Effect of Taxation on Business Decisions

Rakesh Vipin & Associates

Submitted in partial fulfillment of the requirements

for the award of the degree of

Bachelor of Commerce (Honours)

BCOM (H)

To

Guru Gobind Singh Indraprastha University, Delhi

Guide:
Submitted by:

Ms. Payal Jha Bhanu Pratap

Singh

00624488816

1
Institute of Innovation in Technology &
Management,
New Delhi – 110058

Certificate from Company

2
3
 ACKNOWLEDGEMENT

The internship I had with Rakesh Vipin & Associates was a great opportunity for

learning and professional development. I am also grateful for having a chance to

meet so many wonderful people and professionals who led me though this internship

period.

I thank CA Vipin Karbanda sir who in spite of being extraordinarily busy with his

duties, took time to hear, guide and keep me on the correct path and allowing me to

carry out my project at their organization during the training.

I also express my gratitude to Ms Payal Jha Ma’am ,our project guide for help and

guidance during our training , without whom it would not have been possible for the

project

to take its final shape .

I perceive this opportunity as a big milestone in my career development. I will strive

to use gained skills and knowledge in the best possible way, and I will continue to

work on their improvement, in order to attain desired career objectives. Hope to

continue cooperation with all of you in the future,

Sincerely,

Bhanu Pratap Singh

B.COM(H)

4
5
 EXECUTIVE SUMMARY

This study examined the effect of taxation in business development and decision

making. Taxation in business development and decision is one that established two

divides for assessment of subjects. . Most actions of economic entities are influenced

by taxes. In order to obtain an unbiased valuation of business development, it is

essential for organizations, especially for those who operate internationally to

consider the impact of taxes. However, business decisions are often based on very

simplistic tax models. The implementation of these concepts in the finance curriculum

enables businessmen to assess the importance of taxes, especially in cross-border

investments. By reducing the complex reality to its fundamental components, this

approach helps businesses to focus on the essentials and to understand the idea behind

the complex research concepts.

Business decisions in all areas of responsibility have the common goal of maximizing

long-term wealth by cash flow enhancement. The business decision making involves

identifying and analyzing alternative courses of action, including after-tax cash flows.

Since the amount and timing of income tax can vary significantly between

alternatives, the impact of taxes should always be considered in the decision-making

process of all managers in business organizations. Management’s role is to be aware

of and apply known tax law, as opposed to interpreting tax law which is the function

of independent advisors. The effect of taxes on business development and decision is

one of the central questions in both public finance and development. This effect

matters not only for the evaluation and design of tax policy, but also for thinking

6
about economic growth. In my report i tried to simplify things & tried to understand

every aspect of corporate tax effects on business decision.

CONTENT

S No. Topics Page No.

1 Certificate(s) 2-3

2 Acknowledgement 4

3 Executive summary 5

5 Chapter-1 Introduction 8-18

6 Chapter-2 Research Methodology 19-22

7 Chapter-3 Data presentation & Analysis 23-35

8 Chapter-4 Summary and Conclusions 36-38

9 BIBILOGRAPHY 39

7
 LIST OF TABLES

S No Title Page No.

1 Classification of small Industries 18

2 Tax on Domestic Companies 28

3 Tax on Foreign Companies 28

LIST OF GRAPHS
S No Title Page No.

1 Effect of Taxes on Various groups 24

2 Increase in FDI because of Made in India initiative 30

3 GDP & GVA after make in India initiative 31

4 Different sectors and their contribution for tax 35

8
 Chapter1

INTRODUCTION

1.1 OVERVIEW OF THE COMPANY

Rakesh vipin & Associates is a indian chartered accountant firm based in Azadpur

Delhi. They provide all sort of chartered accountant services related to accounting,

auditing, income tax, financial services, company law matters, foreign collaborations,

import-export consultancy, GST Registration, GST Returns, STPI, Transfer Pricing

related matters etc. In order to meet the specific requirements of the clients, they

provide the best possible solution and consultancy for their respective matters.

