CORPORATE TAX PLANNING

MODULE :01

BASIC FRAME WORK OF DIRECT TAXATION

INTRODUCTION TO TAXES :-
A financial charge or other levy imposed upon a taxpayer (an individual or legal entity) is
termed as Tax, collected by a state or the functional equivalent of the same, such that failure
to pay, or evasion of or resistance to collection of tax, is punishable by law. Several
administrative divisions also impose tax. Taxes consist of direct or indirect taxes and as a norm
are paid in money.
A tax may be defined as a monetary burden placed upon individuals or property owners to
aid in sustenance of the government, a payment obtained by legislative authority. A tax is not
a voluntary payment or donation, but an enforced contribution, exacted pursuant to
legislative authority. Direct taxes or indirect taxes are the main components of Taxes. It is paid
in money or alternatively its labour equivalent (often but not always unpaid labour). India has
a well-structured taxation system. The tax system in India is principally a three tier system
which is based between the Central, State Governments and the local government
establishments. In most cases, these local bodies take in the local councils and the
municipalities. In accordance with the Constitution of India, the government can exercise the
right to levy taxes on individuals and organizations. Inversely, the constitution states that no
one has the right to levy or charge taxes except the authority of law. The law passed by the
legislature or the parliament should back the tax being charged, so as to establish a tenet of
transparency in its dealings.
Meaning of TAX:
Tax is a compulsory payment to be made by every resident of India. It is a charge or burden
laid upon persons or the property for the support of a Government. Government decided the
rates and the items on which tax will be charged, like income tax, GST, etc
Tax can be defined in very simple words as the government’s revenue or source of income.
The money collected under the taxation system is put into use for the country’s development
through several projects and schemes.
> The Indian Constitution authorizes the Central and the State Governments to levy taxes.
> The Parliament passes laws to approve taxes collected by the Central Government. In the
case of the State Governments, the State Legislature holds this power.
> By the State Government: Also, the local governing and civic bodies too have the right to
levy certain taxes.
Why Do We Pay Taxes?
Taxes are the primary source of revenue for most governments. Among other things, this
money is spent to improve and maintain public infrastructure, including the roads we travel
on, and fund public services, such as schools, emergency services, and welfare programs.
Who Needs to Pay Taxes?
The taxpayer will depend on the type of tax and associated regulation for that tax. For
example, federal income tax legislation usually only pertains to people who have earned a
certain amount of income or adjusted gross income. Corporate taxes may be limited to
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companies that have performed business in a specific area or are incorporated to do business
within a specific country.

Types of Taxes
> Direct Taxes:
The individuals directly pay these taxes to the respective governments. In this case the both
Incidence and Impact will fall in a single person, i.e. an assesses. The most notable examples
include Income tax, Capital gains tax, corporate tax, Wealth Tax and Securities transaction
tax.

Types of Direct Tax in India:

• Income Tax :
Income tax is among the most common and essential taxes among different types of tax in
India. This tax entails taxing an individual’s income through different sources like salary,
investments, property, business, etc. It also applies to the income generated by capital gains
and other sources. The rate of Income-tax depends directly on the income of a family. The
income tax act describes a tax benefit you can get through insurance premiums or fixed
deposits.
• Corporate Tax :
The income tax a company pays from the revenue earned by it is called a corporate tax.
Corporate tax has its slab for deciding the amount to be paid. It is usually levied on the net
profit of the firms. Along with domestic firms, foreign companies are also liable to pay
corporate tax under the Income Tax Act.
• Securities Transaction Tax :
The tax is levied, including a share’s price and tax. You must pay this tax every time you buy
or sell a share. It covers taxable securities such as equity, unit of equity-oriented mutual
funds and derivatives.
• Capital Gains Tax:
This tax is payable when you get a significant lump sum of money. They include two types
of capital gains, long-term capital gains and short-term capital gains. Both taxes are
different as short-term gains tax is computed depending on the income bracket.

> Indirect Taxes:

These taxes are not directly paid to the governments but are collected by the intermediaries
who sell or arrange products and services. In this case, the Incidence and impact of taxes will
fall on two different persons. GST (Goods and Service Tax), Service tax, sales tax, octroi,
customs duty, value-added tax, and excise duty, customs duty, are some of the top examples.
Type of indirect tax:
• Sales Tax:
A tax levied for the sale of a product is called a sales tax. This tax is levied on a product’s
seller, who then passes the price to the buyer, with the tax included in the product’s price.
Sales tax can be applicable on three different levels:
-Inter-State sale

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-Sale during import/export
-Intra-state level
• Service Tax:
Like sales tax, this tax is also included in the price of a product sold in the country. It is levied
on the services that a company offers. They are collected depending on the way these
services are offered. It covers all the paid services, including telephone, healthcare,
maintenance, consultancy, banking, financial services, advertising, etc.
• Excise Duty:
Excise duty is the tax imposed on produced goods or goods in India. It is collected directly
from the manufacturer of the goods. They are also collected from entities that receive
goods and work for the individuals to ship the products.
• Customs Duty:
Customs duty is the charge levied on any product that has been imported from abroad. It
ensures the goods entering the country are taxed and paid for. The rate of taxation depends
on the nature of the product.

Goods & Services Tax:

Before the Goods and Services Tax was introduced, there were numerous types of tax in
India.
GST is an indirect tax that has clubbed together many indirect taxes in India, like excise duty,
VAT, service tax, etc. This is the tax levied on the supply of services and goods sold for
domestic consumption in India.

Classification of taxes in India for GST:

❖ CGST - Central Goods And Services Tax :
The revenue earned from CGST is collected by the Central Government and applies to
intrastate transactions (within the same state).
❖ SGST - State Goods And Services Tax :
SGST refers to the State Goods and Services Tax. It is the tax that the state government
levies on intra-state transactions of goods and services. UGST, or Union Territories Goods
and Services Tax, replaces SGST in Union Territories like Andaman and Nicobar Island or
Chandigarh.

❖ IGST - Integrated Goods And Services Tax:

The Integrated Goods and Services Tax is applied to the interstate (between 2 states) supply
of goods and services. It is also applicable for imports and exports.

Meaning of assessment year:

The assessment year (AY) is the year that comes after the FY. This is the time in
which the income earned during FY is assessed and taxed. Both FY and AY start on 1 April and
end on 31 March.

Meaning of previous year:

As per the Income Tax law the income earned in current year is taxable in the
next year. The year in which income is earned is known as the previous year.

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-: HISTORY OF TAXATION IN INDIA :-
In the year 1860, the tax was first introduced in India by Sir James Wilson with the intention
to meet the losses sustained by the government due to the Military Mutiny of 1857. In the
year 1918, a new income tax has been passed and again it was substituted by another new
act which was passed in 1922. This Act remained in operation up to the assessment year 1961-
62 with several amendments.
In discussion with the Ministry of Law finally the Income Tax Act, 1961 has been passed. The
Income Tax Act 1961 was brought into force from 1st April 1962. It was applicable to entire
India and Sikkim (which also includes Jammu and Kashmir).
From the year 1962 many amendments of far-reaching nature were made in the Income Tax
Act by the Union Budget each year.

The Income Tax Act of 1860

The tax policies passed by the British government of India made the most influencing effect
of the contemporary tax system of India.
The policy of income tax laws which has been structured under the British India rule could be
credited to the well-known event of mutiny.
The mutiny of 1857 through Indian soldiers of the British army caused huge losses towards
the British government of that time.
The Income Tax Act was presented in the year 1860 in order to meet the losses experienced
as a consequence of mutiny. The Act of 1860 was applied for a period of 5 years and quashed
accordingly.
Features of the Income Tax Act 1860 are:-
• Exemption of earnings from agriculture produce from taxation
• Premiums payable for Life Insurance were exempted from Taxation
• Hindu Undivided Family were addressed as a separate taxable unit
The Income Tax Act of 1918
The Income Tax Act of 1918 made some major changes in the income tax system.
For the very first time, the receipts and deductions of casual or non-occurring nature were
also incorporated under the computation of taxable incomes.
Features of the Income Tax Act 1918 are:-
• The receipts of non-re-occurring nature happened during business or professional
operations were also incorporated in computing net income.
• Deductions of non-re-occurring were incorporated in computing taxable income.
The Income Tax Act of 1922
The income tax of 1922 was the most noteworthy milestone in the history of the income tax
system in India. The Act is accredited to represent the primary organized income tax structure
in India.
The Act of 1922 furnished the much-required flexibility in the taxation system of India for
Income Tax. Furthermore, it placed a proper system of tax administration in India that
continued to be in function for the next 40 years.

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Features of the income tax act 1922

• The rate of taxes was decided as per the budgetary requirements of the prevailing period
• Amendments in the Act was no longer a necessity to make changes in the rate of tax
imposition

Tax Mechanism After independence

The Income Tax Act of 1922 was the leading book for income tax in India until 1962. The Act
then experienced many amendments ever since its enactment.
Though, a new act, the Income Tax Act of 1961, has been enacted by the government in the
year 1961. The history of income tax in India arrived in a new period after enactment of the
same.
The Act of 1961 is the governing Act for income tax India till now. The income tax rules of
1962 followed the Act.

Features of the Income Tax Act 1961:-

• Income tax was levied on income under five heads, they are;
1. Income from earnings
2. Income from business and profession
3. Income in the form of capital gains
4. Income from house property
5. Income from other sources
• A system for revenue audit was presented for the first time to compute taxes in India
• The evaluation system for the responsibilities discharged through the income tax officers
came into force.
DIRECT TAX VS. INDIRECT TAX
Particulars Direct Tax Indirect tax

[Link] Direct Taxes are the taxes Indirect Taxes are such type
in which the incidence of taxes where incidence
and impact falls on the and impact fall on two
same person/assesses different persons.

[Link] of tax Direct Tax is progressive in Indirect Taxes are regressive in

nature. nature.

3. Taxable Event Taxable Income / Taxable Purchase / Sale / Manufacture

Wealth of the Assesses. of goods and /or rendering of
services.

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4. Levy & Levied and collected from the Levied & collected from the
Collection Assessee consumer but paid / deposited
to the Exchequer by the
Assessee / Dealer.

5. Shifting of Tax Burden is directly borne by Tax burden is shifted to the

Burden the Assessee. Hence, the subsequent / ultimate user.
burden cannot be shifted.

6. Tax Collection Tax is collected after the At the time of sale or

income for a year is earned or purchases or rendering of
valuation of assets is services.
determined on the valuation
date.
7. Tax Evasion Comparatively more because of Comparatively less because of
presence of Unorganized presence of organized sector.
sector.

8. Administered
by Indirect Tax is administered by
Direct Tax is administered by Central Board of Indirect Tax &
Central Board of Direct Taxes Customs (CBIC). It is formerly
(CBDT) known as Central Board of
Excise & Customs (CBEC).

-: PRINCIPAL OF DIRECT TAXATION :-

1. The principle of Equity:
The government should exercise equity while designing a good tax system. Individuals should
be tasked based on the amount of income they earn. Those that earn a lot of money should
be taxed based on the large income earned an individual who earns less amount of money
should be tax proportional to the income earned.
2. The principle of Flexibility:
A good tax system should be flexible in order to meet the needs of the society. The amount
of tax charged should not be the same all year round. When the government is in a boom
economic cycle, the government should lower the amount of tax for other social benefits.
When in Depression, the government may increase the amount of tax charged in order to
raise maximum funds to finance its projects.
3. The economic principle:
The primary objective of taxation is to raise money for the government to finance its projects.
Therefore, the administrative cost of collecting the tax should not surpass the amount to be
earned. If so, the government will have diverted from its primary objective.
4. The principle of simplicity:

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A good tax system should be designed in such a way that individuals should able to
understand on when and where to pay the tax. The payee should be able to understand the
concept and terminologies used and how the government comes up with such a figure.
Simplicity principle also holds during periods of tax collections. The government should design
a simple way of collecting the tax. E.g. at the end of each month for employed workers. Etc.
5. The principle of diversity:
A good tax system should be diverse. It should be able to capture areas that have not been
previously taxed and introduce them into the taxation bracket. However, this principle needs
to be done with utmost good faith as at times such moves may impede the economic
development of major sectors of the economy.
6. The principle of Certainty:
The amount to be charged should be certain. The amount should be well known by the payee
so that he/she can prepare his /her budget without making effectively. The government
should also be certain on the way in which the tax will be collected if it will be at the end of
the month, beginning or n a daily basis. The certainty principle also allow the government to
determine the amount of money that will be collected during given times
7. The principle of utmost good faith:
There should be transparency in the way the government collects its task. The government
should also conduct an excellent tax audit and avail it to the public. “In conclusion, any
government can bank on the explained principles and develop an excellent tax system.”

