CORPORATE TAX PLANNING AND MANAGEMENT

1. Difference Between Tax Management, Tax Evasion, and Tax Avoidance

Concept Definition Legality Purpose Methods Used Consequences

The process of
planning and Ensures Proper
complying with timely bookkeeping, No penalties;
Tax tax laws to payment and filing returns on leads to smooth
Legal ✅
Management minimize tax compliance time, availing financial
liability while with tax deductions and planning.
fulfilling legal laws. exemptions.
obligations.
The act of
deliberately Underreporting
Heavy fines,
hiding income or To avoid income, inflating
penalties, and
Tax Evasion falsifying Illegal ❌ paying taxes expenses, hiding
possible
information unlawfully. money in offshore
imprisonment.
to reduce accounts.
tax
liability.
The use of legal
To reduce tax Using tax shelters, May lead to
loopholes to
Legal but burden while shifting profits to government
Tax minimize tax
Unethical staying low-tax regions, scrutiny, changes
Avoidance liability without
⚠◻ within legal excessive in tax laws
violating tax
limits. deductions. to close
laws.
loopholes.

2. Difference Between Tax Planning and Tax Management

Aspect Tax Planning Tax Management

The process of arranging financial The administration and execution of tax-
Definition activities in a way that minimizes tax related activities to ensure compliance
liability using legal provisions. with tax laws.
To reduce tax burden legally by using To ensure timely and proper filing of
Objective
exemptions, deductions, and incentives. taxes while avoiding penalties.
 Future-oriented – planning tax-saving Present and past-oriented – managing
Focus
strategies in advance. tax obligations efficiently.
Aspect Tax Planning Tax Management
Investing in tax-saving instruments (e.g., Maintaining records, filing tax returns
Methods
PPF, ELSS, insurance), income splitting, on time, complying with tax laws, and
Used
choosing the right tax regime. responding to tax notices.
Legality Completely legal and ethical. Completely legal and necessary.
Ensures smooth tax compliance and
Outcome Helps in reducing overall tax liability.
avoids penalties.

3. Objectives and Importance of Tax Planning

Objectives of Tax Planning

Tax planning is designed to minimize tax liability while ensuring compliance with legal tax
regulations. Its key objectives include:

1. Minimizing Tax Liability:

o Legally reducing the amount of taxes paid by using deductions, exemptions, and
rebates.
2. Ensuring Tax Compliance:
o Following the rules and regulations set by tax authorities to avoid penalties and
legal issues.
3. Optimizing Investments:
o Encouraging investments in government-backed tax-saving schemes such as PPF,
ELSS, and NPS.
4. Encouraging Economic Growth:
o Promoting savings and investments that contribute to national economic
development.
5. Avoiding Litigation:
o Reducing disputes with tax authorities by maintaining proper records and
following legal provisions.
6. Maximizing Wealth Creation:
o Using tax-efficient strategies to build long-term financial security.
7. Ensuring Business Efficiency:
o Helping businesses allocate resources efficiently by reducing unnecessary tax
burdens.

Importance of Tax Planning

Tax planning plays a crucial role in financial and economic management. Here’s why it is
important:
 1. Reduces Financial Burden:
o Proper planning ensures individuals and businesses do not overpay taxes, keeping
more money for savings and reinvestment.
2. Promotes Savings and Investments:
o Encourages people to invest in tax-saving instruments like life insurance, mutual
funds, and retirement plans.
3. Ensures Legal Compliance:
o Helps avoid legal consequences by adhering to tax laws and regulations.
4. Boosts Economic Growth:
o Channeling funds into productive investments supports industries, infrastructure,
and employment generation.
5. Improves Cash Flow Management:
o Helps businesses and individuals manage cash effectively by planning tax
payments in advance.
6. Prevents Tax Evasion and Avoidance:
o Ethical tax planning ensures transparency and prevents illegal tax-saving
methods.
7. Supports Retirement and Future Security:
o Tax-saving investment plans contribute to long-term financial security.

4. Book Profit and Deductions from Net Profit

1. Book Profit

Book profit refers to the net profit of a company as recorded in its financial statements (Profit
and Loss Account) before considering certain tax adjustments. It is used to calculate tax
liabilities under Minimum Alternate Tax (MAT) as per the Income Tax Act, 1961.

◻ Formula for Book Profit:

{Book Profit} = {Net Profit as per Profit & Loss Account} + {Additions (Disallowed
Expenses)} - {Deductions (Allowed Expenses)}

Book profit is not necessarily taxable profit, as tax laws may require specific adjustments.

2. Deductions from Net Profit (for Book Profit Calculation)

When computing book profit for taxation (especially MAT), certain deductions are allowed from
net profit as per the Profit & Loss Account:

✅ Common Deductions from Net Profit:

1. Income Exempt from Tax – Income not taxable under the Income Tax Act (e.g.,
agricultural income).

2. Capital Gains Exemptions – If capital gains are reinvested in tax-exempt schemes.

3. Dividend Income – If received from a domestic company (as per applicable rules).

4. Depreciation (as per IT Act) – Any excess depreciation charged in books compared to
tax computation.

5. Provision for Contingencies – Reserves created for uncertain expenses, if disallowed

under MAT.

6. Loss Carried Forward & Unabsorbed Depreciation – Allowed in MAT calculation

under certain conditions.

