Tax- A pervasive word
!
“ Compulsory extraction made by General
government from the hard earned of the general
public for their (public ) purposes.” !
The term general government includes central , state
and local governments.!
“ Taxes are what we pay for a civilized society”!
Taxes are levied on citizens & other artificial income
generating entities.
TAX PLANNING 


❑ It is an arrangement of one’s financial affairs in such a way

that the burden of taxation on the assessee is reduced to the
minimum without violating in any way the legal provisions.
maximum advantage is taken of all tax exemptions,
deductions, concessions, rebates, allowances other reliefs or
benefits permitted under the Act.!
❑ It is a legitimate right of the tax payer. !
❑ Tax planning strategies deal with how to optimize after tax
income & capital flows after considering transaction cost, the
management structure & business risk.
To save the incidence of tax , a person may
adopt legal or illegal methods:




These methods are!

(a) Tax Avoidance and !
(b) Tax Evasion
TAX AVOIDANCE


“Tax avoidance is an art of dodging tax authorities

without breaking the law.”!
!
Thus tax avoidance is an attempt to manage financial
affairs by using colorable devices with the intention
of reducing tax liability .
● The transaction that are designed to avoid or reduce the
liability of tax or!
● The transaction that are brought into existence solely for
tax avoidance & not to achieve a commercial purpose
and!
● The transaction that are clearly outside the purview of
the intention of the law makers.!
● Tax avoidance also reduces government revenue and
brings the tax system into dispute and ultimately to
disrepute.
In India …………
before the decision of court in Mcdowell’s CTO.care,
tax avoidance are regarded as a lawful act. It was
the landmark judgement given by the honourable
suprejme court in Mcdowell & Co. Ltd. vs. CTO
(1985) IS4ITR 148 (SC) which is considered as a
turning point in the judicial approach on avoidance
of tax.
The supreme court gave its observation in the following manner :


● There is substantial loss of public revenue required for the

economic development of the nation;!
● It results in creation of black money economy which results
into inflation ;!
● Its result into loss of litigation which results into huge amount
of tax arrears , busy courts and wastage of time and money.!
● It results into injustice and inequality caused by the tax
avoidance for the honest tax payer ;!
● It results into an unethical practice of transferring the
incidence of tax liability from the tax dodgers to the honest
tax payers who have to pay tax at higher rates.
TAX EVASION 


It is illegal method of saving tax and makes the person

liable to penalties and prosecution . !
!
Tax evasion refers to an exercise/attempt by a tax
payer for not paying the tax legally becoming due. !
!
A tax evader either (a) pays less tax than what he is
supposed to pay or (b) does not pay any tax when he
is legally liable to pay it as per the rules of tax laws .
The method of tax evasion are :


● Not showing income at its real level i.e under disclosure of

income ;!
● Inflating the expenses and thus reducing the income level ;!
● Manipulation of accounts to reduce the income ;!
● Violation of rules and regulations of laws with the
intention to save tax ;!
● Manipulation of sale and purchase of property i.e Benami
transactions !
● Although tax evasion may lead to lower cash outflow on
account of taxes yet such savings of money may not be real
and absolute . In fact tax evaded remains a liability of the
evader . If tapped ; he will have to pay the tax evaded.
In India , The income tax Act 1961 also provides for
very stringent penalties which may range from a
minimum of an amount equal to tax payable to a
maximum of 300% of tax.
IMPLICATIONS OF TAX PLANNING:


1.Reductions in tax liability.!

2.Minimization of litigations.!
3.Healthy growth of nation.!
4.Help in capital formations.!
5.A source of working capital .!
6.Other implications.!
 
DOES TAX PLANNING REDUCE GOVERNMENTAL
REVENUE ?


● Although these concessional provisions reduce the

inflow of government yet its offsets the fall in
revenue by channelizing savings and investments in
the growth of economy.!
● The savings through tax planning are pumped into
economy in form of savings and investments by tax
payers. Thus ultimate aim of socio-economic
development is fulfilled.
DIFFERENCE BETWEEN TAX PLANNING AND TAX EVASION