-: APPRAISAL OF ANNUAL FINANCE ACT :-

The Hon’ble Finance Minister Nirmala Sitharaman presented the Finance Bill, 2022 in the
Indian Parliament on February 01, 2022. It was notified by the Central Government on March
30, 2022.
A number of amendments have come up in the provisions of the Income Tax Act and the
Goods and Services Tax Act, wherein the key amendments include filing of an updated return,
a taxation scheme for virtual digital assets, the extension of the timeline to claim the Input
Tax Credit (ITC) in respect of the tax invoice or the debit note, etc.
Key amendments of the Finance Act, 2022 are summarized below:
➢ INCOME TAX ACT

1. Updated Tax Returns:

To promote voluntary tax compliance and reduce litigation, the Finance Act, 2022
(Finance Act) has introduced the concept of filing updated tax returns. The provision
allows a taxpayer to file an updated return of income, whether he has filed a return
previously for the relevant assessment year or not. A fifth proviso to Section 139(8A) has
been inserted which has stated the provision of updated returns comes with additional
tax liability for an assesse, which are:-

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• Any person has to file an updated return of income within 2 years from the end of
relevant assessment year, even if no return of income was filed previously to declare
income as per correct details.
• An additional 25% on the due tax and interest would have to paid if the updated ITR
is filed within 12 months, while the rate will go up to 50% if it is filed after 12 months,
but before 24 months from end of relevant Assessment Year.
• If the updated return, is a return of a loss or has the effect of decreasing the total
tax liability determined on the basis of return furnished results in refund or increases
the refund due on the basis of return or where the updated return has already been
filed earlier or an assessment or reassessment proceedings are pending.
2. Tax on Virtual Digital Assets:

Section 115BBH(2) proposed to provide the method of computation and the tax rate for
the income arising from the transfer of Virtual Digital Asset (VDA). It starts with a non-
obstante clause and contains the following two clauses-

• Clause (a) provides that no set-off of any loss shall be allowed to the assessee in
computing the income arising from transfer of any VDA; and
• Clause (b) provides that no set-off of loss from the transfer of the VDA shall be
allowed against income computed under any other provision of this Act, and such
loss shall not be allowed to be carried forward to succeeding assessment years.

Thus, any loss arising from the transfer of VDA would be a dead loss. It will not be
allowed to be adjusted even against income arising from the transfer of another VDA
(whether of the same category or not).

3. Deduction of tax on benefit of perquisite in respect of business or profession

Section 194R of the Finance Act provides that if a provider provides to any resident any
benefit or perquisite arising from the business or profession by such resident, shall,
before providing such benefit or perquisite, deduct tax at the rate of 10% of the value or
aggregate of the value of such benefit or perquisite. The benefit or perquisite may be in
cash or in kind.

The provision shall not apply in the following cases:-

• In case of a resident, where the value or aggregate of the value of the benefit or
perquisite provided during the financial year does not exceed Rs. 20,000
• In case of a person being an individual or a Hindu undivided family, whose total
sales, gross receipts or turnover does not exceed Rs. 1 crore in case of business or
Rs. 50 Lakh in case of profession, during the financial year immediately preceding
the financial year in which such benefit or perquisite, as the case may be, is provided
by such person.
4. Change in the Definition of Books of Accounts:

Section 2(12A) has amended the definition of books of accounts with the purpose to
include the records even in the digital form or the electronic form. It should cover books
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of accounts maintained and stored in software installed on a computer or maintained
and stored on a cloud or website.

5. Change in the Rate of Alternate Minimum Tax for Co-operative Societies:

Section 115JC has been amended the provision for payment of tax by certain persons
other than a company. It is provided that where a person is a unit located in an
International Financial Services Centre (IFSC) and derives its income solely in convertible
foreign exchange, it shall be liable to pay income tax on total income at the rate of 9%
and where the person is a co-operative society, it shall be liable to pay income tax on
total income at the rate of 15%.

➢ GOODS AND SERVICES TAX ACT

1. Additional Conditions to Avail Input Tax Credit

The Finance Act has made various changes in the provision relating to Input Tax
Credit. Section 16(2)(aa) has been inserted where the new provision titled
‘Communication of details of inward supplies and input tax credit’ prescribes the
manner, conditions and restrictions for availing ITC. The conditions includes:-
• The Tax invoice details and debit note issued by the registered supplier are
electronically furnished by him by filing the statement of outward supplies i.e.
Form GSTR-1.
• The details of the respective tax invoice or debit note should have been
communicated by the supplier to the recipient in the prescribed manner.

Furthermore, the timeline to claim the ITC has been extended in respect of the tax
invoice or the debit note pertaining to a financial year up to November 30 following
the end of the relevant financial year from the current date of September.

2. Return Filing Measures Become Stringent:

In Section 37, sub-section 4 has been inserted which has made stringent measures
for return filing. As per the amended provision, the taxpayer shall not be allowed to
furnish the details of outward supplies for a tax period if the same remains pending
for any previous tax period.

3. Withdrawal of the Concept of Provisional Input Tax Credit

Provisional Input Tax Credit means ITC that is claimed by buyers in the GST returns
for which invoice is not reported or yet to be reported by the suppliers with the
government. The Finance Act has completely withdrawn this concept of provisional
ITC from the Goods and Services Tax law by omitting the provision of ailment of ITC
on provisional basis.
4. Freely Transfer of Cash Balance to the Electronic Cash Ledger of Distinct
Person:

To ease taxpayers’ hardships, the Finance Act amended the provision of payment of
tax, interest, penalty, and other amounts. Now, taxpayers can freely transfer amounts

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available in the electronic cash ledger under the CGST Act to the electronic cash
ledger under the Central Goods and Services Tax Act (CGST) or Integrated Goods and
Services Tax Act (IGST) of a distinct person, where a distinct person is a person that
has a different Goods and Services Tax Identification Number (GSTIN) but is under a
single Permanent Account Number (PAN).

5. GSTIN Cancellation Rules to Become more Stringent in cases of Non-

Filing of Returns
The Finance Act amended the provision of the CGST Act to provide stricter rules for
cancellation of GST registration in the event of non-filing of returns. For composition
taxpayers, their GST registration can be cancelled from the date as may be
prescribed by the authority for non-filing of their annual return beyond three
months from the due date of furnishing the return. For regular taxpayers, their GST
registration can be cancelled for non-compliance for such consecutive tax periods as
may be prescribed by the government from time to time.

➢ CUSTOMS ACT

1. Extension of the Power of Proper Officer:

Clause 85 seeks to amend clause (34) of section 2 of the Customs Act which has widened
the powers of Proper Officer by expressly allowing the assignment of functions to
officers of customs by the Central Board of Indirect Taxes and Customs (CBIC) or the
Principal Commissioner of Customs or the Commissioner of Customs under the new
provision of the Customs Act, 1962. It is further provided that in the event of necessity,
2 or more officers of customs, can concurrently exercise powers and functions.

2. Valuation of Goods:

Another amendment has been made in the provision of valuation of goods to include
provisions for rules enabling CBIC to specify the additional obligations of the importer in
respect of a class of imported goods, whose value is not being declared correctly, the
criteria of selection of such goods, and the checks, including the circumstances and
manner of exercise of such checks, in respect of such goods.

3. Protection of Data:

Section 135(AA) has been inserted which has introduced a new concept in the Customs
Act so as to protect the import and export data submitted to the customs by the
importers or exporters of such goods unless provided by the law
In pursuant to it, he shall be punishable with imprisonment for a term which may extend
to 6 months, or with fine which may extend to Rs. 50,000, or with both.

EXCISE ACT
Section 99 of the Finance Act has amended the 4th Schedule of the Central Excise Act, 1944
to insert 2 new tariff items relating to fuel blends i.e. E12 and E15 fuel blends, conforming to

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the new BIS specification that has been issued for Ethanol Blended Petrol with percentage of
ethanol up to (E12) and (E15)% respectively. This will align the 4th Schedule with the similar
proposed amendment in the sub-heading 2710 12 (Light Oils and preparations) in the First
Schedule to the Customs Tariff Act, 1975.
In order to promote blending of Motor Spirit (commonly known as Petrol) with
ethanol/methanol and blending of High Speed Diesel with bio-diesel, an additional Basic
Excise Duty of Rs. 2 per litre on Petrol and Diesel, intended to be sold to retail consumers
without blending, would be levied with effect from the 1st day of October, 2022.

➢ RESERVE BANK OF INDIA ACT

According to Section 125 clause (a), Section 2(aiv) has been introduced via which a new
definition of bank note has been added under the Reserve Bank of India Act, 1934 which
states that bank note means a bank note issued by the Bank, whether in physical or digital
form.
The Finance Act has further clarified that the provisions of Section 24, 25, 27, 28 and 39
relating to the denomination of notes, the form of bank notes, re-issue notes, recovery of
notes lost, stolen, mutilated or imperfect and the obligation to supply different forms of
currency under the Reserve Bank of India Act, 1934, shall not be applicable to the bank notes
issued in the digital form by the Bank.

-: TAX PLANNING AND IT’S METHODS :-

Meaning is tax planning:-
Tax planning is a focal part of financial planning. It ensures savings on taxes while
simultaneously conforming to the legal obligations and requirements of the Income Tax Act,
1961. The primary concept of tax planning is to save money and mitigate one's tax burden.

Advantages of tax planning:

To minimise litigation: To litigate is to resolve tax disputes with local, federal, state, or
foreign tax authorities. There is often friction between tax collectors and taxpayers as the
former attempts to extract the maximum amount possible while the latter desires to keep
their tax liability to a minimum. Minimising litigation saves the taxpayer from legal liabilities.

To reduce tax liabilities: Every taxpayer wishes to reduce their tax burden and save
money for their future. You can reduce your payable tax by arranging your investments within
the various benefits offered under the Income Tax Act, 1961. The Act offers many tax planning
investment schemes that can significantly reduce your tax liability.

To ensure economic stability: Taxpayers’ money is devoted to the betterment of the

country. Effective tax planning and management provide a healthy inflow of white money
that results in the sound progress of the economy. This benefits both the citizens and the
economy.

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To leverage productivity: One of the core tax planning objectives is channelising funds
from taxable sources to different income-generating plans. This ensures optimal utilisation of
funds for productive causes.

Types/ methods of Tax Planning

Most people merely perceive tax planning as a process that helps them reduce their tax
liabilities. However, it is also about investing in the right securities at the right time to
achieve your financial goals.

Following are some of the various methods of tax planning:

1. Short-range tax planning:

under this method, tax planning is thought of and executed at the end of the fiscal
year. Investors resort to this planning in an attempt to search for ways to limit their
tax liability legally when the financial year comes to an end. This method does not
partake long-term commitments. However, it can still promote substantial tax savings.

2. Long-term tax planning:

This plan is chalked out at the beginning of the fiscal and the taxpayer follows this plan
throughout the year. Unlike short-range tax planning, you might not be offered with
immediate tax benefits but it can prove useful in the long run.

3. Permissive tax planning:

This method involves planning under various provisions of the Indian taxation laws.
Tax planning in India offers several provisions such as deductions, exemptions,
contributions, and incentives. For instance, Section 80C of the Income Tax Act, 1961,
offers several types of deductions on various tax-saving instruments.

4. Purposive tax planning:

Purposive tax planning involves using tax-saver instruments with a specific purpose in
mind. This ensures that you obtain optimal benefits from your investments. This
includes accurately selecting the appropriate investments, creating an apt agenda to
replace assets (if required), and diversification of business and income assets based
on your residential status.

-: ADVANCE TAX RULING :-

It is a tool for multinational corporation and for individual tax filers for clarifying and
conforming particularly taxation arrangements. A written interpretation of tax law is issued
by tax authorities to corporations and individual who request clarification of taxation

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arrangements an advance tax ruling binds tax authorities to comply with the tax
arrangements set out in the ruling.
A written statement sought by a taxpayer from the tax authorities about the tax
implications of a transaction. It is often a precondition for closing the transaction because
an adverse tax ruling may make the transaction financially unviable.

