income tax planning eglish project.docx

7/26/2019 income tax planning eglish project.docx

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INDEXINTRODUCTION......................................................................................................1

OBJECTIVE OF THE STUDY......................................................................................2

TAX STRUCTURE INDIA...........................................................................................2

Computation of Tota In!om".................................................................................#

E$!u%ion of "$"mpt"& in!om"..............................................................................'

Computation of n"t in!om" un&"( "a!) )"a&........................................................*

Computation of n"t in!om"................................................................................... *

S"t+o, an& !a((- fo(a(& of o%%"%........................................................................*

Computation of /(o%% Tota In!om".......................................................................0

Computation of In!om".........................................................................................

D"&u!tion% an& A&u%t"& /(o%% In!om"3+............................................................12

A&&itiona D"&u!tion% an& Ta$a4" In!om"3+.......................................................1#

Ta$ Au&it%3........................................................................................................... 1*

f(om.........................................................................................................................

.......................1+56

7a(man"nt A!!ount Num"(

8pan9........................................................................................................#:

CASE

STUDY.......................................................................................................................

...................##

;at (a


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INTRODUCTION

T)" ta$ %-%t"m in In&ia main-> i% a t)("" ti"( %-%t"m )i!) i%

4a%"& 4"t""n t)" C"nt(a Stat" /o;"(nm"nt%

an& t)" ?o!a

!"nt(a "$!i%" an& %"(;i!" ta$. A!!o(&in< to t)" Con%titution of

In&ia> t)" i% t)" C"nt(a Boa(& of Di("!t Ta$"%>

)i!) i% a pa(t of t)" D"pa(tm"nt of R";"nu" un&"( t)"

ini%t(- of Finan!" of t)" In&ian


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a%t 1:+ 1' -"a(%> In&ian ta$ation %-%t"m )a% un&"(

"a%" of ta$ pa-m"nt a& 4"tt"( "nfo(!"m"nt.

OBJECTIVE OF THE STUDYTo %tu&- t)" fo( a%%"%%m"nt of in&i;i&ua in!om" ta$

To %tu&- t)" pannin< of in&i;i&ua in!om" ta$

To %tu&- t)" %a;in< of in&i;i&ua in!om" ta$

To %tu&- )o to


4/21

"iminat" ta$ a;oi&an!". T)" &"pa(tm"nt a% )a(%)- t"%t"&

&u" to t)" )i In&ia int(o&u!"& ta$ ("fo(m% in t)"

166:%. T)" ("fo(m% int(o&u!"& in t)" In&ian ta$ %t(u!tu(" a("

;a(iou% in !ompa(i%on to ot)"( !ount(i"%. In In&ia> T)" ta$

("fo(m% too pa!" in&"p"n&"nt of int"(f"("n!" f(om an-

"$t"(na mutiat"(a a a%%"%%m"nt ou& 4" ma&" on t)" " In!om"

f(om %aa(i"%> In!om" f(om )ou%" p(op"(t-> 7(o=t% an& !apita


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ta$a4" a% )i% 4u%in"%% in!om". 49 Int"("%t on !apita an& oan%

to t)" =(m i% ta$a4" a% 4u%in"%% in!om" of t)" pa(tn"(. !9

S)a(" of p(o=t in t)" =(m i% "$"mpt in t)" )an&% of t)" pa(tn"(.

59 In!om" "a(n"& a% a m"m4"( of HUF a9 S)a(" of in!om" of

HUF i% "$"mpt in t)" )an&% of t)" m"m4"(. 49 In!om" f(om an

impa(ti4- "%tat" of HUF i% ta$a4" in t)" )an&% of t)" )o&"( of

t)" "%tat" )o i% t)" "&"%t m"m4"( of t)" HUF. !9 In!om" f(om

%"f+a!ui("& p(op"(t- !on;"(t"& into oint fami- p(op"(t-.

