Txataion mgmt unit-1

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Program : MBA

Semester : I

Subject Code : MF 0012

Subject Name : Taxation Management

Unit number : 1

Unit Title : Introduction to Taxation Management

Lecture Number : 1

Lecture Title : Learning and Ability

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Introduction to Taxation Management

Objectives :

• Define the meaning of tax management• Explain the types of taxes• State the methods of tax planning• Define the concept of tax evasion and tax avoidance• Recognize the tax planning for house property and business income • Define the factors affecting the tax planning

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Unit 1- Introduction to Taxation Management

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Lecture Outline

• Introduction

• Tax Planning and Tax Evasion

• Tax Avoidance

• Objectives of Tax Planning

• Tax Planning of Income from House Property

• Tax Planning of Business Income

• Factors Affecting the Tax Planning

• Activity

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Introduction

• Today tax liability is a major area of concern for both individuals and

organizations. Introduction to taxation management tells you about the legal

way to minimize the tax liability of an assessee.

• Therefore tax planning is required by every assessee whether individual or

companies.

• Basic steps to be performed for the tax planning are:

1. Calculate your taxable income

2. Calculate tax payable on gross taxable income for whole financial

year.

3. After you have calculated the amount of your tax liability you have

two options to choose from:

(a) Pay your tax (No tax planning required)

(b) Minimise your tax through prudent tax planning

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Types of Taxes

Unit 1- Introduction to Taxation Management

DIRECT TAXES: Taxes collected by the government directly from the tax payer.

Example: income tax, wealth tax and interest tax

INDIRECT TAXES: Taxes collected indirectly as a part of prices of goods and services on which these are levied.

Example: excise duty, sales tax, customs duty and value added tax

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Tax Planning and Tax Evasion

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Unit 1- Introduction to Taxation Management

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S.No. Tax Planning Tax Evasion

1. Tax planning is an act within the permissible range of the Act conducted to achieve social and economic benefits.

Tax evasion is an attempt to avoid tax by misrepresentation of facts and falsification of accounts.

2. Tax planning is a legal right which enables the tax payer to achieve social and economic objectives.

Tax evasion is a legal offence which may lead to penalty and prosecution.

3. Tax planning accelerates development of the economy of a country by generating funds for investment in desired sectors.

Tax evasion retards the development of economy of a country by generating black money which works as a parallel economy.

4 Tax planning promotes professionalism and strengthens economic and political situation of the country.

Tax evasion encourages bribery and weakens economic and political situation of the country.

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Tax Avoidance

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• Tax avoidance is minimizing the incidence of tax by adjusting the affairs in such a manner that although within the four corners of the taxation laws, the advantage is taken by finding out loopholes in the laws.

• Justice O. Chinnappa Reddy of Supreme Court in Mcdowell & Co. Ltd. vs. CTO, the evil consequences of Tax Avoidance are:1.Substantial loss of much needed public revenue 2.Serious disturbance by piling up of black money directly causing inflation.3.Hidden loss to the community by some of the best brains in the country being involved in the perpetual war waged between tax avoider and tax adviser.4.Sense of injustice and inequality among people.5.Ethics (or lack of it) of transferring the burden of tax liability to the shoulders of guideless, good citizens from those of artful dodgers.

Unit 1- Introduction to Taxation Management

Supreme Court of India

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Methods of Tax Avoidance

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Legal entities: People legally defer paying personal taxes by creating a legal separate entity to which they donate their property Country of residence: The company or person changes the tax residence to a place that is a tax haven in order to lower the amount of taxes that they pay.

Double taxation: Many countries charge taxes on the income that has been earned inside that country without taking into consideration, the resident country of the firm or person.

Tax avoidance reduces the revenue of the government and also brings into disrepute, the tax system. Ideally, avoidance of tax should not be encouraged and the government should also take measures in order to prevent it.

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Objectives of Tax Planning

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Unit 1- Introduction to Taxation Management

Reduction of

Tax Liability

Minimisation of

Tax Liability

Productive Investment

Economic stabilityHealthy Growth

of Economy

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Tax Planning of Income from House Property

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Unit 1- Introduction to Taxation Management

What are the three conditions to be satisfied for property income to be taxable? 1. The property should consist of buildings or lands appurtenant thereto. 2. The assessee should be the owner of the property. 3. The property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to income-tax.

Exempted house property income

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Tax Planning of Business Income

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Unit 1- Introduction to Taxation Management

• The income from business and profession is known as profit and gains.• While calculating the profit and gains, we deduct various expenses from it.•The expenses to be deducted for calculating the gain are defined in the income tax act. •Sections 30 to 37 cover expenses, which are expressly allowed as deduction while computing business income, Sections 40, 40A and 43B cover expenses which are not deductible• Important deductions admissible in computing income from business or profession are contained in Sections 30 to 36 of Income Tax Act

Expenditures not allowed as deduction for purpose of income tax:

• Deduction of taxes, interest etc. only on actual payment basis• Expenditure in excess of Rs. 20,000 in cash fully disallowed• Interest on delayed payment to small industries• Expenditure for any purpose which is an offence in law

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Factors Affecting the Tax Planning

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Unit 1- Introduction to Taxation Management

• Residential status and citizenship of the assessee

• Heads of income/assets to be included in computing net wealth

• Latest legal position

• Form vs Substance (a) Form of transaction (b) Genuineness of transaction (c) Expenditure

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Activity

Activity 1 Go to the website given below and learn about various legalities related

to investment planning so as to reduce income tax liability for the year

2010- 2011

http://www.investmentyogi.com/taxes/tax-planning-for-2010.aspx

Activity 2

Visit the link below and find out how Govt. India uses PAN Card

to check tax evasion n the country.

http://www.theindiastreet.com/2007/06/pan-to-check-tax-

evasion-in-india-by.htm

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THANK YOU

Unit 1- Introduction to Taxation Management