 When an application for advance ruling cannot be allowed?

When an advance ruling is sought for a matter -
Which is already pending before any it authority or appellate tribunal or any court
which involves the determination of the fair market value of any property.

where the transaction is designed prima facie for the avoidance of IT.

 What is the fee for filling an application for an advance ruling?

It is the amount of income tax that is paid much in advance rather than a lump-sum payment
at the year end. Also known as earn tax, advance tax is to be paid in instalments as per the
due dates decided by the income tax department.

 How is advance tax calculated?

Here is how the advance tax to be paid is arrived act,
Income tax on estimated total income
- Relief under section 87A
= IT after relief under section 87A
+ Surcharge on the estimated income
= Tax liability
+ Education cess
+ SHEC
= Total tax liability
- Relief other than relief u/s 87A
- TDS
= Advance tax liability
Introducing an advance tax ruling regime.
Author / editor: - Christophe J wear egger: Cory Hillier
Publication: - May 31, 2016

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Summary: - Advance tax rulings are a common feature of mature tax systems. The tax
systems of the United States, the United Kingdom, the Netherlands, Germany, Australia, and
South Africa all have established ruling practices. tax payers can obtain an advance tax ruling
in nearly all OECD member countries. Increasingly many non OECD countries are also
offering advance tax ruling.

 Who should pay advance tax?

As per section 208 of the IT act 1961, every person whose estimated tax liability for the
year is more than or equal to ₹10000 is liable to pay advance tax.
Those who are excluded from paying advance tax are senior citizens who are above the age
of 60, not having any income from business or profession.

 Important dates in advance tax?

Advance tax varies with the due dates. for the F. Y 2022-23, the advance tax to be paid by an
individual as well as corporate assesses, are as follows
Due dates
1. On or before 15th June
2. On or before 15th sep
3. On or before 15th Dec
4. On or before 15th March
Forms are required in advance tax
Pan details

Assessment year
Selecting the type of payment.
Benefits of scheme of advance ruling.
1. determination of tax liability in advance
2. Reduce litigation.
3. Attract foreign direct investment.
4. It is in expensive.
5. Rulings are binding on the applicant as well as the dept.
6. Rulings are pronounced within six months from the date of receipt of application.

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Chapter -2
Assessment of company
Heads of income, Features of income.
Features of income.
i. Levied as Per the Constitution
Income tax is levied in India by virtue of entry No. 82 of list I (Union List) of Seventh Schedule
to the Article 246 of the Constitution of India.
ii. Levied by Central Government
Income tax is charged by the Central Government on all incomes other than agricultural
income. However, the power to charge income tax on agricultural income has been vested
with the State Government as per entry 46 of list II, i.e., State List.
iii. Direct Tax
Income tax is direct tax. It is because the liability to deposit and ultimate burden are on
same person. The person earning income is liable to pay income tax out of his own pocket
and cannot pass on the burden of tax to another person.
iv. Annual Tax
Income tax is an annual tax because it is the income of a particular year which is chargeable
to tax.
v. Tax on Person
It is a tax on income earned by a person. The term ‘person’ has been defined under the Income
tax Act. It includes individual, Hindu Undivided Family, Firm, Company, local authority,
Association of person or body of Individual or any other artificial juridical persons. The
persons who are covered under Income tax Act are called ‘assesses’.
vi. Tax on Income
It is a tax on income. The Income tax Act has defined the term income and it includes salary
income, house property income, business/profession income, capital gains and other
sources income. However, there are certain incomes which are specifically exempt from
income tax.
vii. Income of ‘Previous Year’ is Assessable in ‘Assessment Year’
Income earned during a particular financial year is assessed to tax in the immediately
following financial year. The year of earning income is called ‘Previous Year’ and the year in
which assessment of income is done is called ‘Assessment Year’. The income tax return of
previous year’s income is filed in the relevant assessment year.
viii. Charged at Prescribed Rate(s)
Income tax is charged at prescribed rate(s). The rates of income tax differ for different income
and for different persons. While tax rates for normal incomes are prescribed by the annual
Finance Act, tax rates for certain special incomes have been prescribed under Income Tax Act
itself. For instance, the following tax rates have been prescribed under Income Tax Act.
a. Tax on long term capital gain @ 20% (Section 112).
b. Tax on short term capital gain on shares covered under STT @15% (Section 111A).
ix. Administered by the Central Government
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Income tax is administered by the Central Government (Ministry of Finance) with the help
of ‘Income tax department’ with branches throughout the country. The Central Government
has constituted the ‘Central Board of Direct Taxes’ (CBDT) which exercises overall control over
the Income tax department by issuing guidelines for related matters.
x. Applicability
Income Tax is applicable throughout India including the State of Jammu and Kashmir.
Heads of income

• Income from salary

• Income from house property
• Income from profit and gain from business or professional
• Income from capital gain
• Income from other sources.
Income from salary
Sub-section(1) of Section 17 of the Income Tax Act provides an inclusive definition of
“Salary”. It is a much broader term than it is usually understood. In a financial year, the
amount received by the employee from his employer
Income from salary including
Wages, pension,annuity, gratuity, fees, commission, profit, leave encashment , provident
fund
Gross salary = basic salary + house rent allowance+ other allowance.
Allowance= house rent allowance, medical allowance, conveyance allowance, children
education allowance.
Prerequisites = fringe benefits example: car phone etc.

Income from house property ( section 22)

The annual value of property consisting any building or land attached which assessee shall be
chargeable under the income from house property after deducting u/s 24.
Maximum limited for income from house property 2 lakhs under section 80c deduction
Exemption in ways are…
• House property held by a local authority
• House property held a scientific research institution
• House property at a political party
• House is a self occupied by the owners
• House property held charitable purposes
• House property held by education institutions.
According to tax slab rate if house property exceeds 50 lakhs it contains surcharge will
applicable at the rate of,10%

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Calculation of Income from House property

Income from profit and gain or business or professional

U/s section 28 , any compensation or other payment due to or received by any person
specificed in section 28 income derived by a trade, professional or similar association from
specific service performed for its members.
Its also called as ( sugam)
P/ G from B/ P mentioned in ITR4 u/ s section 44AD, 44ADA, 44AE
Presumptive taxation for businesses is covered under section 44AD of the income tax act. Any
business which has a turnover of less than Rs 2 crore can opt to be taxed presumptively. They
must declare profits of 8% for non-digital transactions or 6% for digital transactions,
whichever one is applicable.
Income from capital gain section 45
• Any profit that is received through the sale of a captial asset
• STCG tax rate of 15% within a year
• LTCG tax rate is 20% include mutual fund
• Maximum 5 lakhs
• Minimum 2,50,000
• LTCG is exemption of 1 lakhs u/s 112A
• STCG= full value consideration – cost of acquisition + cost of improvement+ cost of
transfer.

Full value consideration

Less: Expenses incurred exclusively for such
• Short-term capital
transfer
gain =
Less: Cost of acquisition
Less: Cost of improvement

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Deduct exemptions provided under sections 54, 54EC, 54F, and 54B

Full value consideration

Less : Expenses incurred exclusively for such transfer
Long-term Less: Indexed cost of acquisition
capital gain= Less: Indexed cost of improvement
Less: Expenses that can be deducted from full value for
consideration

Income from other sources section 56

• Any income which is not chargeable to tax under any other heads of income and which
is not to be excluded from total income.
• Deduction upto 10,000 on interest received from saving account or recurring deposit
• Tax free for income to be exceeds 2,50,000 for individual, HUF below 60 yrs and NRI
and additional 4% health and education cess.
• Includes: dividends , Dividends from an indian company, dividents from a foreign
company, one time income, interest on compensation, gifts….
• 5%
20%
ANNUAL INCOME WILL BE TAXED AT Up to 2.5 lakh- NII
2.5 lakh to 5 lakh - 5%
5 lakh to 7.5 lakh - 10%
7.5 lakh to 10 lakh - 15%
10 lakh to 12.5 lakh - 20%
30%
12.5 lakh to 15 lakh - 25%
Above 15 lakh - 30%
Winning from lotteries – 30% , exceeds 10, 000, 4% education and health cess.
Horses races – 30% exceed 10,000,28%GST.
Cross word puzzles -30% exceeds 4%education and health cess if the winner is non resident.
Card games -30% exceeds.
Gambling – 30%, 50 lakhs or 1crores , surcharge 10/15%,28%GST.
Deprecation Meaning:
Depreciation u/s 32
As per Section 32(1) of the IT Act depreciation should be computed at the
prescribed percentage on the WDV of the asset, which in turn is calculated with reference to
the actual cost of the assets.
Depreciation claim in IT is mandatory.
Calculation= Salvage value – Assets purchase price / Year
,

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Depreciation under two ways:

Tangible Asset • Building, Machiner, Plant and furniture.

• Knowhow, copyright, trademark, patent licence,

Intangible Asset • franchise, or any other business or commercial right of
the similar nature acquired on or other 1/4/1998.

Conditions for Claiming Depreciation

• The asset must be owned by the assessee who claims the depreciation.
• Lease (Only Lessor)
• Hire purchase
• Co-worker can claim depreciation to the extent of the value of the assts owned
by each co-owner (according to their ration)
• The asset must have been used for the purpose of a business or profession carried on
by the assessee.
• The asset should have been used during the relevant year in which depreciation
allowance is claimed.
• Active use or Passive use.

PERCENTAGE OF DEPRECIATION (AS PER IT ACT)

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Methods of Depreciation:
• Straight line method
• Written down method
*Power generation / generation and distribution (can follow any method)
*Any other has to follow WDV method.
Straight line method:
Depreciation is always calculated on Cost of asset, at the rates specified in the act.
Written down value method:
This method applies on ‘Block of asset’

180 days FUNDA (fundamental principle)

1. Asset acquired but not put in use (No Depreciation)
2. Asset acquired and used for less than 180 days (Half rate Depreciation)
3. Asset acquired and used for 180 days or more (Full rate Depreciation)
NOTE: -
Half rate Depreciation is applicable only for first year. In next year full rate of depreciation
shall be provided irrespective of number of days asset is used.

SET-OFF & CARRY FORWARD OF LOSSES

The Income Tax Act has laid down provisions for set off and carry forward of losses. Set off of
loss means adjusting the loss against the taxable income. The taxpayer can carry forward the
remaining loss to future years to set off against future incomes. The Income Tax Act prescribes
rules to set off and carry forward of losses under each head of income. Further, if the taxpayer
has not filed the ITR on the Income Tax Website within the due date as per Sec 139(1), he/she
cannot carry forward losses to future years. However, the taxpayer can carry forward the loss
under the head Income from House Property to future years even if he/she files the ITR after
the due date.
Set Off Losses:
1. Intra-Head Set Off of Loss
2. Inter-Head Set Off of Loss
1. Intra-Head Set Off of Loss
Intra-Head set off is the adjustment of loss from an income source against the profit from
another income source under the same head. For example, set off of loss from self-occupied
property against profit from another rented house property is an intra-head set-off.

2. Inter-Head Set Off of Loss

Inter-Head set off is the adjustment of loss under an income head against the profit under
another income head. For example, set off of loss from self-occupied house property against
income from salary. Before making the inter-head set-off, the taxpayer has to first make the
intra-head set-off.
Carry Forward of Loss
Loss remaining after set off is the loss that taxpayer can carry forward to future years to set
off against future incomes. For example, loss from self-occupied house property remaining
after intra-head and inter-head set off, the taxpayer can carry forward for 8 years and adjust
against future income from house property.

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It is important that the taxpayer files the Original ITR within the due date as per Section 139(1)
to carry forward the loss to future years. However, it is possible to carry forward loss under
the head House Property to future years even if the taxpayer files a Belated ITR under Section
139(4). Below is the table with rules for carry forward and set off of losses against future
incomes.

Gross total income

Gross total income is the aggregate of all your taxable receipts in the previous year it will
also include profit or loss carried forward from first year and any income after clubbing
provisions.

