TAX PLANNING –

SETTING UP OF NEW BUSINESS

Presented by:

Sreekuttan.M.S
M.Com S4
Tax Planning

TP is 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
SETTING UP OF NEW BUSINESS

When a person decided to start a business the

number of factors are considered:

Factors are
 Location, Nature & Size of business
 Form of business
 Capital structure
 Setting up and commencement of business
 Location , Nature & Size of business
Tax benefits on the basis of location ,
nature and size :
 Agri: income (sec: 10(1))
Newly established unit in SEZ (sec:10AA)
Infra: Devt: Undertaking (sec: 80IA)
Undertaking engaged in devt: of SEZ(sec: 80IAB)
Certain undertakings in certain special category sates
(sec: 80IC)
 Contd:

 Hotels and convention centers in specified

areas (sec: 80 ID)

 Undertakings in North Eastern states (sec:

801E)

 Assesses engaged in the collection and

processing of bio-degrdable waste.(sec:
80JJA)
Form Of Business

 Individual / Sole Proprietorship

 Hindu Undivided Family

 Firm

 Company
Individual / Sole Proprietorship

An individual can pay tax on TI at

prescribed slab rate. He did not entitled
to get deduction in respect of
remuneration , interest on capital while
computing income from his business.
General Deductions to individuals

 Sec: 80C - contribution to life insurance

premium, PPF, NSC , housing loan,etc.
 Sec: 80CCC – contribution to Pension Fund.
 Sec: 80D – Health Insurance.
 Sec: 80DD – medical treatment for
handicapped.
 Sec: 80DDB – expense on medical treatment
of specified deceases.
 Contd:

 Sec: 80E – interest on loan for higher studies.

 Sec: 80EE – interest on loan for acquisition of

residential house.

 Sec: 80GG – House Rent

 Sec: 80U – Income of Disabled persons

 Sec: 80TTA - interest on saving bank account

 HUF

HUF pays tax same as like an individual. The

family can pay reasonable remuneration to karta
and other family members allowed to deducting
in computing business income.

Interest on capital cannot allowable for

deduction.
 Deductions to HUF

Deduction entitled from its Gross

Total Income u/s 80C, 80D, 80DD, 80DDB,

80TTA.
 FIRM

 Firm pay tax at the rate of 30.9%. Firm can

no initial exemptions and entire income will
taxable.

 The share of income of a firm in the hand of

partner is fully exempted u/s 10(2A)
 Deductions to Firm

 Interest on capital or loan given a rate

mentioned in partnership deed , but not
exceeding 12% .

 Remuneration to working partners as

mentioned in Deed. But limits upto
prescribed u/s 40(b)
Company

 A domestic company is liable to pay tax

at the rate of 30% with surcharge and
Edu: cess.
 Deduction to company

 Whole amount of interest paid to the loan

taken for business purposes.

 Remuneration paid to MD, Directors and other

staffs.

 Amount of dividend on its share capital is not

deductable.
 Tax Planning - Tips

 Where deduction from GTI is allowed for prescribed

number of years it is better to commence the business
from the beginning of the year.

 For availing deductions u/s 80IA, 80IAB,etc the

conditions laid down for the deduction must be
complied.

 The tax rate of HUF and Individual is the same so

each case require careful analysis.
 Contd:

 Keeping in view exemption nil in the case of

firm , it is better to dissolve a nd start
individual business.

 The firm should pay interest and remuneration

to partners to the extent u/s 40(b)to reduce
the incidence of tax.

 Take care of MAT.

Questions

?
 Question

There are 2 member in a joint Hindu family named A&B, Having a

capital of Rs.12,50,000. they can decided to start a business as an
individual joining and other as an employee and money lender or HUF.

The options considered are:

1. If business is run as of individual and another member can receive a salary of
Rs.2 lakh and interest @ 12% ,Rs.6,25,000.
2. If the business is run as an HUF and members entitled a alary of Rs.1,50,000
each.

Suggest which form of business organisation should be adopted in the

tax point of view if the expected anticipated business income is
Rs.5,70,000, for AY 2013-14
THANK YOU