7. Government Grants/Subsidies – Certain subsidies received may be deductible.

5. Taxable Income Deductions

Taxable income deductions are amounts that individuals or businesses can subtract from their gross
income to reduce their taxable income, thereby lowering their tax liability. These deductions are
provided under the Income Tax Act, 1961 in India and similar tax laws in other countries.

1. Types of Deductions for Individuals

A. Deductions Under Section 80C (Up to ₹1,50,000)

 Life Insurance Premiums (LIC)

 Employee Provident Fund (EPF) & Public Provident Fund (PPF)

 Equity Linked Savings Scheme (ELSS) – Tax-saving mutual funds

 National Savings Certificate (NSC)

 Tuition Fees for Children

 Principal Repayment of Home Loan

  Sukanya Samriddhi Yojana (SSY) Contribution

B. Deductions Under Section 80D (Health Insurance Premium)

 ₹25,000 deduction for self, spouse, children (₹50,000 for senior citizens)

 ₹50,000 deduction for parents (if they are senior citizens)

C. Deductions Under Section 80E (Education Loan Interest)

 Deduction on interest paid on higher education loans (for self, spouse, or children).

D. Deductions Under Section 80G (Donations)

 Donations to charitable organizations, NGOs, and relief funds (e.g., PM CARES

Fund).

E. Deductions Under Section 24(b) (Home Loan Interest)

 Deduction of ₹2,00,000 per year on interest paid on a home loan (self-

occupied property).

F. Standard Deduction (For Salaried & Pensioners)

 ₹50,000 deduction from salary/pension income, applicable automatically.

G. Other Deductions

 80GG – Deduction for house rent paid (if not receiving HRA).

 80TTB – ₹50,000 deduction on interest income for senior citizens.

2. Deductions for Businesses and Corporates

A. Depreciation (Section 32)

 Businesses can deduct depreciation on assets like machinery, vehicles, and buildings.

B. Business Expenses (Section 37)

 Deduction for expenses like rent, salaries, office expenses, marketing, R&D, etc.

C. Interest on Business Loans (Section 36)

 Interest paid on loans for business purposes is deductible.

 D. Bad Debts (Section 36)

 If a business fails to recover payments from clients/customers, bad debts can be deducted.

E. Start-Up Deductions (Section 80IAC)

 Startups registered under DPIIT can claim 100% tax exemption on profits for 3 years.

6. Minimum Alternate Tax (MAT)

Minimum Alternate Tax (MAT) is a provision under Section 115JB of the Income Tax Act,
1961, designed to ensure that companies with high book profits but low taxable income (due to
exemptions and deductions) still pay a minimum amount of tax.

◻ Applicability of MAT

Who is Liable to Pay MAT?

✔ All companies (Domestic & Foreign) with taxable presence in India

✔ Companies availing excessive deductions and exemptions
✔ Companies having high book profits but low taxable income

Who is Exempt from MAT?

❌ Individuals, HUFs, Partnership Firms, LLPs

❌ Companies opting for the New Tax Regimes under Section 115BAA & 115BAB
❌ Foreign companies without a Permanent Establishment (PE) in India
❌ Companies operating in International Financial Services Centres (IFSC)

◻ MAT Rate & Calculation

MAT Formula:

MAT Payable=15%×Book Profit+Surcharge+Cess{MAT Payable} = 15% times {Book Profit} +

{Surcharge} + {Cess}MAT Payable=15%×Book Profit+Surcharge+Cess (Effective

rate may be higher based on surcharges)

Example:

 Book Profit: ₹10 crore

 Normal Tax Liability: ₹1 crore (due to deductions/exemptions)

  MAT Calculation:

o 15% of ₹10 crore = ₹1.5 crore

o Since MAT (₹1.5 Cr) > Normal Tax (₹1 Cr), the company must pay ₹1.5 Cr as
tax

When Is MAT Applicable?

 MAT is applicable when a company’s normal tax liability is lower than 15% of its book
profit.

 In such cases, the company must pay a minimum tax at the MAT rate of 15% (plus
surcharge & cess) on book profits.

 It is applicable for every financial year when the company’s tax liability under normal
provisions is lower than the MAT liability.

◻ Where Is MAT Applicable?

1 ⃣ Applicable To:

✔ All companies, including Indian and foreign companies that have a permanent establishment (PE)
in India
✔ Companies claiming excessive deductions/exemptions under tax laws
✔ Companies with high book profits but low taxable income due to incentives

2 ⃣ Not Applicable To:

❌ Individuals, Hindu Undivided Families (HUFs), Firms, LLPs, and Partnership Firms
❌ Companies that are subject to Section 115BAA and Section 115BAB (new tax regimes for lower
corporate tax rates)
❌ Foreign companies without a permanent establishment (PE) in India
❌ Businesses operating in International Financial Services Centres (IFSC) (eligible for MAT
exemptions)
 ASSIGNMENT OF

CORPORATE TAX PLANNING & MANAGEMENT

PRIYADARSHINI PADHI GUIDE NAME:

ROLL NO: PG23-MBA-024
EXAM ROLL NO:172R0023028 MS. TEJASWINI SAHOO
SEM: 3RD SEMESTER FACULTY OF
DEPARTMENT

Student’s sign: Teacher’s sign:

DEPARTMENT OF BUSINESS ADMINISTRATION

ACADEMIC YEAR 2023-2025

RAMADEVI WOMEN’S UNIVERSITY, BHUBANESWAR