Deduction under section 80G

Section 80G of the Income Tax provides and income tax deduction to the tax payer and
donations made to charitable Institution and Specified trust certain funds etc.
Deduction under section 80G in respect of donation
Deduction under section 80G

100% Deductible without Qualifying Limit

• National Defence Fund set up by the Central Government.
• Prime Minister's National Relief Fund.
• Prime Minister's Armenia Earthquake Relief Fund.
• Africa (Public Contributions - India) Fund.
• National Children's Fund.
• National Foundation for Communal Harmony.
• A University or any educational institution of national eminence approved by the
prescribed authority in this behalf.
• Chief Minister's Earthquake Relief Fund, Maharashtra.
• Fund set up by the State Government of Gujarat exclusively for providing relief to the
victims of earthquake in Gujarat.
• Zila Saksharta Samiti constituted in any district under the chairmanship of the
Collector of that district for the purposes of improvement of primary education in
villages and towns in such district and for literacy and post-literacy activities. Town
means a town with a population not exceeding one lakh as per last census.
• National Blood Transfusion Council or any State Blood Transfusion Council which has
its sole object the control, supervision, regulation or encouragement in India of the
services related to operation and requirements of blood banks.
• Fund set up by a State Government to provide medical relief to the poor.
• Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force

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Central Welfare Fund established by the armed forces of the Union for the welfare of
the past and present members of such forces or their dependants.

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•
The Andhra Pradesh Chief Minister's Cyclone Relief Fund, 1996.
•
National Illness Assistance Fund.
•
The Chief Minister's Relief Fund or the Lieutenant Governor's Relief Fund in respect of
any State or Union territory, as the case may be.
• National Sports Fund set up by the Central Government.
• National Cultural Fund set up by the Central Government.
• Fund for Technology Development and Application set up by the Central Government.
• National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation
and Multiple Disabilities.
• Swach Bharat Kosh, set up by the Central Government.
• Clean Ganga Fund, set up by the Central Government.
• The National Fund for Control of Drug Abuse constituted under section 7A of the
Narcotic Drugs and Psychotropic Substances Act, 1985.
50% Deductible without Qualifying Limit
1. Jawaharlal Nehru Memorial Fund.
2. Prime Minister's Drought Relief Fund.
3. Indira Gandhi Memorial Trust.
4. Rajiv Gandhi Foundation.
Deduction under Section 80GGA
Section 80GGA of the income tax act provides deduction from donations made for scientific
research rural development.

Section 80 GGA limit and payment mode:

Donation made under Section 80GGA under eligible for 100% tax deduction. There is no upper
limit to the amount and donate to Institutes which adhere to principles under this section and
the donation can be in the from of cash, cheque or drafts.
Cash donation how ever have a maximum limit of Rs 10000 with amount higher than this not
permitted by means of cash donations.

Deduction under section 80GGB

Deduction in respect of contribution given to political parties or electoral trust.

While computing the total income of the assesse (including and Indian company) any sum
contributed during previous year to any political party or electoral trust shall qualify for
deduction.

1. This Donors can also donate to multiple parties

2. Any Indian company is permitted to donate money to any political party they are willing
to support.
3. No cash payment are allowed and only payment made through cheques, demand, draft,
direct transfer.

Deduction under section 80JJA

Where are the grass total income of an assessed includes any profit and gains derived from
the business of collecting and processing or treating of bio-degradable waste for:
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• Generating power or
• producing bio-gas or
• Organic manner

period of deduction under Section 80JJAA

100% profit from the above activity is deductible for first 5 years beginning with the assessment
year relevant to the previous year in which such business commerce’s.

Section 80 IA deduction income tax act

Section 80IA deduction of the income tax act provides a tax deduction for certain industrial
undertakings involved in infrastructure for development.
• Infrastructure facilities
• Telecommunication services
• Industrial packs and SEZ
• Reconstruction of power plant
• Infrastructure facilities

➢ Infrastructure facilities
It includes toll roads baidges or rail system and housing and other activities that are related
to highway projects, water projects like water treatment system irrigation project, sanitation
and sewerage system or did waste management system and travelling means including a part
airport inland water way or inland part or navigational channel in the sea can also avail this
deduction.
Deduction amount

100% profits and gains obtained from the business for a time period of 10 consecutive years
out of 15 years from the date of its commencement.

➢ Telecommunication service
Telecommunication service include all agencies that provide telecommunication services
such as basic or cellular for radio paging, domestic satellite service or network of trunking,
broad band network and internet services the time limit for this from 1st April 1995 to 1st
April 2005.
Deduction amount
100% profit from the first 5 assessment year is permitted as a deduction and 30% for the next
5 assessment year for a total of 15 years from the year of its commencement

➢ Industrial parks and SEZ

The industrial parks consist of companies that develop, maintains and operate an industrial
park that is recognized by the central government.
Deduction amount
100% profits and gains obtained from the business for a period of 10 consecutive years out
of 15 years from the date of its commencement.

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➢ Reconstruction of power plant
According to section 80JA the reconstruction of a power plant should be carried out of initiate
the revival of a power generating plant that is owned by an Indian company.
Deduction amount
100% profits and gains obtained from the business for a period of 10 consecutive year outs
of 15 years from the date of its commencement.

Distribution of natural gas

It is initiated by laying pipelines is to distribute the gas across the country.
Deduction allowed
Section 80IA allows a deduction of 100% of profit obtained from the business for a time
period of 10 consecutive years out of 15 years from the date of its commencement.

Section 80IB deduction income tax act

Profits and gains from certain industrial undertaking other than infrastructure development
undertakings can claim deduction under section 80IB. This deduction is available to different
industrial undertaking as follows.
Case-1 Business of an industrial undertaking
Industrial undertaking:- The provisions of section 80IB as applicable to an industrial
undertaking are given below.
conditions
1. It should be a new undertaking.
2. It should not be formed by transfer of old plant and machinery.
3. It should manufacture or produce articles other than non priority sectors items given in the
11 schedule.
4. Manufacture or production should be started within a stipulated time limit.
5. It should employ 10 workers or 20 workers.
6. Deduction should be claimed in the return of income and return of income should be
submitted on or before the due date of submission of return of income.
Case-2 Industrial Research.

Case-3 Production of mineral oil

80IB(9)
1. Undertaking engaged in production or refining of mineral oil or natural gas from blocks
allotted under New exploration licencing policy.
2. All asessee.
3. Under taking must employ 10 workers or more workers if power is used and 20 or more
workers if power is not used.
4. Amount of deduction 100% of the profit.
5. Period of deduction 7 consecutive assessment year.

Case-4 Developing and building housing project 80IB(10)

1. Undertaking Developing and building approved housing projects.
2. All asessee.
3. The housing project is to be approved by local authority.

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4. 100% deduction.
Case-5 The business processing (preservation and packaging of fruits, vegetables handling,
storage) [80IB(11A)]

1. Undertakings engaged in the business off

* processing
*preservation
*packaging of fruits or vegetables.

2. All asessee
Undertaking company. 100%. 5 A.Y .
30%. next 5 A.Y.
Other than company. 100%. 5 A.Y.
30%. next 5 A.Y.

Case-6 Operating and maintaining a hospital in rural areas.

Case-7 Hospital located in certain areas.

Under section 80IC

Profit and gain from certain industrial undertaking in certain special category of states.
Conditions:- One has to satisfy the following conditions to claim deduction under section
80IC.

1. Not formed by splitting up or reconstruction of existing business

2. Not formed by transfer of old plant and machines.
3. Industrial undertakings should be set up in certain special category of states.
4. Manufacture/production of specified goods.
5. The Industrial undertaking must begin to manufacture or produce articles or thing within
the time limit given in column
6. The books of accounts of the tax payer should be audited and the audit report in form
no.10CCB should be submitted along with the return of income.
7. Return of income should be submitted on or before the due date of submitted return of
income given by section 139(1).

States includes in 80IC - Himachal Pradesh, Sikkim, uttaranchal North eastern

states.

MODULE-3

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TAX PLANNING AND MANAGEMENT
TAX PLANNING
Tax planning refers to financial planning for tax efficiency. It aims to reduce one’s tax liabilities
and optically utilize tax exemptions, tax rebates, and benefits as much as possible.
Tax planning includes making financial and business decisions to minimise the incidence of
tax. This helps you legitimately avail the maximum benefit by using all beneficial provisions
under tax laws.

OBJECTIVES OF TAX PLANNING

❖ Reduction of Tax liability
Tax planning primarily revolves around reducing your tax liabilities. Every single
taxpayer wishes to reduce the burden of paying the taxes while saving their money
for their future. Fortunately, the Government offers several different significantly.
Plan to invest in tax-savings instruments from the beginning of the financial year and
avail all the advantages to reduce your tax payments.
❖ Minimal litigation
Minimising legal litigations is essential while planning taxes. If you don’t have one,
you must avail the services of a legal advisor. Minimising litigation saves you from
judicial harassment.
❖ Leverage productivity and financial growth
Planning your taxes prudently can facilitate economic growth for you. Chalking out
clear and precise financial objectives from your investments, over specific time
frames and investing in the right tax-saving instruments can help you create a good
corpus, thereby contributing to your economic growth.
❖ Economic stability
The taxes you pay are devoted to the betterment of the country. If you pay all the
taxes which are legally due, you can contribute towards creating a more productive
economy. Planning your taxes is beneficial for you and the economy of the country in
which you’re living.
❖ Growth with the economy
A business can grow with the economy so long as the right measures to ensure
finance growth are taken. Generally, the tax planner should make the effort of
ensuring that one’s business money takes the right direction for circulation.

TAX AVOIDANCE, TAX EVASION AND TAX MANAGEMENT.

Tax Avoidance
-
Meaning: Tax Avoidance is the process of reducing the tax payable given the deductions
applicable to tax payers. It is the legal way/method of decreasing the tax liabilities of citizen
or business unit in economy.

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Methods of Tax Avoidance:-
• Savings: Spending on employer’s sponsored savings schemes keeps individuals open
to tax deductions. Ex- LIC, Bank FD’s.
• Deductions: This applies to only a specific set of workplace, which are must for
employees to keep forming. Ex- ESI, PF, NPS.
• Investment: the government allows deductions for investments in certain funds. Ex-
Mutual Funds, Share Markets.
• Start-ups: One of the most efficient tax avoidance methods is to have a start-up, as
business expenses tend to offer huge tax benefits to individuals.
• Health Scheme: Expenditure made for paying health medical and dental premiums
offer tax deductible advantages to the insurance holders and their dependents. Ex-
Deductions for medical and health insurance dependents (80D).

Advantages:-
➢ Increases income and savings: It increases income and savings for present and future
when tax saves, both income and savings.
➢ Offers tax shelters: A tax shelter is a legal way of investing in certain plans or schemes
that reduce the overall taxable income of the taxpayers.
➢ Enhances savings tendency: Increase the savings. The main reason for tax avoidance
is to save the money or decrease the tax.

Disadvantages:-
➢ Decreases Government Revenue: It reduces the government revenue.
➢ Stricter tax policies: There will be strict rules and regulations when if tax is less.
➢ Reduces Nation’s growth rate on the nation: Decreases the nation’s growth due to
when the tax amount is less.

Tax Evasion
Meaning: - Tax Evasion is illegal action in which an individual or company involves to avoid
tax liability. It involves hiding or false income, without proof of inflating deductions.
Common Methods of Tax Evasion:-
▪ Failing to pay the due: A person engaged in this sort of tax evasion won’t willingly or
unwillingly, pay the tax before or after due date.
▪ Submitting false tax returns: In some cases, when an individual files taxes, they may
submit false or incorrect information in order to either lessen the tax.
▪ Inaccurate financial statements: The taxes that are payable by an individual on the
financial dealing that have taken place during the assessment year.
▪ Using fake documents to claim exemption: The Government may have provided certain
exemptions and privileges to certain strata or members of society.
▪ Not reporting income: In this case, individual just won’t report any income that they
receive during a financial year.

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Penalties of tax evasion:
1. Collecting 100% to 300% of the tax when in is not disclosed.
2. In case of individual fails to file tax statements within the time allocated then a
penalty of Rs.200 per day may be charged for every day.
3. In case, someone has hidden details of their income, the penalty can range from 100%
to 300% of the tax amount due.
4. If a company fails to get itself audited or fails to provide a report of said audit, then a
penalty of Rs.150000 or 0.5% of the sales turnover, whichever is less may be charged.
5. In a person or a company fails to maintain their accounts properly as directed by Sec
44AA, a penalty of Rs.25000 may be charged.

