TAX PLANNING TAX AVOIDANCE TAX EVASION MEASURES TO CHECK TAX AVOIDANCE AND EVASION MINIMUM ALTERNATE TAX.pptx

TAX PLANNING
TAX AVOIDANCE
TAX EVASION
MEASURES TO CHECK TAX AVOIDANCE AND EVASION
MINIMUM ALTERNATE TAX

1. OD MBA 422 –T CORPORATE TAX LAW &PLANNING TOPICS TO BE COVERED: (L-3)UNIT -A TAX PLANNING TAX AVOIDANCE TAX EVASION MEASURES TO CHECK TAX AVOIDANCE AND EVASION MINIMUM ALTERNATE TAX Prepared by: Amandeep Assistant Professor https://www.linkedin.com/in/amandeep-thakur-7a81942a

2. INTRODUCTION TO TAX PLANNING AND MANAGEMENT Taxes are the compulsory contribution by the citizens of a country for meeting different government expenditures. There are three stages in the imposition of tax by the government. First step is the declaration of the liability by the Government i.e. what are all the incomes chargeable to tax, second one is the assessment and tax payment by persons and the last one is the method of recovery of tax if tax was not paid on time. Tax planning and management focuses efficient administration of tax procedures and minimization of tax liability through eligible schemes. Through this we can discuss about the basic concepts of Tax Planning, Tax Management, Tax Evasion and Tax Avoidance

3. TAX MANAGEMENT

4. TAX PLANNING Tax planning can be defined as an arrangement of one’s financial and economic affairs by taking complete legitimate benefit of all deductions exemptions allowances and rebates so that tax liability reduces to minimum Tax laws are fully complied within its framework Not taking form of colorable devices Having no intention to deceit the legal spirit Planning of tax must be correct both in form and substance

5. Objectives of Tax Planning TAX PLANNING Objectives of Tax Planning 1. Increase in disposable income 2. Shield against high taxation 3. Inequity in tax burden 4. Maximum deductions allowed to business persons, minimal to others 5. Avoidance of litigation 6. Curb on tax evasion

6. Methods of Tax Planning Various methods of Tax Planning may be classified as follows : 1. Short Term Tax Planning 2. Long Term Tax Planning 3. Permissive Tax Planning 4. Purposive Tax Planning

7. Methods of Tax Planning Short Term Tax Planning Short range Tax Planning means the planning thought of and executed at the end of the income year to reduce taxable income in a legal way Example: Suppose, at the end of the income year, an assesse finds his taxes have been too high in comparison with last year and he intends to reduce it Now, he may do that, to a great extent by making proper arrangements to get the maximum tax rebate u/s 88 Such plan does not involve any long term commitment, yet it results in substantial savings in tax

8. Methods of Tax Planning Long Term Tax Planning Long range tax planning means a plan charted out at the beginning of the income year to be followed around the year This type of planning does not help immediately as in the case of short range planning but is likely to help in the long run e.g. If an assesse transferred shares held by him to his minor son or spouse, though the income from such transferred shares will be clubbed with his income u/s 64, yet is the income is invested by the son or spouse, then the income from such investment will be treated as income of the son or spouse Moreover, if the company issue any bonus shares for the shares transferred, that will also be treated as income in the hands of the son or spouse

9. Methods of Tax Planning Permissive Tax Planning Permissive Tax Planning means making plans which are permissible under different provisions of the law such as planning of earning income covered by Sec.10, specially by Sec. 10(1) Planning of taking advantage of different incentives and deductions planning for availing different tax concessions etc.

10. Methods of Tax Planning Purposive Tax Planning It means making plans with specific purpose to ensure the availability of maximum benefits to the assessee through correct selection of investment making suitable programme for replacement of assets varying the residential status and diversifying business activities and income etc.