TAX PLANNING!
1.Aimed at reducing tax liability by
availing max. benefits of various
deduction , exemption , rebate, relief etc!
2. Tax planning is within framework of law!
3. It is legal and accepted by judiciary!
4. It is based on principle of disclosure !
5. It involves wealth creation through
encourage saving and investment!
6. It leads to more resources with tax payer
without any fear of being eroded later
on!
7.It is stress less device!
8. Tax planning leads to socio economic
development!
9. Tax planning is an honest effort for self
benefit and economy.
TAX EVASION!
It is an exercise of reducing tax liability by
(i) showing less income or (ii) hiding
source of income!
It is willful disobedience of law and an act
of deceit !
It is illegal and prohibited !
It involved hiding the fact regarding
income and expenditure!
It is a white collar crime!
Increased resources may get eroded later on
or penalized!
It is stress full device!
Generation of black money hampers
development of nation!
It is dishonest effort of only self benefit
DIFFERENCE BETWEEN TAX PLANNING & TAX
AVOIDANCE

TAX PLANNING!
1.It is an exercise of reducing
tax liability by staying in
limits of law!
2. It involves fair obedience of
law with an honest attitude!
3. it is legal and acceptable by
judiciary!
4. here transaction are real
and natural!
5.it is dependable
Tax AVOIDANCE!
It is an exercise of reducing
tax liability by exploiting
loopholes of law!
It involves foul play with law !
It is unethical, illegal and
prohibited!
Transaction are fabricated
artificially!
It is not dependable
DIFFERENCE BETWEEN TAX AVOIDANCE & TAX EVASION
TAX AVOIDANCE!
● 1.An act of minimizing tax
liability by locating
weaknesses of law!
● 2.it may be within
framework of law but it is
against the basic intent of the
legislative provision!
● 3. It can be curbed by
introducing anti- avoidance
provision


TAX EVASION!
● It is an exercise of reducing
tax liability by (i) showing
less income or (ii) hiding
source of income!
● It is complete violation
and disrespect of law!
● It can be curbed by
implementing law
effectively
REQUISITES OF A SUCCESSFUL TAX PLANNING:

 
!
1.Thorough knowledge of present law.!
2.Preparedness of retrospective amendments.!
3.Knowledge of other allied laws.!
4.Knowledge o f methods of tax planning.
LIMITATIONS OF TAX PLANNING:


 !
1.Tax planning has limited scope and it may not go beyond it.!
2.Tax planning can be done only for short period as taxation laws are very
dynamic and keeps on changing frequently.!
3.Preconditions are imposed on assessee before they avail several tax benefits.!
4.Tax laws are most complicated and difficult to understand its intricacies. This
act as limitations for tax planners.!
5.Knowledge of WEALTH TAX ACT,INTEREST TAX ACT,MONEY
LAUNDERING ACT etc along with income tax act is necessary for successful
tax planning.!
6.Along with knowledge of taxation laws ,concepts of Accountancy must be
known for successful tax planning.!
7.Often time which should be devoted to profitability management is diverted
towards tax planning ,thus hampering business growth.!
 
TAX MANAGEMENT


Tax management , a part of the tax planning, is name given to

compliance of tax laws. It deals with the relationship of a
person with the tax authorities . It has three facts :!
● Past : At the end of financial year filling of various
returns , issuing certificates, payment of tax etc.!
● Present : During the course of financial year payment of tax
at appropriate time , deduction of tax at source , its
payment etc.!
● Future : Rectification of any mistake committed , going in
for appeals etc.!
Tax management, now a days has become a complex exercise involving
high time and labour. This is so because of the following two reasons:


● Economic uncertainty under which corporation/

companies /business houses operates, and!
● Ever growing regulatory frameworks being
introduced by legislature
Tax Planning
LOCATION, NATURE AND SIZE OF BUSINESS


● Agricultural income is fully exempt. [ Sec.10(1)] !

● Income from newly established units in Special Economic Zone is exempt for
consecutive fifteen assessment years upto specified limit. [Sec.10 AA]!
● Deduction in respect of infrastructure development undertakings.!
● [Sec.80IA]!
● Deduction in respect of an undertaking engaged in development of Special
Economic Zone. [ Sec. 80IAB]!
● Deduction in respect of an industrial undertaking or hotel etc. [ Dec. 80 IB]!
● Deduction in respect of certain undertakings in certain special category. [ Sec.80IC]!
● Deduction in respect of business of hotels and convention centers in specified area.
[ Sec. 80ID]!
● Deduction in respect of certain undertakings in North-eastern states.!
[Sec.80IE]!
● Where an assessee drives income from business of collecting and processing of bio-
degradable waste, he is entitle to a deduction of an amount equal to whole of such
income for five assessment years. [ Sec. 80JJA]
● Sixty percent is deemed to be agricultural income and the forty percent is taken as
business income.!
● Seventy five percent of the income from the sale of coffee grown and cured in India
is deemed to be agricultural income and twenty five percent is business income.!
● Sixty percent of the income derived from the sale of coffee grown, cured, roasted
and grounded by the seller in India deemed to be agricultural income and the
remaining forty percent is taken as business income.!
● Sixty five percent of income derived from the sale of centrifugal latex or cenex or
talex based crepes or brown crepes or technically specified block rubbers
manufactured or processed by him from rubber grown by him in India is deemed
to be agricultural income and the remaining thirty five percent is taken as business
income. !
● Conditions for Deduction:!
● Audits of Accounts!
● Utilization of amount!
● Sale or transfer not allowed within 8 years
Tax Planning for Hospitals