Tax management
Meaning: - It refers to the management of finances, for the purpose of paying taxes.
Areas covered under Tax Management:
a) TDS (Tax Deducted at Source): Persons responsible for deducting tax at source from
the income and that should be paid to the central government on time.
b) TCS (Tax Collected at Source): In some special cases sellers are responsible for
collecting the extra tax from the buyers on specified goods at the time of sale and the
sale amount is transferred to the government.
c) Payment of Tax: It includes:
1. Payment of Advance Tax.
2. Payment on Self Tax Assessment.
3. Payment of Tax on Demand.
d) Maintenance of books of A/c’s:
Every businessman or a professional must maintain books of accounts and other
relevant documents so that tax can be computed accurately and verified by the
assessing officer.
e) Documentation and maintenance of tax records:
An Assesse should keep complete tax files so that the documentary evidence can be made.
It includes filed returns, form 16, and documentary evidence in support of documentations.

Difference between Tax Planning and Tax Management:-

Tax Planning Tax Management

• Tax Planning is the analysis of • It refers to the management of

financial situation to ensure that all finances, for the purpose of paying
elements work together to allow you taxes.
to pay the lowest taxes as possible.
• It deals with planning of taxable • It deals with maintaining of
income and investments. Accounts, filing of returns, Audit of

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Account and payment of taxes in
time.

• It reduces the tax liability to a • It follows the provision of tax laws.

minimum amount.

• It is important on reducing tax • It is important to reduce taxes and

liability. penalties.

• It is not compulsory. • It is compulsory for everyone.

Difference between Tax Avoidance and Tax Evasion:-

Tax Avoidance Tax Evasion

• Tax Avoidance is the process of reducing • Tax Evasion is illegal action in which a
the tax payable given the deductions individual or company involves to avoid
applicable to tax payers. tax liability.

• It involves in taking unfair advantage of • It involves in deliberating manipulations

the shortcomings in the tax laws. in accounts (resulting in frauds).

• It occurs before the tax liability. • It occurs after the tax liability arises.

• Tax payment can be lessen. • Here there is no option of lessen the tax.

• The main objective is to reduce the tax • The main objective is to reduce tax by
liability by applying the script laws. exercising unfair means.

Tax planning while setting up new businesses

Tax planning is a systematic financial procedure to look at the taxation options to determine
when and which way the business is to be conducted so that the taxes can be eliminated or
reduced. Tax planning is extremely important for new business entities that are to be set up
in India and has become extremely important after the increasing market competition and
the post-pandemic consequences. Professional tax planning is important for a new business
to reach the desired goal.

What is the importance of tax planning for a new business?

Tax planning for a new business helps the entrepreneurs and the business personnel in
attaining the financial goals. To conduct the business it is not only enough to invest a good
amount of funds the organization is also required to maintain a positive flow of the money
too.
From the several benefits of tax planning for a new business here we have noted down a few:

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Track the expenses- The most important thing to plan is to follow the areas where you have
to invest as well as spend funds. You can maintain a record of such through bookkeeping and
it would be helpful in terms of controlling the cash flow in a better way to save taxes.
Conduct inclusive research- Tax saving, as well as tax planning, is complicated and very
challenging to be executed. At first, there is a need for research on the taxation laws,
guidelines, and amendments. You can take assistance from any tax planning consultancy as
well.
Classify the business- As per the Income Tax Act, 1961 of the Indian Government the slab
rates that are effective for different categories of business are different. By selecting the
different types of company registration like Private Limited Company, Sole proprietorship,
One Person Company and you can effectively save the taxes.
Tax filing deadlines- When you complete the Income-tax return filing within the government
guidelines you avoid the late fines and help in saving the taxes for the businesses. It is
advisable to be in touch with experts like we have at India Filings to manage the taxation part.
Home Office- Many entrepreneurs start the journey of their business by using their home as
a workplace. Sections 32 and 37 of the Act claim that the owners can claim a tax deduction
on the expenses that are related to office costing, utilizing bills, property laws, and mortgages.
When a person decided to start a business the number of factors are considered:-
Factors are:-
1. Location, nature and size of business
2. Form of business
3. Capital structure
4. Setting up and commencement of business
1. Location, nature and size of business
The tax benefits on the basis of location, nature and size:-
➢ Agriculture income (section :10(1))
➢ Newly established unit in SEZ (section:10AA)
➢ Infrastructure: development: undertaking (sec:80TA)
➢ Undertaking engaged in development: of SEZ (sec:80IAB)
➢ Certain undertaking in certain special category states(sec:80IC)
➢ Hotels and convention centers in specified areas (sec:80IB)
➢ Undertakings in North eastern states (sec:80IE)
➢ Assesses engaged in the collection and processing of biodegradable waste (sec:80JJA)
2. Form of business
➢ Individual / sole proprietorship
➢ Hindu undivided family
➢ Firm
➢ Company
➢ Individual/sole proprietorship
An individual can pay tax on t I 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 deduction to individuals:
✓ Sec:80C – contribution to life insurance premium PPF NSC housing loan etc.
✓ Sec:80CCC – contribution to pension fund.

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✓ Sec:80D – health insurance.
✓ Sec:80DD – medical treatment for handicapped.
✓ Sec:80DDB – expenses on medical treatment of specified diseases.
✓ 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.
➢ Hindu undivided family:
Hindu undivided family pay tax same as like an individual the family can pay reasonable
remuneration to Karta and other family members allowed to detecting in computing business
income. interest on capital cannot be allowable for deduction.
Deduction to HUF
✓ Deduction entitled from its gross total income under section 80C, 80D, 80DD, 80DDB,
80 TTA.
➢ Firm:
Firm pay taxi rate of 30% firm can know initial exemptions and entire income will taxable.
The of income of a firm in the hand of partner is fully exempted under section 10 (2A).
Deduction to firm
✓ Interest on capital or loan given year rate mentioned in partnership deed but not
exceeding 12%.
✓ Remuneration to working partners as mentioned in deed but limits up to prescribed under
section 40 (b).

➢ Company:
A domestic company is liable to pay tax at the rate of 30% with surcharge and education cess.
Deduction to company
✓ Whole amount of interest paid to the loan taken for business purpose.
✓ Remuneration paid to MD, directors, and other staff.
✓ Amount of dividend on its share capital is not deduction.
3. Capital structure:
Capital structure is the particular combination of debt and equity used by a company to
finance its overall operations and growth.
Capital structure plan
It is they makes of different sources of long term funds such as equity shares, preference
shares, long term loans, or debt like debenture, bonds.
Importance of capital structure:
❑ Capital structure determine the risk consumed by the firm.
❑ Capital structure determine the cost of capital of the firm.
❑ It affect the flexibility and liquidity of the firm.
❑ It affect the control of the owner of the firm.
Determination of capital structure:
 Nature and size of the business.
 Stability of the earning.
 Stages of life cycle of the firm.

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 Cash flow ability of the firm.
 Cost of capital.
 Rate of corporate tax.
 Retaining control.
 Flexibility.
 Trading on equity.
 Legal requirement.
 Assets structure.
 Nature of investors.

Setting up and commencement of the business:

Setting up and commencement of business are different. Setting up is capacity to start its
earning capacity whereas commencement is actual commercialisation of the business.
There is a distinction between setting up of business and commencement of business.
Below are the things needed to start a new business:
 Have a business idea the first step in starting a business is deciding what kind of business
you want to establish.
 Create business plan.
 Sources of funds.
 Business name.
 Business office.
 Business registration.
 Have a website.
 Marketing strategies.
 Open bank account.
The major steps in commencement of business:
Promotion stage
The idea of starting a new business is converted into reality with the help of promoters of
the business idea.
Registration stage
In this stage the company gets registered, which brings the company into existence.
Certificate of commencement of business
Certificate of commencement of business is required for a public company to start doing
business, while a private company can start business once it has received the certificate of
incorporation.
Location of the New business
1. Sec (10A): Tax holiday for newly established undertaking in Free Trade zone (FTZ).

First 5years - 100% of profits & gains is allowed as deduction.

Next 2years: 50% of such profit & gains is Deductible for further 2 Assessment Year.
Next 3 years: for the Next 3 consecutive A.Y so much of the amount not exceeding 50% of the
profit as is debited to the P&L A/c year in respect of which the Deduction is to be allowed.

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2. Sec (80IA): is set up in any part of India for the generation or generation & Distribution of
power if it begins to generate power@ any time during the period beginning on the 1st day of
April, 1993 & ending on the 31st day of March 2010.
Deduction allowed is 100% or 30% of profit from such eligible business.

3. Sec ( 80IB) : Deduction in respect of profits of industrial undertaking located in backward

state or District Deduction allowed is either 100% & or 30% for 10years Depending upon case
to case.
4. Sec (80IB) ( 11 B): The amount of deduction in the case of a undertaking Deriving profits
from the business of operating & Maintaining a Hospital in a rural area shall be 100% of the
profit & such a gain of business.
5. Sec ( 80IC) : profits from Industrial undertaking located in the specified states.

States are state of Jammu& Kashmir, Himachal Pradesh , uttaranchal Pradesh & North Eastern
States. Deduction allowed is 100% of such profit.
6. Sec (80LA) : where the gross total income of an assessee – being a scheduled bank , or any
bank Incorporated by or under the laws of a country outside India,& having an offshore
banking unit in SEZ.

Nature of New business

While Deciding the Nature of the business, the benefits of tax exemption or concessional
treatment available in respect of certain types of income such as agricultural income, business
income from Hotel business, New Industrial undertakings,

Ships, business of repairs to ocean going vessels, business of exploration, etc.

1. Sec (10(1)): Agricultural Income = fully exempted 100%

2. Sec (10(23FB) ) : Dividend or long- term capital gain accruing to venture capital or a venture
company 100% tax exempted.
3. Sec (33AB) : Tea Development A/C , Coffee Development A/C, and Rubber Development
A/C.
Where an Assesse carrying on business of growing & manufacturing tea or coffee or Rubber
in India has before the expiry of 6 months from the end of the P.Y or before the due date of
furnishing the return of his income. Whichever is earlier
4. Sec (35E): Profit from prospecting certain Minerals

Where an Assesse, being an Indian company or a person who is resident in India, is engaged
in any operations relating to prospecting for or extraction or production of any Mineral &
incurs, after the 31st day of March 1970, any the assesse shall be allowed for each one of the
relevant P.Y a deduction of an amount equal to 1/10 of the amount of such Expenditure.

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5. Sec ( 35ABB) : Expenditure for obtaining licence to operate telecommunication Services :
In respect of any Expenditure being in the nature of capital Expenditure incurred for acquiring
any right to operate telecommunication Services & for which payment has actually been
made to obtain a licence , there shall be allowed a Deduction equal to the appropriate fraction
of the amount of such Expenditure.

Forms of organization:
1. Sole Proprietorship: An enterprise owned exclusively by one natural person and in
which there is no legal distinction between the owner and the business entity is known as
Sole proprietorship.
Tax planning in respect of Sole Proprietorship:
I. In case of sole proprietorship concern, remuneration paid to proprietor is not
allowed as deduction from business profits of sole proprietorship firm.
II. Whereas remuneration paid by partnership firm/LLP to its working partners is
allowed as deduction subject to sec 40 (b). As a result the Taxable Income from
business would get reduce and correspondingly, the incidence of tax would also be
reduced.
III. Under sole proprietorship the entire Income of a business unit gets assessed in the
hands of the same person along with other income while the entire loss and other
allowance shall be available for set off in his hands against other Income.
2. Hindu undivided Family (HUF): An HUF is a family which consists of all persons
lineally descended from a common ancestors (Joint family).
Tax planning in respect of HUF:
I. The HUF is treated as a separate entity under the Income Tax Act, since the law does
not specifically provide for the disallowance of such expenses it is advantageous to
carry on a business through the HUF wherever possible.
II. The Income of the family is computed and first taxed in the hands of the family at
the rates applicable to it.
III. The Income of the family may thereafter he divided amongst the members of the
family and the members, in such case do not attract any liability to tax in view of the
specific exemption granted u/s 10(2) of the Income Tax Act 1961.
IV. The members of the gamily would not become liable to tax when they receive any
portion of family’s Income.