With the active support they receive from competent team of professionals, they have

managed to provide the effective services to our various esteemed clients. Company is

a full services firm providing Accounting, Assurance and Consultancy as our core

business lines for domestic and global businesses of medium to large size. The firm

also has expertise and vast experience in providing end to end solutions for Company

Law Matters, IFRS Convergence, Transfer Pricing, Risk and Transaction Advisory.

COMPANY’S SERVICE

1. Audit Services

They provide a wide range of assurance and business services to a

diverse client base ranging from small businesses & start-ups to

substantial international groups and development sector.

9
 Rakesh Vipin & Associates has been empaneled on the United Nation’s

since 2008 for NEX/ NIM Audit and HACT assessment. Firm has

conducted Audit of more than 120 UN agencies since 2008.Conducted

audit assignments of more than 100 NGOs based in India.

2. Doing Business in India

They have vast experience in assisting international businesses in

setting up shop in India through in-depth assessment of legal entity

options for entry into India; hand-holding in establishing presence in

India and several other start-up services including identification and

regularizing applicable regulatory procedures and advising on the

bottlenecks creeping from strategic, governance & management issues;

on-going tax & regulatory compliances & Virtual CFO services.

3. Cross Border Transaction - Structuring & Taxation

They have extensive experience in developing optimal tax structures

for both inbound and outbound investments. The structuring of

inbound and outbound investments starts with an understanding of the

business expansion plans and objectives, and then a careful analysis of

the applicable tax rules and rates for the home country and foreign

jurisdictions.

10
1.2 OBJECTIVES OF THE STUDY

The following objectives were chosen to analyse and interpret:

1. To Examine Effect Of High Taxation On Business Decision In Today’s

Dynamic Economy-

The objective is to study & evaluation of the effect of tax differential on choice of

business form of investors. The study reveals that tax differential affect investors

decision on choice of Business form and that the existing differential reduces

government revenue potential.

2. To Assess The Benefit Of Business Decision On Different Investment

Opportunities Under Effective Tax Compliance.

Tax efficiency is essential to maximizing returns. Due to the complexities of both

investing and Indian tax laws, many Compnies don't understand how to manage

their Investment to minimize their tax burden. Investment opportunities is also one

of the main factor in which inidan companies lack. The more an investment relies

on investment income – rather than a change in its price – to generate a return, the

less tax-efficient it is to the investor.

11
 3. To Identify The Difference Between Tax Structure Of Domestic & Foreign
Companies.

Corporate tax in India is levied on both domestic as well as foreign companies.

Like all individuals earning income are supposed to pay a tax on their income,

business houses too are supposed to pay as tax a certain portion of their income

earned. Generally the domestic companies have less tax burden as compared to

foreign companies. One of the main reason is to boost to domestic market & make

them able to compete more easily compete in market.

4. To Examine The Various Exemptions On Business Income & Investments.

Various types of taxes are levied by government on different sevices and sectors.

But at same time to ease the business government also provide many exemptions

depending on various different factors. Sometimes unaware about these

exemptions can cost too much for the company.

5. To Find Effects Of Taxation On Different Business Decision.

Business decisions in all areas of responsibility have the common goal of

maximizing long-term wealth by cash flow enhancement. The business decision

making involves identifying and analyzing alternative courses of action, including

after-tax cash flows. Since the amount and timing of income tax can vary

significantly between alternatives, the impact of taxes should always be

considered in the decision-making process of all managers in business

organizations.

OVERVIEW OF THE INDUSTRY

12
Finance is a field that deals with the study of investments. It includes the dynamics of

assets and liabilities, (known as elements of the balance statement) over time under

conditions of different degrees of uncertainties and risks.

Finance can also be defined as the science of money management. Market

participants aim to price assets based on their risk level, fundamental value, and their

expected rate of return. Finance can be broken into three sub-categories: public

finance, corporate finance and personal finance.

A financial audit is conducted to provide an opinion whether "financial statements"

(the information being verified) are stated in accordance with specified criteria.

Normally, the criteria are international accounting standards, although auditors may

conduct audits of financial statements prepared using the cash basis or some other

basis of accounting appropriate for the organization.

In providing an opinion whether financial statements are fairly stated in

accordance with accounting standards, the auditor gathers evidence to determine

whether the statements contain material errors or other misstatements.