49 )"(" t)" in!om" of AO7 o( BOI i% ta$"& at no(ma (at"% i.".>

t)" (at"% appi!a4" to an in&i;i&ua3 S)a(" of in!om" of a

m"m4"( f(om %u!) AO7 o( BOI i 4" in!u&"& in t)" ta$a4"

in!om" of t)" in&i;i&ua on- fo( (at" pu(po%"% an& a ("i"fun&"( %"!tion * %)a 4" ao"&.

'9 In!om" of ot)"( p"(%on% in!u&"& in t)" tota in!om" of t)"

in&i;i&ua.

a9 T(an%f"(""% in!om"> )"(" t)"(" i% a t(an%f"( of in!om"it)out t(an%f"( of a%%"t%.

49 In!om" a(i%in< to t(an%f"("" f(om a (";o!a4" t(an%f"( of an

a%%"t

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6/21

!9 In!om" of %pou%" a% m"ntion"& in *#819.

&9 In!om" f(om a%%"t% t(an%f"(("& to %on% if" of to an- p"(%on

fo( t)" 4"n"=t of %on% if".

"9 In!om" of mino( !)i& a% m"ntion"& in %"!tion *#81A9.

Com&utat!on o' Tota# Income

In!om" ta$ i% ";i"& on an a%%"%%""% tota in!om". Su!) tota

in!om" )a% to 4" !omput"& a% p"( t)" p(o;i%ion% !ontain"& in

t)" In!om"+ta$ A!t> 16*1. T)" p(o!"&u(" of !omputation oftota in!om" fo( t)" pu(po%" of ";- of in!om" ta$ i% &"tai"&

)"("un&"(

D"t"(mination of ("%i&"ntia %tatu% of In&i;i&ua. T)"

("%i&"ntia %tatu% of a p"(%on )a% to 4" &"t"(min"& to a%!"(tain

)i!) in!om" i% to 4" in!u&"& in !omputin< t)" &"t"(min"% )i%

("%i&"ntia %tatu%. Ba%"& on t)" tim" %p"nt 4- )im> )" ma- 4"

("%i&"nt in In&ia. T)" ("%i&"ntia %tatu% of an in&i;i&ua

&"t"(min"% t)" ta$a4iit- of in!om" "a(n"& 4- )im. Fo(

"$amp"> in!om" "a(n"& out%i&" In&ia i not 4" ta$a4" in t)"

)an&% of an non+("%i&"nt 4ut i 4" ta$a4" in !a%" of a

("%i&"nt an& o(&ina(i- ("%i&"nt+ Ca%%i=!ation of in!om" un&"(

;a(iou% )"a&%. T)" A!t p("%!(i4"% =;" )"a&% of in!om". T)"%"

'2


7/21

)"a&% of in!om" "$)au%t a po%%i4" t-p"% of in!om" t)at !an

a!!(u" to o( 4" ("!"i;"& 4- an in&i;i&ua. An in&i;i&ua )a% to

!a%%if- t)" in!om" "a(n"& 4- )im un&"( t)" ("";ant )"a& of

in!om".

Exc#us!on o' exem&te( !ncome) T)"(" a(" !"(tain in!om"% )i!) a(" )o- "$"mpt f(om

in!om" ta$ ". in!om" f(om mutua fun&. T)"%" in!om"% )a;"

to 4" "$!u&"& an& i not fo(m pa(t of /TI. A%o> %om"

in!om"% a(" pa(tia- "$"mpt f(om in!om" ta$ ". HRA>

E&u!ation aoan!" "t!. T)"%" in!om"% a(" "$!u&"& on- to

t)" "$t"nt of t)" imit% %p"!i="& in t)" A!t. T)" 4aan!" in!om"

o;"( an& a4o;" t)" p("%!(i4"& imit% ou& "nt"( !omputation

of tota in!om" an& )a;" to 4" !a%%i="& un&"( t)" ("";ant

)"a& of in!om".