Hospital located anywhere in India other than excluded area

[Sec. 80-IB (11C):
● A deduction of 100 % from gross total income. For five
assessment years on fulfillment of the following
conditions: !
● Such hospital is constructed between 1.4.2008 and
31.3.2013 in accordance with the local regulation in
force.!
● The hospital has at least 100 beds for patients.!
● The assessee submits an audit report in the prescribed
form on demand certifying that the deduction has been
correctly claimed.
“Excluded area” shall mean an area comprising: 


● Greater Mumbai urban agglomeration!

● Delhi urban agglomeration!
● Kolkata urban agglomeration!
● Chennai urban agglomeration!
● Hyderabad urban agglomeration!
● Bangalore urban agglomeration!
● Ahmadabad urban agglomeration!
● District of Faridabad!
● District of Gurgaon !
● District of Gautam Budh Nagar!
● District of Ghaziabad!
● District of Gandhinagar and !
● City of Secunderabad
Deduction regarding capital expenditure [ Sec. 35
AD]


● If an assessee incurs capital expenditure in respect of business of building and operating

a new hospital anywhere in India with at least one hundred beds for patients, he will be
entitled to deduct such expenditure from income of such business. !
● Conditions for Deduction: !
● It should be a new business and not splitting up or reconstruction of a business already
in existence. !
● Such business should be commenced after 31.3.2010.!
● The capital expenditure is incurred prior to the commencement of its operations. !
● The amount is capitalized in the books of account on the date of commencement of its
operations.!
● Capital expenditure shall not include expenditure incurred on acquisition of land or
goodwill or financial instrument. !
● The assessee shall get his accounts audited and submit the report on demand by the A.O.!
● If during previous year the expenses (capital and revenue) are more than the receipts,
the unabsorbed loss will be carried forward and set- off against income of such hospital
or any other specified business. !
● If such hospital commences its operation on or after 1.4.2012, the deduction regarding
capital expenditure shall be allowed @ 150% of such expenditure instead of 100 %.
Tax Planning for Hotels [Sec.80-ID]


Who is entitled to deduction? !

● An undertaking engaged in the business of hotel (two-star, three-star
or four-star category), located in the specified area, if such hotel is
constructed and has started or starts functioning between 1.4.2007
and 31.7.2010. !
● Specified Area: The National Capital Territory of Delhi and the
districts of Faridabad, Gurgaon, Gautam Budh Nagar and Ghaziabad. !
● An undertaking engaged in the business of hotel (two-star, three-star
or four-star category) located in the specified district having a World
Heritage Site, if such hotel is constructed and has started or starts
functioning between 1.4.2008 and 31.3.2013.!
● Quantum of deduction and period for deduction: 100 % of the
profits and gains derived from such business for five consecutive
assessment years.
Quantum of deduction and period
for deduction:
● 100 % of the profits and gains derived from such business
for five consecutive assessment years.!
Conditions for deduction: !
● The deduction u/s 80-ID will be allowed if the following
conditions are satisfied: !
● It is not formed by the splitting up or the reconstruction of
a business already in existence. !
● It is not formed by the transfer of a building previously
used as a hotel.!
● It is not formed by the transfer of machinery or plant
(exceeding 20 %) previously used for any purpose.
Exception
● Any machinery or plant which was used outside India by any
person other than the assessee shall not be regarded as
machinery or plant previously used for any purpose, if the
following conditions are fulfilled: !
● Such machinery or plant was not used in India before
installation by the assessee,!
● It is important into India from outside India and!
● No depreciation has been allowed or allowable under this Act
for any period prior to the installation of the P & M by the
assessee. !
● The assessee submits on demand the audit report in the
prescribed form (Form No. 10CCBBA) certifying that the
deduction has been correctly claimed.
● An undertaking engaged in the business of hotel (not
below two star categories) located in North-Eastern
states, if such hotel has stated or starts functioning
between 1.4.2007 and 31.3.2017.!
● Quantum of deduction and period for deduction: 100
% of profits and gains derived from such business for
ten consecutive assessment years. !
● Conditions for deduction: ………………………!
● Explanation: North-Eastern states means Arunachal
Pradesh, Assam, Manipur, Meghalaya, Nagaland,
Sikkim and Tripura.
Explanation: Specified district having a World
Heritage Site