The audit opinion is intended to provide reasonable assurance, but not

absolute assurance, that the financial statements are presented fairly, in all material

respects, and/or give a true and fair view in accordance with the financial reporting

framework.

The purpose of an audit is to provide an objective independent

examination of the financial statements, which increases the value and credibility of

the financial statements produced by management, thus increase user confidence in

13
the financial statement, reduce investor risk and consequently reduce the cost of

capital of the preparer of the financial statements.

STATEMENT OF THE PROBLEM

The problems identified with taxation in business decision and development is a

situation where two businesses probably, making similar profit from similar turnover

that is also a result of equivalent level of investment, pays different amount as tax

simply because one comes under different sector & the other one comes under

different sector. A clear demonstration of inequality is depicted here especially in a

situation where there is no discrimination among forms of businesses.

Various means of avoiding taxes exists. What this perceivable inequality

could lead to is a form of tax avoidance in which case, investors who are conscious of

above facts may from the threshold (even with all the capabilities of floating a

Company) choose a partnership or sole trade, even if it is glaring that it is not

appropriate, because of tax advantage. A second possibility is the fact that existing

investors in an organization that has gained reasonable ground may deliberately

liquidate and raise partnership business to avoid high taxes.

The term investment can have more than one meaning In economics

it is the purchase of a physical asset such as a firm’s acquisition of a plant, equipment

or inventory or individual’s purchase of a new home. To the lay person, the word

denotes buying stock or bonds [or maybe even a house], but it probably does not

mean purchasing a plant, equipment, or inventory. Investopedia explains investment

as the purchase of an asset for the purpose of storing value [and hopefully increasing

that value in time], if in the aggregate there is only a transfer of ownership from one

14
seller to the other. Investment is a necessity for the development of a nation.

Investment, apart from assisting in producing needs for man’s survival, can also be

used as a tool for transmitting technical change and product innovation they

confirmed that it is equally important for policy makers in developing countries to be

able to assess how investment responds to changes in government policy, not only in

designing long – term strategies but also in implementing short term stabilization

programmes.

1. Investment Decision- Investment decision is a determination made by

directors or management as to how, when, where and how much capital will

be spent on investment opportunities. The decision often follows research to

determine costs and return for each option. Investment decision making is an

important part of strategic decision making in every enterprise because new

investment projects essentially, affect future economic results and the

enterprise’s prosperity. According to Economic times, investment decision or

capital budgeting, involves the decision of allocation of capital or commitment

of fund to long – term assets that would yield benefits in the future. Success of

company is determined by the profit on investment.

2. Tax & Investment Decision - The cost of capital is the required rate of return

that an investment project must earn, at least, for the project to break even and

to be accepted by the firm. The cost of capital depends upon two components:

the cost of finance for the project or economic depreciation. The tax system

may affect the cost of capital in several ways

15
  It may lower the rate of return of the project
 Change the cost of different forms of finance and change the cost of different

forms of investment.

In most countries, capital allowance, a type of tax incentive, is used in lieu of

depreciation [wear and tear due to economic usage of assets]. The company income

tax is applied on taxable returns. In investment, capital allowance is an allowable tax

deduction. For each return on investment the tax effect is:

Ti = ti [ri-ki] where

Ti = the incremental tax payment for each year

ti = the company income tax rate

ri =is the incremental returns on investment an

ki= the capital allowance

Automatically, the amount Ti has reduced the profitability of the project to the extent

of ti. If ti is substantial, investment may be discouraged because the net present value

[NPV] of the investment may be negative. The NPV is the discounted cash flow

during investment useful life. For an investment project to be worth carrying out, it

must be expected to earn a rate of return which is at least as high as the cost of capital.

The cost of capital is the cost of finance plus the cost of economic depreciation, i.e.

p+d–g; where( p is cost of finance and d – g is the rate of economic depreciation). The

expected gross rate of return, R will be viable if and only if R≥ p+d–g. The

significance of tax as a determining factor in investment decision may depend on

government financial economic policy. Government may want to use the CIT as a

policy tool, in order to encourage some firms and discouraged others. From the

16
ongoing discourse, it is clear that the mechanics of the tax system is the most

important.

