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Tax Planning and Management

I Basic concepts of Tax .UNIT .

Tax planning may be defined as an arrangement of one¶s financial and tax affairs in such a manner that without violating in any way legal provisions under the tax and other laws.Tax Planning Tax planning in India is a basic duty of every person paying Income tax. full advantage is taken of all tax exemptions. rebates. reliefs and benefits permitted under the tax laws so that the burden of taxation on the taxpayer is reduced to the minimum Tax planning can be successful through tax management. deductions. concessions. allowances. .

reliefs and incentives as given in tax laws are complied. reliefs. Maintaining proper records. Tax management makes tax planning successful by complying with the various provisions of law. after careful and deep study of tax laws and thus escaped from penalties and prosecutions. rebates and exemptions are fulfilled. e.Tax management Tax management is such a suitable and timely management of financial operations by which all legal formalities and statutory requirements for availing various deductions. Managing the affairs in such a way that all conditions for availing various deductions.g. documents and papers for satisfaction of tax authorities Deducting TDS in time and depositing it with the concerned authority in time. rebates. .

It falls within the four corners of law. law. For example: Malafide intentions Misrepresentation or twisting of facts Considering only the strict interpretation of law and suppressing the legislative intent behind it . IncomeTax Avoidance is immoral .Tax Avoidance It is a technique by which income. expenditure and investments of an assessee are so that without violating tax laws his tax liability is reduced to the minimum by taking advantages of the loopholes or lacunae of tax laws. though not illegal. It is not advisable to the true citizen of India. Effectiveness of the device lies not on the consideration of morality but on the operation of the Income-tax Act.

It is absolutely illegal. It is violation of tax laws intentionally. Unscrupulous citizens evade tax liability by dishonest means. knowingly and with the clear intention of defrauding the exchequer.Tax Evasion It is a technique of reducing tax-liability or avoiding taxtaxtaxliability by violating tax laws.  Suppressing the relevant facts at the time of assessment.  Omission of material facts at the time of assessment. For Example:  Concealment of income  Inflation of expenses to suppress income. .  Not maintaining proper and correct accounts of income earned. if required under the law (falsification of accounts)  Conscious violation of rules. Thus it is a punishable crime.

 a local authority  every artificial juridical person. . not falling within any of the preceding categories.Types of person The term µperson¶ includes:  an individual  a HUF  a company  a firm  an association of persons or a body of individuals. whether incorporated or not.

Profits made by a Joint Hindu family are chargeable to tax as income of the HUF as a distinct entity or unit of assessment.An Individual .e.It means only a natural person i. . A HUF ± It consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. a human being. Once a family is assessed as a HUF .it will continue to be assessed as such till a finding of partition is given by the assessing officer under section171.

Local authority Any committee. Artificial Juridical person Dieties. board or other authority legally entitled to or entrusted by the govt. Guru Granth sahib .A company is defined to mean the following: Any Indian company Any body corporate incorporated under the laws of foreign country A firm A taxable entity separate from its partners. Bar council. with the control and management of a municipal or local fund. AOP or BOI When two or more persons join in for a common purpose or common action AOP may have companies. firms. joint families as its members.

any person who did not deduct TDS.e. a lunatic)  Every person who is deemed to be an assessee in default under any provision of the Act e. a representative assessee (after the death of an assessee. one who did not submit advance tax.g.g.  Every person who is deemed to be an assessee e. a minor. .  A person in respect of whom any proceeding under the Act has been taken. his legal representative. penalty or interest) is payable under the Act. who deducted TDS but did not deposit. a person representing a foreigner.Assessee A person by whom any tax or any sum of money (i. There are four categories of assessee:  A person by whom any tax or any other sum of money is payable under the Act.

 If the new Finance Bill has not been placed on the statute books on the first day of the AY the provisions of the preceding AY or that proposed in the Finance Bill before parliament whichever is more beneficial to the assessee will apply until the new provisions become effective.Basic facts regarding Income Tax  It is an annual Tax  Income of PY is chargeable in the AY at the rates applicable on the first day of the AY  Tax rates are fixed by the annual Finance Act and not by the Income tax Act.  Tax is charged on every person  Tax is levied on the total income of every assessee computed in accordance with the provisions of the Act .

Gross Total Income As per section 14 income of a person is computed under the following five heads: Salaries Income from House property Profits & gains from business & profession Capital gains Income from other sources Total income It is the gross total income as reduced by the amount deductible under sec 80C to 80U .

Exceptions to the income being taxed in AY following the previous year Shipping business of the non-residentsnon-residentsThe master of the ship shall submit a return of income before the departure of the ship from the Indian port Persons leaving India Bodies formed for short duration( for a particular event or purpose) Person likely to transfer property to avoid tax Discontinued Business .

Concept of Residential status Different taxable entities: An individual A HUF A firm or an AOP A joint stock company Every other person .

Concept of Residential status Individual and HUF 1.joint stock company every other person 1. Non . Resident Ordinarily resident Not ordinari ly resident 2. Non-resident . AOP . Resident 2.resident Firm.

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 a loss . Deduction is generally given from income chargeable to tax. Exemption can never exceed the amount of income. it is not included in the computation of income.Deduction and exemption If an income is exempt from tax.