3. Partnership Firm and LLP {Limited Liability Partners}:

Partnership firm: The relation between persons who have agreed to share the profits
of a business carried on by all or any of them acting for all.
LLP: In case of Partnership, some or all partners have limited liabilities but in case of LLP
each partners is not responsible or liable for another partner’s misconduct or negligence.
Tax planning with respect of Partnership Firm and LLP {Limited Liability Partners}:
I. All firms and LLP will be taxed at a flat rate of 30%, if the total Income exceeds RS.1
crore, the surcharge is applicable at 12% plus 4% Health & Education Cess.
II. There will be no initial exemption and the entire Income will be taxed
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III. In computing the taxable income of the firm, certain prescribed deductions in
respect of interest and remuneration have to be allowed.
IV. The shared Income of a firm in the hands of partners of firm is fully exempt under
section 10(2A).
V. The partnership firm carrying on eligible business can declare Income on
presumptive basis as per the provisions of sec 44AD at 8% of Gross Receipts (6% in
case of Gross Receipts are received by an Account payee, cheque/Bank draft/use of
ECS through bank Account.)
VI. The partnership firm carrying on notified profession can declare income on
presumptive basis at 50% of Gross receipts as per the provisions of sec 44AdA

4. Company: Section 2(20) of the Companies Act, 2013 defines a company to mean a
company incorporated under this Act or under any previous company law.
Prof. Haney – “A company is an artificial person created by law, having separate entity,
with a perpetual succession and common seal.”

Domestic Company: As per Section 2(22A), "domestic company" means an Indian

company, or any other company which, in respect of its income liable to tax under this
Act, has made the prescribed arrangements for the declaration and payment, within India,
of the dividends (including dividends on preference shares) payable out of such income.
Tax Rates
A. Income-tax
Income-tax rates applicable in case of domestic companies for Assessment Year 2023-24
are as follows:
Where its total turnover or gross receipt during the previous 25%
year 2020-21 does not exceed Rs. 400 crore

Where it opted for Section 115BA 25%

Where it opted for Section 115BAA 22%

Where it opted for Section 115BAB 15%

Any other domestic company 30%

The amount of income-tax computed shall, be increased by a surcharge,-

(a) in case company having a total income exceeding one crore rupees, but not exceeding
ten crore rupees, at the rate of seven per cent of such income-tax; and
(b) in case company having a total income exceeding ten crore rupees, at the rate of twelve
per cent of such income-tax;
However, the rate of surcharge in case of a company opting for taxability under Section
115BAA or Section 115BAB shall be 10% irrespective of amount of total income.
Provided that in the case of every company having a total income exceeding one crore rupees
but not exceeding ten crore rupees, the total amount payable as income-tax and surcharge
on such income shall not exceed the total amount payable as income-tax on a total income
of one crore rupees by more than the amount of income that exceeds one crore rupees:

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Provided further that in the case of every company having a total income exceeding ten crore
rupees, the total amount payable as income-tax and surcharge on such income shall not
exceed the total amount payable as income-tax and surcharge on a total income of ten crore
rupees by more than the amount of income that exceeds ten crore rupees.

Health and Education Cess

The amount of income-tax as increased by the applicable surcharge, shall be further
increased by "Health and Education Cess on income-tax", and calculated at the rate of four
per cent of such income-tax and surcharge.
B. Minimum Alternate Tax
A company shall be liable to pay MAT @ 15% of book profit (plus surcharge and health and
Education Cess as applicable) where the normal tax liability of the company is less than 15%
of book profit.

FOREIGN COMPANY:
As per Section 2(23A) "foreign company" means a company which is not a domestic company
A. Income Tax
Assessment Year 2023-24 and Assessment Year 2022-23
Royalty received from Government or an Indian concern in pursuance of an agreement made
with the Indian concern after March 31, 1961, but before April 1, 1976, or fees for rendering
technical services in pursuance of an agreement made after February 29, 1964 but before
April 1, 1976 and where such agreement has, in either case, been approved by the Central
Government - 50%
Any other income - 40%
Add:
a) Surcharge: The amount of income-tax shall be increased by a surcharge at the rate of 2%
of such tax, where total income exceeds one crore rupees but not exceeding ten crore
rupees and at the rate of 5% of such tax, where total income exceeds ten crore rupees.
However, the surcharge shall be subject to marginal relief, which shall be as under:
→ Where income exceeds one crore rupees but not exceeding ten crore rupees, the total
amount payable as income-tax and surcharge shall not exceed total amount payable
as income-tax on total income of one crore rupees by more than the amount of income
that exceeds one crore rupees.
→ Where income exceeds ten crore rupees, the total amount payable as income-tax and
surcharge shall not exceed total amount payable as income-tax on total income of ten
crore rupees by more than the amount of income that exceeds ten crore rupees.
b) Health and education cess: The amount of income-tax and the applicable surcharge, shall
be further increased by Health and education cess calculated at the rate of four per cent
of such income-tax and surcharge.
B. Minimum Alternate Tax
A company shall be liable to pay MAT @ 15% of book profit (plus surcharge and Health and
education cess as applicable) where the normal tax liability of the company is less than 15%
of book profit. However, a foreign company shall not be liable to pay MAT on following
incomes if income-tax payable thereon under the normal provisions is at a rate less than 15%

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Capital gains arising from transfer of securities,
Interest,
Royalty and
Dividend and
Fees for technical services.
5. Co-operative societies: Co-operative Society registered under the co-operative
societies Act, 1912 or under any other law for time being force in any state for the
registration of co-operative societies.
A co-operative society is often a voluntary association of individuals who come together
with the intention to work together and to promote their economic interest.
❑ The income computed in the same manner as provided for the other assesse’s under
the Act
❑ The provisions under the various heads of Income clubbing of incomes. St off and
brought forward losses, deductions u/s 80 shall apply.
❑ The subsidy given by the government for meeting managerial expenses and
admission fee collected by the society is treated as revenue receipt and liable to tax.
❑ Depreciation allowable on the cost of the machinery or plant reduced by the amount
of the subsidy as actual cost stands reduced by percentage allowed by subsidy.
❑ The co-operative societies is entitled to a further tax benefit arising from section 80
under which the income of co-operative society is exempted from tax under different
circumstance depending upon the nature of the income for the amount there of.
❑ The profits of the society remaining after payment of tax would be distributed by
amongst its member in the firm of dividends subject to the relevant legislation.

Taxable income Tax Rate

Up to Rs. 10,000 10%

Rs. 10,000 to Rs. 20,000 20%

Above Rs. 20,000 30%

(a) Surcharge: The amount of income-tax shall be increased by a surcharge at the rate of
12% of such tax, where total income exceeds one crore rupees. However, the
surcharge shall be subject to marginal relief (where income exceeds one crore rupees,
the total amount payable as income-tax and surcharge shall not exceed total amount
payable as income-tax on total income of one crore rupees by more than the amount
of income that exceeds one crore rupees).
(b) From Assessment Year 2023-24 onwards, the rate of surcharge in the case of co-
operative societies having income between 1 crore to 10 crores is reduced from 12%
to 7%.
(c) Health and Education Cess: The amount of income-tax and the applicable surcharge,
shall be further increased by health and education cess calculated at the rate of four
percent of such income-tax and surcharge.
Special tax rates applicable to a Co-operative societies

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Taxable income Tax Rate

Any income 22%

The Finance Act, 2020 has inserted a new Section 115BAD in Income-tax Act to provide an
option to the co-operative societies to get taxed at the rate of 22% plus 10% surcharge
and 4% cess. The resident co-operative societies have an option to opt for taxation under
newly Section 115BAD of the Act w.e.f. Assessment Year 2021-22. The option once
exercised under this section cannot be subsequently withdrawn for the same or any other
previous year.
If the new regime of Section 115BAD is opted by a co-operative society, its income shall
be computed without providing for specified exemption, deduction or incentive available
under the Act. The societies opting for this section have been kept out of the purview of
Alternate Minimum Tax (AMT). Further, the provision relating to computation, carry
forward and set-off of AMT credit shall not apply to these assesses.
The option to pay tax at lower rates shall be available only if the total income of co-
operative society is computed without claiming specified exemptions or deductions – u/s
80G, 80GGA, 80GGC, 80IA, 80IB, 80JJA and 80P.
Tax planning with respect of Amalgamation and Merger:
Amalgamation: Amalgamation in relation of company means:
@ The merger of one or more company with the another company
@ The merger of two or more company to form new company
According to Income Tax Act 1961 “The Merging of one or more company with another or
combining two or more company to establish a single company to form a new entity”.
Types of Amalgamation
❑ Amalgamation in the nature of Merger
❑ Amalgamation in the nature of Purchase
❑ Amalgamation in the nature of Merger: Amalgamation in the nature of Merger
is an amalgamation where there is a genuine pooling not merely of assets and liabilities
of the transferor and transferee company but also of the shareholder’s interest and of
the business of the company.
Conditions
➢ All the assets and liabilities of the transferor company becomes the assets and liabilities
of the transferee company after Amalgamation.
➢ Equity share holders holing 90% equity share is transferor company becomes
shareholders of transferee company
➢ Purchase consideration is discharged wholly by issue of equity shares of transferee
company (except cash only fractional shares)
➢ The business of the transferor company is intended to be carried on, after the
amalgamation, by the transferee company.
➢ No adjustment is intended to be made to the book values of the assets and liabilities of
the transferor company when they are incorporated in the financial statements of the
transferee company except to ensure uniformity of accounting policies.

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For example, if Transferor Company is following straight line method of depreciation,
the book value of the assets of the transferor company will be revised by applying the
written down method of depreciation.
❑ Amalgamation in the nature of Purchase
If any one or more of the above conditions are not satisfied in an amalgamation, such
amalgamation is called amalgamation in the nature of purchase.
➢ There need not be transfer for all assets & liabilities.
➢ Equity shareholders need not become shareholders of Transferee Company.
➢ Purchase consideration need not be discharged wholly by issue of equity shares.
➢ The business of the transferor company need not be intended to be carried on by
the transferee company.
➢ The assets & liabilities taken over are recorded at their existing carrying amounts
or the basis of their fair values.
Tax concession / Tax Benefits in case of Amalgamation and merger
1. Tax Relief to the Amalgamation company:
a. Exemption from capital gains Tax (sec 47(vi)):
Capital gain arising from the transfer of the assets by the amalgamating company
to the amalgamated company is exempt from tax as such transfer will not be
regarded as a transfer for the purpose of capital gain.
b. Exemption from capital Gain Tax in case of International Restructuring
(sec47(via)):
In case of amalgamation of foreign company transfer of shares held in Indian
company by amalgamating foreign company to amalgamated company is
exempted from the tax if the following conditions are satisfied:
✓ At least 25% of shareholders of amalgamating company continue to remain
shareholders of amalgamated company
✓ Such transfer does not attract tax on capital gains in the country in
amalgamating company is incorporated.
2. Tax relief to the shareholders of an Amalgamating company:
a. Exemption from capital Gains Tax
Capital gains arising from the transfer of shares by a shareholder of the
amalgamating company are exempt from tax as such transactions will not be
regarded as a transfer capital gain purpose if
✓ The transfer is made in consideration of the allotment to him of shares in the
amalgamated company and
✓ Amalgamated company is an Indian company
3. Tax relief to the Amalgamated company:
a. Carry forward and set off of accumulated loss and unabsorbed deprecation of the
amalgamating company (sec 72 A) if the following conditions satisfies:
✓ There should be an amalgamation of:
• A company owning an Industrial undertaking or ship or hotel with another
company.
• A banking company u/s 5(c) of the Banking Regulation Act 1949 with specified
Note.

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• One or more public sectors company or companies engaged in the business of
operation of Air craft with one or more public sector company engaged in
similar business.
✓ The amalgamated company should be Indian company.
✓ Can carry accumulated loss and unabsorbed depreciation for 3 years
✓ The company should continue the business for minimum 5 years from the date of
amalgamation.
b. Expenditure on Scientific Research: When an amalgamating company transfer any
asset represented by capital expenditure on the scientific research of the amalgamated
Indian company in a scheme of amalgamation provision of sec 35 shall be applicable:
• Unabsorbed expenditure on scientific research of the amalgamating company will
be allowed to be carried forward and set off in the hands of the amalgamated
company.
• If such asset ceases to be used in previous year for scientific research related to
the business of amalgamated company and is sold by the amalgamated company
such sale price to extend of cost of asset shall treated as business income and the
excess of price shall be subject to the provisions of capital gain.
c. Amortization of expenditure (sec 35 DD): Expenditure incurred in connection with the
amalgamation the assesse shall be allowed a deduction of an amount equal of 1/5 of
such expenses for each of successive previous year.
d. Treatment of preliminary expensed: allowed as deduction – when it is not written off.
e. Treatment of capital expenditure on family planning expenses: allowed as deduction
u/s sec 36(1)(ix).
f. Bad debts: allowed as deduction u/s 36 (I) (viii).