The significance of corporation tax has equally been empirically validated concluding

that: “The policy implication is revealed in the evidence that corporation tax exert

significant and negative long term influence on Gross Fixed Capital Formation.

This shows that measures that seek to stimulate investment in India

would have to be accompanied by measures aimed at reducing corporation tax on

India to the degree that will trigger more private investments.” There is a large body

of literature investigating the effect of taxes on company investment and though most

of the results agree that taxes do influence investment decision the size and

permanence of these effects are still in dispute.

3. Corporate tax - Corporate tax in India is levied on both domestic as well as

foreign companies. Like all individuals earning income are supposed to pay a tax on

their income, business houses too are supposed to pay as tax a certain portion of their

income earned. This tax is known as corporate tax, corporation tax or company tax.

For the purpose of tax calculation, companies in India have been broadly

divided into the following two categories.

 Domestic Corporate:

Any company that is Indian is called as domestic company or if the company is

foreign but the control and management is wholly situated in India then also it is

termed as a domestic company. An Indian company means a company registered

under the Companies Act 2013. Tax is levied on following basis

17
 A flat rate of 25% corporate tax is levied on the income earned by a domestic

corporate.

 A surcharge of 12% is levied in case the turnover of a company is more than

Rs.1 Crore for a specific financial year.

 3% educational cess is levied.Corporate tax is also levied on the global

earnings of the domestic company. This takes into account income earned by

the company abroad.

 Foreign Corporate:

A foreign company means an enterprise that has operations and origin in any other

country except India. The taxation rules are not as simple for foreign enterprises as

for domestic businesses. Corporate tax on foreign companies depends a lot on the

taxation agreements made between India and other foreign countries. For example,

corporate tax on an Australian company in India will depend upon the taxation

agreement between the governments of India and Australia.

4. Small and Medium Scale Enterprises - The classification criteria of Small and

Medium Enterprises [SME] has been subjected to various sectors of the economy. At

international level, classification differs from one country to another. In India the

various parameter for differentiating small from medium enterprises according to

Economic times includes:

1 The number of employees

2 The volume of sales or turn over

3 The volume of deposits if it is bank

18
4 The amount of insurance cover if it is an insurance business and

5 The value of assets

Enterprises have been classified under the Micro, Small and Medium Enterprises

Development Act, 2006 broadly into

(i) Enterprises engaged in the manufacture production of goods pertaining to

any industry

(ii) Enterprises engaged in providing/rendering of services.

The manufacturing and service enterprises have been further classified into micro, small and

medium based on investment in plant and machinery and in equipments

respectively. Following table states the classification of enterprises:-

Table 1. Classification of Small Industries as per MSME Development Act,2006

Class/Category Manufaturing Services

Micro Entreprises Investment upto Rs.25 lakhs Investment upto Rs.10 lakhs

Small Entreprises Investment above Rs.25 lakhs Investment above Rs.10 lakh
and upto Rs.5 crore and upto Rs.2 crore

Medium Entreprises Investment above Rs.5 crore Investment above Rs.2 crore
and upto Rs.10 crore and upto Rs. 5 crore

Chapter 2

Research Methodology

19
2.1 Significance of the study

In this report, the significance of this study is to bring together the various ways and

facts as regards to subject matter, the effect of taxation in business development and

decision making.

1. It is believed that the outcome of this report work will be of interest to

businessmen and organizations.

2. The report work will provide them with vital information regarding challenges

facing business growth through heavy taxation. Businessmen and

organizations can utilize this study to make amendments or control a number

of lapses that may be affecting the business development and decision for

efficient productivity in country.

3. It will also highlight the benefits of business development and decision on

productivity to increase the economy status and create employment.

4. This report work will also serve as a vital material to those who may want to

carry out further research work in this regard.

2.2 Research design

20
Research design is overall operational pattern of framework of project that stipulates

what information needs to be collected and from which method and procedure.

Exploratory: This type of research is done when objective is not known and it helps

to providing insight and understandings to define a problem.In this project,

Exploratory research design has been used.

2.3 Sources of data collection

Two types of data collection which I used during my project to know the importance

of Taxation for financial statements and its effect on investment & different business

decision.