Name of District Name of State
Agra Uttar Pradesh
S. No. ! Maharastra
Jalgaon
● 1.!
Aurangabad Maharastra
● 2.!
Kancheepuram Tamil Nadu
● 3. !
● 4.! Puri Orissa
● 5.! Bharatpur Rajasthan
● 6.! Chhatapur Madhya Pradesh
● 7.! Thanjavur Tamil Nadu
● 8.! Bellary Karnataka
● 9.! South 24 Parganas West Bengal
● 10.! Chamoli Uttarakhand
● 11.! Raisen Madhya Pradesh
● 12.!
Gaya Bihar
● 13.!
Bhopal Madhya Pradesh
● 14.!
● 15.! Panchmahal Gujrat
● 16.! Kamrup Assam
● 17.! Golapara Assam
● 18.! Nagaon Assam
● 19.! North Goa Goa
● 20.! South Goa Goa
● 21.! Darjeeling West Bengal
● 22. Nilgiri Tami Nadu
Tax Planning for the business of Genration or
Generation and Distribution of Powers


Depreciation [Sec.32]!
● The assessee can claim depreciation on assets acquired after
31.3.1997 on the basis of actual cost instead of written down
value method. !
● In case of depreciation on actual cost (straight line method)
there will be even burden of depreciation. On the other hand,
in the case of WDV method, the amount of depreciation in the
initial year will be higher and its goes on decreasing every
year.!
● W.e.f. 1.4.2013, the additional depreciation shall also be
allowed to the assessee who is engaged in business of
generation and distribution.
……………………
● Deduction from Gross Total Income [Sec. 80-IA(4)(iv)]!
● Who is entitled to deduction? !
● An undertaking which: !
● Is set-up in any part of Indian for generation or generation
and distribution of power if it begins to generate power
after 31.3.1993 but before 1.4.2013!
● Starts transmission or distribution by lying a network of
new transmission or distribution lines after 31.3.1999 but
before 1.4.2013.!
● Undertakes substantial renovation and modernization of
the existing network of transmission or distribution lines
after 31.3.2004 but before 1.4.2013.
● Explanation: Substantial renovation and modernization
means an increase in the plant and machinery in the
network of transmission or distribution lines by at least
50 % of the book –value of such plant and machinery on
1.4.2004. !
● Quantum and period of deduction: 100 % of such
profits for ten consecutive assessment years. !
● Option to claim deduction: The assessee, at his option,
can claim deduction in any ten consecutive assessment
years out of fifteen years beginning from the year in
which it begins operations.
Conditions for deduction: The deduction shall be
allowed if the following conditions are satisfied: !
● It is not formed by the splitting up, or the
reconstruction, of a business already in
existence……………………………………
Tax Deductions
!
1) Section 80 C Limit Unchanged (Rs. 1,00,000) !
Deduction on life insurance policy, taken after 1 April 2012, will be allowed only if yearly premium is less than 10% of sum assured. This is a
new change from c.y. earlier it was 20%. If its more than 10% then not eligible for deduction u/sec. 80C!
● ELSS!
● PPF!
● EPF!
● FD for 5 years!
● Pension Plans!
● NSC!
● Post Office SB!
● Infrastructure Bonds!
● Expenditure on Children Education (Upto Rs. 200 per month for upto 2 children)!
● Tuition fees (Only Tuition fees excluding Development Fees, Donations, etc.)!

!
2) Section 80 CCF – Additional Rs. 20,000 on investments towards approved Infrastructure bonds  (withdrawn) !
!




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● 3) Section 80CCD:

Deduction under this section can be claimed only if the contribution to your NPS account is made by
your employer and the deduction is limited to a maximum of 10% of your basic salary. Returns on NPS are tax free,
but withdrawal is still taxable. The deduction under sec 80CCD is over and above the deduction available under
sec 80C.!