Com&utat!on o' net !ncome un(er eac*

*ea()

In!om" i% to 4" !omput"& in a!!o(&an!" it) t)" p(o;i%ion%


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&"&u!tion% an& aoan!"% )a;" 4""n !on%i&"("& 4"fo("

a((i;in< at t)" n"t in!om" !)a( t)"(" i% a !)an %a-> in!om" f(om )ou%"

p(op"(t- an& p(o=t% un&"( anot)"( )"a& of in!om"> %a-> p(o=t%

an&


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In!om"+ta$ A!t fo( aoin< int"(+)"a& a&u%tm"nt in !"(tain

!a%"%. Fu(t)"(> o%%"% )i!) !annot 4" %"t+o, in t)" %u4%"u"nt

-"a(% a% p"( t)" p(o;i%ion% !ontain"& in t)" In!om"+ta$ A!t.

Com&utat!on o' /ross Tota# Income)

T)" =na =

aft"( aoin< t)" &"&u!tion% aoan!" an& ot)"( a&u%tm"nt%

a(" t)"n a


10/21

("main"& 4a%i!a- t)" %am". To &"t"(min" t)" amount of

in!om" ta$ o"&> !"(tain &"&u!tion% a(" ta"n f(om an

in&i;i&ua%

f(om )i!) a&&itiona &"&u!tion% a(" ta"n to a((i;" at t)"

ta$a4" in!om". On!" t)" amount of ta$a4" in!om" )a% 4""n

&"t"(min"&> ta$ (at" !)a(t% &"t"(min" t)" "$a!t amount of ta$

o"&. If t)" amount of ta$ o"& i% "%% t)an t)" amount

a("a&- pai& t)(ou f"&"(a a &""m% t)" tip% to )a;" 4""n a in Unit"& Stat"% ;. Fio( DItaia> '5* U.S.

25> 122 S. Ct. 2110> 1'5 ?. E&. 2& 2: 82::29> up)"& t)" IRS

a

t)" Cou(t )"& t)at t)" IRS !ou& ma" "mpo-"(% ("po(t t)"i(


11/21

in!om". Empo-""% a%o mu%t ("po(t t)"i( tip in!om" mont)-

on a fo(m. T)" IRS t)"n u%"% t)"%" to pi"!"% of info(mation to

!a!uat" )at t)" "mpo-"( n""&% to !ont(i4ut" in FICA ta$.

/ross Income%+

T)" =(%t %t"p in !omputin< t)" amount of ta$ ia4iit- i% t)"

&"t"(mination of )"t)"( f(om p"(%ona

%"(;i!"%> 4u%in"%% a!ti;iti"%> o( !apita a%%"t% 8p(op"(t- on"&

fo( p"(%ona o( 4u%in"%% pu(po%"%9. Comp"n%ation fo( %"(;i!"%

in t)" fo(m of mon"-> a 4onu%"%> f""%> an&

!ommi%%ion% !on%titut"% in!om". 7(o4"m% in &"=nin< in!om"

oft"n a(i%" )"n a ta$pa-"( ("ai@"% a 4"n"=t o( !omp"n%ation

t)at i% not in t)" fo(m of mon"-. An "$amp" of %u!)

!omp"n%ation i% t)" f(in


12/21

)"n t)" "mpo-"" ("!"i;"% pa-m"nt f(om t)" pan. "&i!a

in%u(an!" p("mium% pai& 4- an "mpo-"( a(" &i%a4iit- an&

p"n%ion pa-m"nt%> an& ;"t"(an% in%u(an!" p(o!""&% an&

&i;i&"n&% a(" not in!u&"& in a% a(" pa-m"nt% to an

"mpo-"" in t)" fo(m of %to!. An amount !ont(i4ut"& 4- an

"mpo-"( to a p"n%ion> uai="& %to! 4onu%> p(o=t%)a(in

annuit->o( 4on& pu(!)a%" pan in )i!) t)" "mpo-""

pa(ti!ipat"% i% not !on%i&"("& in!om" to t)" "mpo-"" at t)"

