the amount already deducted and paid on his behalf.  

The concept of TDS was introduced with an aim to collect tax from
the very source of income. As per this concept, a person (deductor)
who is liable to make payment of specified nature to any other person
(deductee) shall deduct tax at source and remit the same into the
account of the Central Government. The deductee from whose income
tax has been deducted at source would be entitled to get credit of the
amount so deducted on the basis of Form 26AS or TDS certificate
issued by the deductor.
Payment on which tax is deducted at
source.
Tax Deducted at Source has to be deposited using Challan ITNS-281
on the government portal. Read our article for a step by step guide to
deposit TDS.

TDS stands for tax deducted at source. As per the Income Tax Act, any
company or person making a payment is required to deduct tax at the source
if the payment exceeds certain threshold limits.

TDS has to be deducted at the rates prescribed by the tax department. The
company or person that makes the payment after deducting TDS is called a
deductor and the company or person receiving the payment is called the
deducted.

It is the deductor’s responsibility to deduct TDS before making the payment

and deposit the same with the government. TDS is deducted irrespective of
the mode of payment–cash, cheque or credit–and is linked to the PAN of the
deductor and deducted. 

CBDT issued a circular on 25th June 21 extending some timelines for AY 21-
22

(i) The due date to file TDS return for Q4 of the FY 2020-21 is extended from
30th June 21 to 15th July 21.
(ii) The due date to furnish the TDS Certificate to employees in Form No.
16 is extended from 15th July 21 to 31st July 21.

Union Budget 2021 Outcome:

– New sections 206AB and 206CCA have been introduced. The taxpayers
who have TDS / TCS more than Rs 50,000 in the last two years but have not
filed income tax returns, the rate of TDS shall be double the specified rate or
5% whichever is higher.
– New section 194Q is introduced to levy  TDS of 0.1% on a purchase
transaction more than Rs. 50 lakh in a year. The responsibility of deduction
shall lie only on the persons whose turnover exceeds Rs.10 crores.

Example of TDS
Let’s assume that a start-up company pays Rs.90,000 as rent every
month to whoever owns the property. The TDS applicable to the
amount is 10%, so the company must subtract Rs.9,000 and pay
Rs.81,000 to the property owner. In this case, the owner of the
property will receive Rs.81,000 following TDS. The owner can add the
gross amount of Rs.90,000 to his income, thereby allowing him to take
credit for the Rs.9,000 that has already been deducted by the
company.
TDS
Types of TDS
Here are some of the income sources that qualify for TDS:
 Salary
 Amount under LIC
 Bank Interest
 Brokerage or Commission
 Commission payments
 Compensation on acquiring immovable property
 Contractor payments
 Deemed Dividend
 Insurance Commission
 Interest apart from interest on securities
 Interest on securities
 Payment of rent
 Remuneration paid to the director of a company, etc
 Transfer of immovable property
 Winning from games like a crossword puzzle, card, lottery, etc.
What is the TDS rate on salary?
TDS rates on salary are the same as the tax slab rates applicable to
individuals. If you are less than 60 years of age, your TDS liability will
be nil in case your income is less than Rs.2.5 lakh. Individuals who
earn between Rs.2.5 lakh and Rs.5 lakh will be subject to TDS at 5%,
while those who earn between Rs.5 lakh and Rs.10 lakh will have a
TDS liability of 20%, and those who earn more than Rs.10 lakh will be
subject to a TDS rate of 30%
Under the new tax regime, no TDS will need to be paid for an annual
income of up to Rs.2.5 lakh. In case the annual income is between
Rs.2.5 lakh and Rs.5 lakh, the TDS liability is 5%. In case the annual
income is between Rs.5 lakh and Rs.7.5 lakh, the TDS liability is 10%.
In case the annual income is between Rs.7.5 lakh and Rs.10 lakh, the
TDS liability is 15%. In case the annual income is between Rs.10 lakh
and Rs.12.5 lakh, the TDS liability is 20%. In case the annual income
is between Rs.12.5 lakh and Rs.15 lakh, the TDS liability is 25%. In
case the annual income is above Rs.15 lakh, the TDS liability is 30%.