11. TAX AVOIDANCE Tax avoidance is reducing or negating tax liability in legally permissible ways and has legal sanction Tax avoidance is sound law and certainly not bad morality for anybody to so arrange his affairs in such a way that the brunt of taxation is the minimum This can be done within the legal framework even by taking help of loopholes in the law

12. TAX EVASION All methods by which tax liability is illegally avoided are termed as tax evasion. Tax evasion refers to a situation where a person tries to reduce his tax liability by deliberately suppressing the income or by inflating the expenditure which results into showing of income lower than the actual and resorting to various types of deliberate manipulations. An Assessee guilty of tax evasion is punishable under the relevant laws. Tax evasion may involve: untrue statement knowingly submitting misleading document suppression of facts not maintaining proper accounts of income earned (if required under law) omission of material facts on assessment

13. Tax Planning Vs.Tax Management

14. Tax Avoidance Vs. Tax Evasion

15. MEASURES TO CHECK TAX EVASION Improving Tax Administration Enforcement and Penalties International Cooperation Addressing the Shadow Economy MEASURES TO CHECK TAX AVOIDANCE Strengthening Tax Laws and Regulations Improving Tax Treaties Increasing Transparency Addressing Transfer Pricing Abuses

16. MAT or Minimum Alternate Tax is a provision in Direct tax laws to limit tax exemptions availed by companies, so that they mandatorily pay a  minimum  amount of tax to the government. As per Section 115JB, all companies are required to pay corporate tax at least equal to the higher of the following: Normal Tax Liability:  Calculated as per the normal provisions of the Income Tax Act, i.e. by applying the relevant tax rate to the taxable income of the company. Please note that the Ministry of Finance has revised the corporate tax rates in September, 2019. Click  here  to know the revised rates. Minimum Alternate Tax (MAT):  For FY 2019-20, tax payable is computed at 15% (previously 18.5%) on book profit plus applicable cess and surcharge.  Minimum Alternate Tax

17. Which companies are liable to pay MAT? All companies whether private or public irrespective of whether Indian or foreign are liable to pay MAT, if the  income tax   payable  (including cess and surcharge) as per the provisions of Income Tax Act is  less than 15% of the book profit  plus cess and surcharge.  Exceptions: MAT is not applicable  to any income received by a company from life insurance business and shipping income liable to tonnage taxation. The tonnage taxation system in covered under Sections 115V to 115VZC of the Income Tax Act, 1961.

18. How is MAT calculated? MAT is calculated as 15% of the book profit of the tax assesse . Under existing rules, book profit is calculated as per Section 115JB of the Income Tax Act, 1961. Minimum Alternate Tax calculation example: The taxable income of ABC Company, not availing any tax exemptions/incentives, as per the provisions of the Income Tax Act, 1961 is Rs. 10 lakh. Thus, the normal tax liability of this company at the rate of 22% corporate tax will be Rs. 2.2 lakh plus cess and surcharge.  On the other hand, the book profit of this company as per Section 115JB is Rs. 20 lakh. Thus, MAT at the rate of 15% of book profit will be Rs. 3 lakh plus cess and surcharge. Since, MAT is higher than the normal tax liability, the company will be liable to pay Rs. 3 lakh (plus cess and surcharge) as MAT and not Rs. 2.2 lakh (plus cess and surcharge).

19. How is Book profit calculated? As per Section 115JB (2), book profit means net profit in the statement of profit and loss prepared in accordance with Schedule III of the Companies Act, 2013. A number of costs/income are considered along with the profit and loss statement when calculating the book profit of a company. The following are some of the major ones:  Key Additions to Book Profit  The following will be added to arrive at the book profit amount if they are debited to the statement of profit and loss. Income-tax paid/payable and the provision thereof Amounts carried to any reserves except those specified under Section 33AC Provisions for unascertained liabilities Provisions for losses of subsidiary companies  Dividends paid/proposed  Expenditure related to incomes which are exempt under Sections 10, 11 and 12 but excluding those under Section 10(38) Income of an individual derived from the association of persons (AOP) or body of individuals (BOI) on which no income-tax is payable in accordance with the provisions of section 86.