Tax planning with respect of Multi-National Company (MNC)

A MNC is a company that has business operations in at least one country other than its home
country, where it is incorporated in one country which produces or sells foods and services in
various countries.
✓ Shifting profit from higher to lower tax jurisdiction
✓ High leverage (obtaining finance)
✓ Use of tax havens
✓ Tax deferral
✓ Register of an intangible assets
✓ Use of leases.
Double taxation:
Double taxation refers to the imposition of taxes on the same income, assets or financial
transaction at two different points of time.
Generally, Income taxable on two basis
 Source of income
 Residential status
Which results at a double taxation of same income of the person
Example: Mr X ordinary resident in Indi, earned bank interest of RS.1,00,000 on his money
deposited into a bank located in US, in that case income is taxable in US on source of income
basis and again in India
Double Taxation Treaties:

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To finance the welfare and the administrative expenditure governments around the world
impose certain taxes on their subjects.
In cases, where cross country economic activity is carried out, it is a tricky affair to identify
and justify the appropriate jurisdiction of tax authorities. In order to mitigate the hardships
of multiple jurisdictions, the Government enter into bilateral arrangements, which are
commonly denoted as “Double Taxation Avoidance Agreements”.
Double Taxation Avoidance Agreements:
DTAA refers to an accord between two countries, aiming at elimination of double taxation.
These are bilateral economic agreements wherein the countries concerned assess the
sacrifices and advantages which the treaty brings for each contracting nation. It would
promote exchange of goods, persons, services and investment of capital among such
countries.
Indian Government is actively pushing DTAA negotiations with several countries to help its
residents in understanding their tax jurisdictions and accountability towards the appropriate
authorities. So far India has signed DTAA with 81 countries and discussion is on with many
others. The natures of DTAA’s entered by India are greatly diverse in their nature and
contents.
Objectives
✓ DTAA treaties must help in avoiding and alleviating the burden of double taxation
prevailing in the international arena.
✓ The tax treaties must clarify the taxpayer to know with certainty of his potential tax
liability in the country, where he is carrying on economic activities.
✓ Tax Treaties must ensure that there is no prejudice between foreign tax payers who has
permanent enterprise in the source countries and domestic tax payers of such countries.
Treaties are made with the aim of allocation of taxes between treaty nations and the
prevention of tax avoidance.
✓ The treaties must also ensure that equal and fair treatment of tax payers having different
residential status, resolving differences in taxing the income and exchange of
information and other details among treaty partners.

Classification
Double taxation avoidance agreements may be classified into comprehensive agreements
and limited agreements based on the scope of such agreements.
Comprehensive Double Taxation Avoidance Agreements provide for taxes on income, capital
gains and capital investments.
Limited Double Taxation Avoidance Agreements denote income from shipping and air
transport or legacy and gifts. Comprehensive agreements ensure that the taxpayers in both
the countries would be treated on equitable manner in respect of the issues relating to double
taxation.
Current Scenario in India
The Indian Income Tax Act, 1961 administrates the taxation of income accrued in India. As per
Section 5 of the Income Tax Act, 1961 residents of India are liable to tax on their global income
and non-residents are taxed only on income that has its source in India. The Provisions of
DTAA override the general provisions of taxing statute of a particular country. It is now well
settled that in India the provisions of the DTAA override the provisions of the domestic
statute. Moreover, with the insertion of Sec.90 (2) in the Indian Income Tax Act, it is clear that

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assesse have an option of choosing to be governed either by the provisions of particular DTAA
or the provisions of the Income Tax Act, whichever are more beneficial. Further if Income tax
Act itself does not levy any tax on some income then Tax Treaty has no power to levy any tax
on such income. Section 90(2) of the Income Tax Act recognizes this principle
Relief provided to the tax payers:
@ Bilateral Relief: In this, government of two countries enters into an agreement (Known as
treaties) to provide relief against double taxation of same income. The relief is granted on the
basis of terms of such agreement. Generally, such agreement provides relief through
following methods:
✓ Exemption method: In this method, one country provides exemption to such type of
income. Generally, residence country gave up its right and the country of source is
then given exclusive right to tax such incomes.
✓ Credit Method: In this method resident remains liable in the country of residence on
its global income, however as far the quantum of tax liabilities is concerned credit or
deduction for tax paid in the source country is given by the residence country against
its domestic tax as if the foreign tax were paid to the country of residence itself.
@ UNILATERAL RELIEF
✓ The aforesaid method is depending on bilateral activity of both the countries.
However, no country will have such an agreement with every country in the world. In
order to avoid double taxation in such cases, country of residence itself may provide
relief on unilateral basis. In India, relief for avoidance of double taxation is provided in
both ways.
Provisions relating thereto are enumerated here-in-below:

AGREEMENT WITH FOREIGN COUNTRIES [SECTION 90 BILATERAL RELIEF]

The Central Government may enter into an agreement with the Government of any country
outside India or specified territory outside India:
a. for the granting of relief in respect of—
➢ income on which have been paid both income-tax under this Act and income-tax
in that country or specified territory, as the case may be, or
➢ income-tax chargeable under this Act and under the corresponding law in force in
that country or specified territory, as the case may be, to promote mutual
economic relations, trade and investment, or
b. for the avoidance of double taxation of income under this Act and under the
corresponding law in force in that country or specified territory, as the case may be, or
c. for exchange of information for the prevention of evasion or avoidance of income-tax
chargeable under this Act or under the corresponding law in force in that country or
specified territory, as the case may be, or investigation of cases of such evasion or
avoidance, or
d. For recovery of income-tax under this Act and under the corresponding law in force in
that country or specified territory, as the case may be, and may make such provisions
as may be necessary for implementing the agreement.

ADOPTION BY CENTRAL GOVERNMENT OF AGREEMENTS BETWEEN SPECIFIED

ASSOCIATIONS FOR DOUBLE TAXATION RELIEF [SECTION 90A]

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Any specified association in India may enter into an agreement with any specified association
in the specified territory outside India and the Central Government may, by notification in the
Official Gazette, make such provisions as may be necessary for adopting and implementing
such agreement –
a) for granting of relief in respect of –
(i) income on which have been paid both income-tax under this Act and income-tax
in any specified territory outside India; or
(ii) income-tax chargeable under this Act and under the corresponding law in force in
that specified territory outside India to promote mutual economic relations, trade
and investment, or
b) for the avoidance of double taxation of income under this Act and under the
corresponding law in force in that specified territory outside India, or
c) for exchange of information for the prevention of evasion or avoidance of income-tax
chargeable under this Act or under the corresponding law in force in that specified
territory outside India, or investigation of cases of such evasion or avoidance, or
d) For recovery of income-tax under this Act and under the corresponding law in force in
that specified territory outside India.
COUNTRIES WITH WHICH NO AGREEMENT EXISTS [SECTION 91 UNILATERAL RELIEF]
If any person who is resident in India in any previous year proves that:
a) The income has accrued or arose during the previous year outside India (and which is not
deemed to accrue or arise in India),
b) He has paid in any country income-tax on such income, by deduction or otherwise, under
the law in force in that country
c) India does not have any agreement u/s 90 for the relief or avoidance of double taxation
with that country, then he shall be entitled to the deduction from the Indian income-tax
payable by him
(i) of a sum calculated on such doubly taxed income at the average of Indian rate of
tax or
(ii) Of a sum calculated on such doubly taxed income at the average rate of tax of the
said country, whichever is the lower, or at the Indian rate of tax if both the rates
are equal.
Notes
a) The expression ‘such doubly taxed income’ really purports to indicate that it is only that
portion of the income on which tax has been imposed and been paid by the assesse that
is eligible for the double tax relief. Thus, where the foreign income which suffered tax in
the foreign country was Rs.88,535, and the income actually taxed in India after
allowances and set off of losses (or deduction under chapter VIA) was Rs.63,141, relief
admissible would be calculated on Rs.63,141
b) Relief u/s 91 is to be calculated on income country-wise and not on basis of aggregation
or amalgamation of income of all foreign countries
c) No benefit is available on income which is deemed to accrue or arise in India, even though
such income is doubly taxed.

Joint ventures and foreign collaborations:

For any industrial development we need latest technical know-how and funds. These can be
obtained by foreign collaboration or joint ventures. They may provide by:

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a) Technical know-how.
b) Plant, machinery and other equipment’s
c) Foreign personnel for
(i) Erection or installation of plant and machinery, and
(ii) To train Indian work force.
d) Capital in the form of debt or equity.
In consideration the collaborator or joint ventures will have income by way of royalty,
dividend, interest, capital gains, and fees for technical services.
The foreign personnel may remain the employees of a foreign enterprise and receive from it
or may charge the remuneration from an Indian concern. When they remain the employees
of the foreign enterprise, the employer may recover a consolidated price of asset and other
service.
The provisions relating to taxation of such income areas under:
1. REMUNERATION TO FOREIGN PERSONNEL:
a) Daily allowance and rent-free accommodation provided by the Indian concern to an
employee of a foreign concern providing technical services in India are not perquisites and
not assessable.
b) If the employee is not a citizen of India, the remuneration received by him as an
employee of a foreign enterprise for services rendered by him during his stay in India shall
be exempt provided the following conditions are fulfilled
i) the foreign enterprise is not engaged in any trade or business in India
ii) His stay in India does not exceed in the aggregate a period of 90 days in such
previous year.
iii) such remuneration is not liable to be deducted from the income of the employer
chargeable under this Act
2. DIVIDENDS: Dividends referred to in Section 115-0 shall be exempt in the hands of a
foreign collaborator non-resident or a foreign company). On other dividends tax shall be
charged 20%.
3. INTEREST:
i. Tax shall be charged from foreign collaborator on interest received on monies
borrowed or debt incurred by an Indian concern in foreign currency @20%.
ii. On interest received from an Infrastructure Debt Fund tax shall be charged @5%.
iii. On interest on money borrowed by a specified company or business trust in foreign
currency outside India (referred to in Sec. 194LC) tax shall be charged@5%.
iv. On interest income on bonds and Government securities (referred to in Sec. 194LD)
tax shall be charged@ 5%.
v. On interest (referred to in Sec. 194LBA) tax shall be charged 5%.
4. ROYALTY OR FEES FOR TECHNICAL SERVICES: Where royalty or technical fees is received
in pursuance of an agreement made by the foreign company with an Indian concern and
approved by the Central Government tax shall be charged @ 10%.
i. No deduction in respect of any expenditure or allowance shall be allowed to the
assesse (U/S 28 to 44C and 57) in computing income discussed under (2), (3) and
(4).
ii. No deduction shall be allowed u/s 80C to 80U against income discussed under
(2), (3) and (4).
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5. CAPITAL GAINS:
(a) If a foreign collaborator (foreign company) transfers equity shares of an Indian company,
the capital gains shall be computed as provided in Section 48. Tax shall be charged on LTCG
@ 20% and on STCG@ 40%.
(b) Where equity shares are transferred and the securities transaction tax has been paid, on
STCG tax shall be charged@ 15%.
Tax haven
Meaning:-Tax haven is a place or countries where there is a very low or nil rate of income
tax for business or individuals are foreign investors and also provide and attractive
macroeconomic environment like financial and economic stability as well financial secrecy
from tax authorities

Advantage
➢ The ability of the business to save money and pay fewer taxes is the main advantage
➢ They initiate the growth of both an individual and the nation
➢ As there are no capital gains taxes business men are also encouraged to invest their in
Disadvantages
➢ Tax haven might also promote some illegal activities
➢ Tax haven may benefits large corporations but they are almost always very
advantageous for the local population
➢ Business deals made in tax haven are frequently made up and may mislead the other
party
Types of tax haven
1. Primary Tax haven -the location where financial capital wins up subsidiary their have
obtained rights to collect profits from corporate Intellectual Property Rights by transfer
their parent.
2. Semi Tax haven - locations that produce goods for sale primarily outside of their
territorial boundaries and have flexible regulations to encourage job growth such as free
trade zones territorial only taxation and similar inducement.
3. Conduit tax haven - locations where income from sales primarily made outside their
boundaries is collected and then distributed. Semi tax events are remedies for actual
product cost perhaps with a commodity mark-up .the remaining profits are transferred
to the primary tax haven because it holes right to profit due to the corporate IP. by
matching out flow to Income they do not retain capital and their role, while circle
remains, invisible.
Vivad se vishwas
Meaning:- Vivad se Vishwas scheme provides for settlement of disputed tax disputed
interest disputed penalty or disputed fees in relations to an assessment or Re assessment
order an payment of 100% of the disputed tax and 25% of the disputed penalty are interest

Objectives

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❖ Reducing income tax pending litigation
❖ Generate timely revenues for the government
❖ Get immunity from prosecution
❖ Help tax payers and their tax disputed with the department by paying disputed tax
and get waiver from payment of interest and penalty.