1) Primary Data:

Primary data means data that collected by different techniques like

questionnaire and interviews. In this project, primary data has been collected

by the means of observation and interview. I got chance to ask personally from

some owners of different small & medium scale company in our office only.

2) Secondary data:

Secondary data means data that are already available i.e. they refer to the data

which have already been collected and analyzed by someone else.

The secondary data involve in this project has been gathered from the

following sources:

a) Various audited financial statements and comments of auditors.

b) Published journals of auditing.

c) Internet

21
 d) Client’s ledger

e) Invoices & Challans

f) Agreeement & Contract papers.

2.4 Data analysis - tools/techniques

 MS Excel.

 Tally

2.5 Sampling design

 Sampling Techniques

 Non probability sampling

 Convenience sampling

 Probability sampling

2.6 Theoretical Description:

Business: - A business, also known as an enterprise or a firm, is an

organization involved in the trade of goods, services, or both to consumers.

Businesses are prevalent in capitalist economies, where most of them are

privately owned and provide goods and services to customers in exchange for

other goods, services, or money.

22
Development: - The act or process of developing, growth and progress.

Decision: - This can be regarded as the cognitive process resulting in the selection of

a belief or a course of action among several alternative possibilities. Every decision-

making process produces a final choice that may or may not prompt action.

Revenue: - Is income that a company receives from its normal business activities,

usually from the sale of goods and services to customers. In many countries and

states, revenue is referred to as turnover.

Tax: - Is a financial charge or other levy imposed upon a taxpayer (an individual or

legal entity) by a state or the functional equivalent of a state to fund various public

expenditures.

GST:- Goods and Services tax is introduced in india by Modi government . The GST

is paid by consumers, but it is remitted to the government by the businesses selling the

goods and services. In effect, GST provides revenue for the government.

International Tax:- International tax issues include all tax rules that are imposed by

a government regarding an international corporation that has a presence within that

country’s borders

23
 CHAPTER- 3

DATA PRESENTATION & ANALYSIS

How High Corporate Tax Affects the Company?

This report examined the effect of taxation in business development and decision

making. Taxation in business development and decision is one that established two

divides for assessment of subjects. One taxed alongside employment and the other as

a body corporate. Those taxed alongside employment pays less, these may influence

choice of forms, which may have avoidance connotation.

The study evaluates the effect of high tax differential on choice of

business form of investors. Segregation of personal income tax between employment

and business incomes is recommended. Because of desirability problem revealed in

the study, an equal business tax could not be recommended, rather the kind of

differential that currently exist under company income tax was recommended.

High taxes are very dangerous for the business. Following are the result of high taxes

affect company:

 Inadequate income: - Tax have direct effect on the income of business.High

tax result in low income as now business is left with less amount of income.
 High prices: - When tax is charged high , it will result in increase of per cost

of product/services. This will result in reduction of profit margin.

 Chronic Recession: - The high taxation takes so much away from the economy

that it enters a permanent form of recession. If government tries to boost the

economy with increased government spending, the result is stagflation

(simultaneous high inflation and unemployment) instead of prosperity. The

24
 only cure for stagflation is to cut both taxes and government spending. But

this takes time to happen, keeping the effects of over taxation in place for a

time after the over taxation ends.

Graph 1. Effects of High taxes on various groups

Do Company Consider The Effect Of Corporate Tax Before Making An Investment?

25
Taxes play an important role when companies decide where they should locate their

production and their investments. Business development and decision can be

considered one of the most important instruments taken by financial managers, for

effective business productivity if not the most important one.

The business decision making process influence the enterprise affirmation in

the business environment and increase its market share. It concerns with the issue of

capital allocation for fixed assets or financial assets; central place returns to fixed

assets, acquired as a result of capital investment.

By this decision, financial resources at its disposal are allocated efficiently

to the acquisition, construction, modernization of fixed assets and the accumulation of

material stocks, in the appropriate volume and adequate structure for its function at

the highest parameters. Also, the available liquidities may be placed respecting the

efficiency criteria on the capital market, to purchase financial assets.