tim" t)" !ont(i4ution i% ma&"> 4ut i 4" Ot)"( %ou(!"% of

in!om" &i("!t- in!("a%" t)" "at) of t)" ta$pa-"( an& a("

ta$a4". T)"%" %ou(!"% !ommon- in!u&" int"("%t "a(n"& on

4an a!!ount% &i;i&"n&% ("nt% (o-ati"% f(om !op-(i

t(a&"ma(%> an& pat"nt% p(o!""&% f(om if" in%u(an!" if pai&

fo( a ("a%on ot)"( t)an t)" &"at) of t)" in%u("& annuiti"%

&i%!)a(


13/21

t)" "$t"nt t)" p(";iou% &"&u!tion p(o&u!"& a ta$ 4"n"=t 8t)i%

i% !ommon- ("f"(("& to a% t)" ta$ 4"n"=t (u" an& i% mo%t

oft"n u%"& )"n a ta$pa-"( )a% ("!o;"("& a p(";iou%-

&"&u!t"& 4a& &"4t o( p(";iou%- &"&u!t"& ta$"%9 "&u!ationa> a(ti%ti!> it"(a(-> o( !i;i!

a!)i";"m"nt t)" ("!ipi"nt a% !)o%"n> it)out an- a!tion on

)i% o( )"( pa(t> to "nt"( t)" %""!tion p(o!"%% an& t)" ("!ipi"nt

i% not ("ui("& to ("n&"( %u4%tantia futu(" %"(;i!"% a% a

!on&ition to ("!"i;in< t)" p(i@" o( aa(&. Fo( "$amp">

("!ipi"nt% of No4" 7(i@"% m""t t)"%" !(it"(ia an& a(" not ta$"&

on t)" p(i@" mon"- t)"- ("!"i;". In %om" %ituation% a

ta$pa-"(% "at) &i("!t- in!("a%"% t)(ou mo%t %!)oa(%)ip%> f"o%)ip%> %tu&"nt oan%> an&

ot)"( fo(m% of =nan!ia ai& fo( "&u!ation a(" not in!u&"& in


14/21

!on%i&"(ation% in t)" &"t"(mination of in!om" ta$ ia4iit-.

Capita it) !"(tain na((o "$!u%ion%> an&

!apita o%%"% a(" t)"(" )a;" 4""n man- a%uit% o;"( t)"

i%%u" of )"t)"( a p"(%ona ("%i&"n!"> u%"& at %om" point a%

("nta p(op"(t- o( fo( %om" ot)"( in!om" p(o&u!in< u%"> i%

&""m"& p"(%ona o( 4u%in"%% p(op"(t- fo( in!om" ta$ pu(po%"%.

Ta$pa-"(% a


15/21

)i!) t)"- )a;" ("%i&"& fo( a %p"!i=! amount of tim" !an

"$!u&" t)"i( !apita if futu("> a ta$pa-"( a

t)"("4- "%ta4i%)in< a 4a%i% in t)" p(op"(t- t)at i% "%% t)an t)"

p(i!" pai& fo( t)" )om". )"n t)" n" )om" i% at"( %o&> t)"

amount of


16/21

a(" ao"& on- to t)" "$t"nt t)at t)"i( !om4in"& amount

"$!""&% a !"(tain t)("%)o& amount. If t)" tota amount of

it"mi@"& &"&u!tion% &o"% not m""t t)" t)("%)o& amount>

t)o%" &"&u!tion% a(" not ao"&. /"n"(a-> a4o;"+t)"+in"

&"&u!tion% a(" 4u%in"%% "$p"n&itu("%> an& 4"o+t)"+in"