Chapter 04
Corporate Restructuring and Tax Planning
Direct tax code
The Direct Tax Code is a major tax reform in which the government wants to consolidate
all tax laws and regulations into a single piece of legislation. Different direct taxes are
income tax, wealth tax, corporate tax, securities transactions tax etc.
The direct tax code aims to unify and update the law governing all direct taxes in order to
create an economically efficient, effective, and equitable direct tax system that encourages
voluntary compliance and improves the tax-to-GDP ratio.
Direct Tax Code – History
• On 12 August 2009, the first draft of the Direct Tax Code Bill was created.
• In 2010, a Revised Discussion Paper was created.
• In 2010, The Direct Tax Code bill was introduced in Parliament and a Standing
Committee of Finance (SCF) was appointed for a detailed discussion on the bill.
• In 2012, the committee submitted its report to Parliament.
• In 2014, a revised version of the Direct Tax Code was created after the committee
report.
• The bill lapsed due to the change in government after the general elections.
• In 2017, An expert committee was set up to draft a fresh Direct Tax Code.
• In Aug 2019, the task force report was submitted to the Finance Minister (Direct Tax
Code Report)which is chaired by Mr Yashwant Sinha.

Objectives of DTC
• To simplify and consolidate all of the federal governments direct tax rules.
• To improve the effectiveness and efficiency of the tax system.
• To bring a consolidated law on direct taxes, such as income tax, dividend distribution
tax, fringe benefits tax, and wealth tax, into effect.
• In order to achieve horizontal fairness among different classes of taxpayers, best
worldwide practices must be followed.
• Tax regulations must be straightforward, stable, and resilient in order to improve
compliance.
Features of Direct tax code: All the features of the Direct Tax Code focus on simplification
and consolidation of various direct taxes.
There are many advantages of the Direct Tax Code and they are as follows:

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1. Increasing the Income Tax Slabs: This proposal was adopted by the Government of India
in the Fiscal year 2012-13. This helps in better tax rate distribution across different income
groups and eases the burden to some extent for lower-income households.
2. Corporate Tax Simplification: 30 percent tax rate was proposed for both domestic and
foreign companies with the elimination of the present surcharge of 5% and 2% for the
companies respectively.
3. Minimum Alternate Tax (MAT): The MAT should be increased from 18.5 percent to a
minimum of 20 percent.
4. Shifting of Schemes: The Savings Schemes should be shifted under EET from the current
EEE. Some programs like Provident Fund, Gratuity, and Pension would still remain under
EEE.
Direct Tax Code (DTC) Proposals:
o Increase in Income tax slabs. (Government adopted the proposed tax slabs in the financial
year 2012 – 2013)
o Corporate Income Tax or Corporate Tax – For both domestic and foreign firms, the tax
rate should be 30% and no surcharge will be applicable. Currently, there is a 5% surcharge
that is applicable for domestic firms and for foreign firms, tax is 40% along with 2%
surcharge is also applicable.
o Minimum Alternate Tax rate should be 20%. Currently, the tax rate of MAT is 18.5%.
o Savings Scheme should be under EET. Presently these schemes are under EEE.
o Few schemes like PF, Gratuity, pension funds etc would still come under EEE.
Reasons for having a direct tax code The reasons are divided into two categories namely
❑ Elementary Reason
❑ Advanced Reasons
✓ Elementary Reasons To remove irrelevant portion and to simplify the relevant
portion.
✓ Advanced Reasons It is about changing the structure of the Act or making innovative
changes to make it resilient enough to keep up with time and achieve other purposes.
What to consolidate
The direct tax code should consist of provisions of;
a) the Estate Duty Act, 1953; inheritance (Abolished)
b) the Expenditure-tax Act, 1987 (Abolished)
c) the Wealth-tax Act, 1957; (abolished)
d) the Income-tax Act, 1961;
e) the Super Profits Tax Act, 1963
f) the prohibition of Benami Property Transactions Act1988
g) the Finance (No. 2) Act, 2004; (securities transaction tax)
h) the Finance Act, 2005 (banking cash transaction tax) – Abolished
i) the finance Act 2013; (commodity transaction tax)
j) the Black Money (Undisclosed foreign Income and Assets) and Imposition of Tax Act,
2015;
k) the Finance Act, 2016; or (Equalisation levy)
l) Gift Tax Act, 1958 (abolished in 1998 and brought under Income Tax Act in 2004)

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This does not mean that Government should introduce each levy as mentioned above. It
means that, Government should inculcate necessary portion of each of the above laws and
keep space to levy tax on above basis. If you observe, the concept of assets, expenditure,
income and liabilities are interlinked. Income is a floating concept whereas asset is a static
concept.

GAAR – General Anti Avoidance Rule

GAAR is a provision in the direct tax system which aims at providing discretionary power to
tax officials to deny and tax benefit to any firm. However, Tax officials can violate certain
provisions of the Income Tax Act and Double Taxation Avoidance Act.
Guidelines issued by the government in the implementation of GAAR
The following are the key GAAR implementation guidelines: Three high-ranking Income Tax
officials should be on the approving panel.
Only large transactions will invoke GAAR.
 Recommendations of the Parthasarathi Shome committee:
 GAAR should be delayed for three years, starting on April 1, 2016.
 The approving committee should decide if GAAR should be used or not.
 The threshold amount will be established at 3 crores. The advanced ruling should be
granted and capital gains tax should be removed.
 Governments of other nations’ tax residence certificates should be accepted.
 GAAR’s primary goal should be to prevent tax evasion, and it should only be used in cases
of tax evasion.
 If there are specific anti-avoidance measures in place, GAAR should not be used.
 The Shome panel also suggested that retrospective amendments be made only in the
most exceptional of circumstances.

BUDGET IMPLICATIONS TO INCOME TAX PROVISIONS (2021-2022)

1. Incentives for start -ups: Eligibility for claiming tax holiday extended for start-ups
incorporated till 31.03.2022, Threshold limit for eligible start-ups was earlier raised to
25crore to 100 crore . The capital gain exemption for investment in start -ups
extended by 1 year till 31.03.2022.
2. Relaxation for NRI’s: When Non-Resident Indians return to India, they have issues with
respect to their accrued incomes in their foreign retirement accounts .This is usually due
to a mismatch in taxation periods. They also face difficulties in getting credit for Indian
taxes in foreign jurisdiction .It propose to notify rules for removing their hardship of
double taxation.
3. Pre-filing of Income tax Returns: In order to ease compliance for taxpayer, details of
salary income, tax payments TDS etc., already come pre-filled in income tax returns. To
further ease filing of returns, detail of capital gains from listed securities, dividend
income, and Interest from banks, post office etc. will also be pre-filed.

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4. Affordable Rental Housing: To promote the supply of affordable rental housing for
migrant workers, 100% tax exemption will be available for notified affordable rental
housing projects.
5. Measures undertaken to promote Digital Transaction: Through Finance Act .2021
monetary threshold for getting books of accounts audited raised to Rs10 crore if total
turnover made in cash doesn’t exceed 5% of total expenditure in cash.
6. Relief to small Trusts: To increase Ease of compliance of small charitable trusts, running
educational institutions & hospitals, tax exemption relief to such trusts is provided by
the finance Act 2021 by raising existing threshold of annual receipts from Rs1 crore to
Rs6 crore.

7. Boosting India ‘s Health Sector: The health sector received a big boost with the budget
outlay as the government plans to release additional resources for public health sector
enabling it to get ready for the future.
Many of our cities have various research institutions universities & colleges supported
by the government of India.
8. Pradhan Mantri Krishi Sinchayee Yojana (PMKSY): PMSKY enhanced irrigation potential
encouraging farmers to invest more in farming technology and leading increased
productivity and farm income. Announcement PMKSY has been strengthened and will
be implemented in mission mode lakh hectare will be brought under irrigation in this
scheme.
9. Kisan Rail: Indian Railways flags off kisan rail to transport fresh fruits & vegetables from
farmers to markets across India. To build a seamless national cold supply chain and
setup a kisan rail through (PPP) public private partnership.
10. New Public Sector Enterprise (PSE) Policy: New PES policy is designed to discover true
economic potential of entities in the hands of private investors. In Aathmanirbhar
package had announced that will come out with a policy of strategic disinvestment of
public sector enterprises. This policy provides a clear road map for disinvestment in all
non strategic & strategic sectors.
11. Recycling of ships Act 2019: Recycling of ships Act validated by the President on
17.12.2019. It aims to provide for the regulation of recycling of ships by setting certain
standards & laying down statutory mechanism for enforcement of such standards. Rules
notified on 26.02.2021. The objective is “To boost India’s ship recycling capacity.
12. National Agriculture Market: National Agriculture Market is expanding to ease farmers.
The Pan India trading portal is helping realize the vision of “One Nation, One Market”
for agri produce 1000 more mandis will be integrated with e-nam.
13. Jan Aushadhi Kendra scheme: Pradhan Mantri Bharatiya Jan Aushadhi Kendras made
available essential medicines & other items at affordable prices across the country. As
on 15th dec 2021, 8588 PMBJKS opened, covering all the districts in the country. To

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expand Jan Aushadhi Kendra Scheme to all districts offering 2000 medicines & 300
surgicals by 2024.
14. Public Private Partnership for Major ports: 7 projects worth more than 2000cr to be
offered by major Indian ports on public private partnership in FY 2021-2022.
o 4 projects worth Rs1899 crore sanctioned by the government.
o 2 project already completed.
15. Scheme for development of solar parks & ultra-mega solar power projects: India set
to construct ultra-mega solar power projects in Rajasthan, Gujarat, Tamil nadu & Ladhak. This
scheme facilitates instruction of grid connected solar power projects for electricity generation
on a large scale Rs500 crore was set aside for this project.
16. National Hydrogen Energy Mission: National Hydrogen Energy Mission was launched
hydrogen energy mission to generate hydrogen from green power sources Rs4500 crore for
generating hydrogen from green power.
17. Major Express Ways/ corridors: Massive development of major express
ways/corridors is underway, shifting Indian transport network from the conventional mode
of widening the existing highways. Total capital cost Rs98372 crore.
18. GEM Platform: Government e – market place is a one stop portal to facilitate online
procurement of goods & services by various government offices to enhance transparency,
efficiency & speed in public procurement.
19. Tax payer charter: The Tax payers charter was adopted by CBDT as per the provision
of section 119A of Income Tax Act, 1961. It providing a transparent and Tax payer friendly
regime. It helps forge trust between the tax payer and the department.
20. Increased credit flows for Agriculture Sector: To provide adequate credit to our
farmers, have enhanced the agricultural credit target to 16.5 lakh crore in FY 2022. We will
focus on ensuring increased credit flows to animal husbandry, dairy and fisheries.
21. National Livelihood Mission: National Rural livelihood mission accelerates activities
with livelihood opportunities for women SHGs & supporting small businesses in rural areas
178328 enterprises have been supported under the programme & Rs363.48 crore has been
released as central share to the state government under scheme as on 31 st October 2021.
22. Digital Modes of Payment: To boost digital transactions Rs1500 crore for a proposed
scheme that will provide financial incentive to promote digital modes of payment.
23. Bangalore Metro Rail Project: The central approved the Bangalore Metro Rail Project
phase 2A & phase 2B , a 58.19 km stretch estimated to cost an amount of Rs14788 crore.

24. Swatch Bharat Mission Urban 2.0: Swatch Bharat Mission Urban was approved
in October 21 with an allocation of Rs141678 crore until 2025-2026. The second phase
focuses on sustaining the sanitation & solid waste management outcomes achieved &
accelerated the momentum thus achieving a garbage free urban India.

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