!
● 4) Section 80 D

Deduction under section 80D. Deduction of Rs. 15000/- is allowed if the same is paid as premium for Medical
Insurance taken for self / dependents or towards preventive health check-up (max Rs. 5000). In case any of self /
dependents is a senior citizen, the deduction allowed is Rs. 20000/-!
● Additional Rs. 15000/- is allowed as deduction if the same is paid as premium for Medical Insurance taken for
parents. In case the parent is a senior citizen, the deduction allowed is Rs. 20000/-!

!
● 5) Section 80DD

Deduction under section 80DD!
● Exemption given for Expenditure made for a disabled dependant towards Medical Treatment/Training/
Rehabilitation. It also includes the LIC/Insurance premium paid towards maintenance of such dependant.!
● Maximum deduction allowed is Rs. 50,000/- in case of normal disability and Rs. 1 Lakh in case of severe disability.!
● 



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6) Section 80DDB


!
Deduction under section 80DDB. Exemption given for expenditure incurred on specified disease or ailments

!
such as cancer/aids. Maximum deduction allowed is Rs. 40,000/-. In case of Senior Citizens, maximum
deduction allowed is Rs. 60,000/-
List of ailments covered:
(i) Neurological Diseases where the disability level has been certified to be of 40% and above,!
● Dementia ;!
● Dystonia Musculorum Deformans ;
! !
!!
● Motor Neuron Disease ;
● Ataxia ;
● Chorea ;
● Hemiballismus ;
● Aphasia ; ! ! !
● Parkinsons Disease ;
!
● (ii) Malignant Cancers ;
!
!!
● (iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ;
● (iv) Chronic Renal failure ;

●


Thalassaemia.!
!
● (v) Hematological disorders :
● Hemophilia ;



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7)Section 80E

Deduction under section 80E

Deduction is allowed for repayment of interest component of Higher Education loan. All education after Class 12 is
allowed, either vocational or Fulltime. But should be from a school/institute/university recognized by the government.!

!
8 ) Section 80G !
!
Contribution to exempt charities – 25/50/75/100% depending on the charity and as per approval!
100% exemption on donation to political parties

!
9) Section 80U

Deduction under section 80U!
Deduction upto Rs. 50,000/- is allowed in case of Permanent Disability.!
In case of Permanent Disability exceeding 80%, maximum deduction allowed is Rs. 1,00,000/-.!
!
10) Section 24(1)(vi) !
Housing loan interest. Maximum Investment Limit – Rs. 1,50,000 (for loans taken after 1 April 1999, for loans before that
Maximum Investment Limit 30,000). More details here.!
!!




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11) Superannuation – Any contribution made by a company to superannuation fund upto Rs. 1,00,000 tax free in the hands of the employee.!

!
12) Conveyance/Transport Allowance – Any Conveyance / Transport Allowance given to an employee is tax free upto Rs. 9,600 /- (No Supporting Bills required).!

!
13) Medical Allowance – Any Medical Allowance given to an employee is tax free upto Rs. 15,000 /- (Supporting Bills required).!

!
14) HRA – Any House Rent Allowance given to an employee is tax free upto the minimum value of the following conditions (subject to – when an employee can
produce rent paid receipts from landlord for the period and if the employee has not availed of tax exemptions for home loan interest / principal repayment):

a) 50% of Annual Basic (40% of Annual Basic in case of non-metros)

b) Actual HRA received

c) Rent Paid – (10% of Annual Basic)

More details about HRA in this article.!

!
15) Professional Tax – Any Professional Tax deducted from an employee’s salary can be reduced from the annual salary income to arrive at taxable salary.!

!
16) Provident Fund – Provident Fund contributions (under section 80 C and subject to an overall investment limit of Rs. 1,00,000 ) deducted from an employee’s
salary are tax exempt.!




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17)80CCG – Direct Equity Investment – Under ‘Rajiv Gandhi Equity Savings Scheme‘ – a
new equity investor will be able to claim 50% of his investment in direct equity as
deduction subject to maximum investment of Rs. 50,000 and provided his taxable
income is below Rs. 10 lacs. The investment will be subject to 3 years lock-in.  !
● Update 23 Sep 2012: Government has notified this scheme (RGESS). Mutual funds and
ETFs that invest in BSE100 or CNX 100 stocks or PSUs which are Navratna, Maharatna
and Miniratna will qualify under this scheme. These investments can be traded over
stock exchange after 1 year of investment. New equity investor has been defined as
someone who has opened a Demat account but has not bought any securities till date
of notification of this scheme (22 Sep 2012). More information here.!
!
18) Section 80TTA – Savings Bank Interest  - No tax will be charged on interest earned on
balance in savings bank account subject to a maximum of Rs. 10,000 per year.!




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Thank You