&"&u!tion% a(" p"(%ona> o( non+4u%in"%%> "$p"n&itu("%. T)"

fa;o(a4" ta$ t("atm"nt a,o(&"& 4u%in"%% an& in;"%tm"nt

p(op"(t- i% a%o ";i&"nt in t)" t("atm"nt of 4u%in"%% an&

in;"%tm"nt "$p"n%"%. O(&ina(- an& n"!"%%a(- "$p"n%"% a("

t)o%" in!u(("& in !onn"!tion it) a t(a&" o( 4u%in"%%. O(&ina(-

an& n"!"%%a(- 4u%in"%% "$p"n%"% a(" t)o%" t)at ot)"(%

"n an& &i%ao t)" &"&u!tion% if t)"- a(" p"(%ona in

natu(" o( a(" !apita "$p"n%"%. Aoa4" 4u%in"%% "$p"n%"%

in!u&" in%u(an!"> ("nt> %uppi"%> t(a;"> t(an%po(tation> %aa(-

pa-m"nt% to "mpo-""%> !"(tain o%%"%> an& mo%t %tat" an&

o!a ta$"%. 7"(%ona o( non 4u%in"%% "$p"n%"% a("


17/21

"$p"n%"% ma- &"&u!t t)o%" "$p"n%"% to t)" "$t"nt t)"- a("

not ("im4u(%"& 4- t)" "mpo-"(. T-pi!a un("im4u(%"&

"$p"n%"% t)at a(" &"&u!ti4" 4- "mpo-""% in!u&" union &u"%

an& pa-m"nt% fo( man&ato(- unifo(m%. aimon- pa-m"nt% ma-

4" ta"n a% a &"&u!tion 4- t)" pa-"( an& a(" &""m"& to 4"

in!om" to t)" ("!ipi"nt )o";"(> !)i& %uppo(t pa-m"nt% a("

not &""m"& in!om" to t)" pa("nt )o )a% !u%to&- of t)" !)i&

an& a(" not &"&u!ti4" 4- t)" pa-in< pa("nt. Cont(i4ution%

ma&" 4- "mpo-""% to an in&i;i&ua ("ti("m"nt a!!ount 8IRA9 o(

4- %"f+"mpo-"& p"(%on% to "o


18/21

A((!t!ona# De(uct!ons an( Taxa"#e

Income%+

On!" a&u%t"& a ta$pa-"( mu%t

&"t"(min" )"t)"( to u%" t)" %tan&a(& &"&u!tion o( to it"mi@"

&"&u!tion%. In mo%t !a%"% t)" %tan&a(& &"&u!tion i% u%"&

4"!au%" it i% t)" mo%t !on;"ni"nt option. Ho";"(> if t)"

amount of it"mi@"& &"&u!tion% i% %u4%tantia- mo(" t)an t)"

%tan&a(& &"&u!tion an& "$!""&% t)" t)("%)o& amount> a

ta$pa-"( i ("!"i;" a "$i!o> o( Cana&a an&> ifma((i"&> 4" una4" to =" a oint ("tu(n it) )"( o( )i% %pou%".

Ea!) "$"mption i% ;au"& at a !"(tain &oa( amount> 4- )i!)

t)" ta$pa-"(% ta$a4" in!om" i% ("&u!"&.

'2


19/21

Tax Ta"#es an( Tax O.e(%+

On!" t)" =na &"&u!tion% an& "$"mption% a(" ta"n> t)"

("%utin< =


20/21

Tax Au(!ts%

T)" IRS ma- au&it a ta$pa-"( to ;"(if- t)at t)" ta$pa-"(

!o(("!t- ("po(t"& in!om"> "$"mption%> o( &"&u!tion% on t)"

("tu(n. T)" mao(it- of ("tu(n% t)at a(" au&it"& a(" !)o%"n 4-

!omput"(> )i!) %""!t% t)o%" t)at )a;" t)" )i


21/21

Conc#us!on%

An- in&i;i&ua )o ant to a%%"%% )i%)"( in!om" ta$ an& ant

to &o ta$ pannin< an& %a;in =(%t )"%)" )a% to !a!uat"

)i%)"( tota in!om" t)"n !omput" t)" in!om" ta$ 4- &"&u!tion

an& a&u%tm"nt in tota in!om" a% p"( ta$ ta4" %t(u!tu(". If ta$

i% pai& in a!!"%% t)"n

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