Regardless of the selected variants, the business decision should be

subordinated to accomplish the performance objectives at long-term, established by

the general policy of the enterprise. Trying to retain and attract businesses in

multinational companies is something many countries aspire. What impact has the

corporate tax on foreign direct investment, FDI, and where the corporate profits are

reported. To illustrate the impact of taxes on business investment and location

decisions, we can use.

When the company has determined where to locate, the third stage is to determine

how much to invest. A fourth stage can be added to this, where the company

26
determines where generated profits are to be located, something multinational

companies have as an option to do through, for example, transfer pricing.

This framework can be used to understand what tax measures should be studied for

the different decisions. A company's decision to become multinational and where it

is to be located is based on maximising profit after tax. This means that primarily, it is

not the formal corporate tax that is decisive to the company's decision, but what the

company actually pays in tax after the options of various deductions and write-offs –

which are measured by the effective corporate tax rate. Tax research differentiates

between effective average and effective marginal tax rates. As the first two

investment decisions are discrete choices, the effective average tax rate is considered

to be of greatest significance. How much is invested when the business has chosen

its location, however, is a decision of margins, and it is therefore considered that the

effective marginal tax rate has a greater influence on this choice.

The decision on where profit is located can be expected to depend on differences in

formal corporate tax rates, as all options to use deductions are then considered to be

exhausted. How different taxes affect investments in various sectors. His study

showed that whilst the effective average corporate tax rate is of significance to the

manufacturing industry, it is the formal corporate tax rate that is key to the service

industry, the financial services sector and R&D-based industry. As the formal tax rate

is considered to play a greater role in respect of where profits are located, it can also

point to a stronger tendency to move income to low-tax countries within the relevant

sector. Figures from the OECD also point to tax bases within the different industries

as being more sensitive to corporate tax rates than other industries. Live Mint looked

27
 at differences between export-focused production and production for the recipient

country's own market, and found that the former is more sensitive to the recipient

country's tax levels.

How Is Tax On Domestic Company Differ From The Tax Applied On Foreign

Companies?

Any company that is Indian is called as domestic company or if the company is

foreign but the control and management is wholly situated in India then also it is

termed as a domestic company. An Indian company means a company registered

under the Companies Act 2013. Tax is levied on following basis

 A flat rate of 29% corporate tax is levied on the income earned upto 5 crore

by a domestic corporate.

 A surcharge of 12% is levied in case the turnover of a company is more than

Rs.1 Crore for a specific financial year.

 3% educational cess is levied. Corporate tax is also levied on the global

earnings of the domestic company. This takes into account income earned by

the company abroad.

28
 Table 2. Taxes on Domestic Company

Whereas in case of foreign company the taxation rules are not as simple for foreign

enterprises as for domestic businesses. Corporate tax on foreign companies depends

a lot on the taxation agreements made between India and other foreign countries.

For example, corporate tax on an US company in India will depend upon the taxation

agreement between the governments of India and United States.

29
 Table 3 .Taxes on Foreign Company

How Does Exemption On Tax Differ In Business?

The slab rates do not apply in the case of domestic companies, local authorities and

firms. A tax of flat 30% is computed on the total income. A surcharge of 7% is levied

on domestic companies if their total income exceeds ₹ 1 Crore. A surcharge of 12% is

levied on domestic companies if their total income exceeds ₹ 10 Crore. An education

cess of 3% of tax plus surcharge is also charged from such entities. The Income Tax

Department is responsible for activities related to the taxation process. At the end of

the financial year, every tax payer has to declare his business income to the Income

Tax Department in a form prescribed by the Govt. of India. It is mandatory for

individuals and entities earning income in India to file a return, irrespective of the tax

being deducted at source. This ITR (Income Tax Return Form) summarizes income

30
earned in a particular financial year. The income can be from business, salary,

pension, income from housing property, or even income from capital gains.

Under section 80C, the Income Tax deductions are allowed for the following:

 Tax Saving Mutual Fund

 Tax Saving Fixed Deposit
 National Savings Certificate
 Repayment of the principal on a loan
 Equity Oriented Mutual Funds
 Contributions made to Employee Provident Fund

In case of “Make in India” the entrepreneur has following benefits:-

 100% tax exemption for first 3 years

 Abolition of ‘Angel Investment Tax’
 Setting up of a ‘Fund of Funds’ for Startups
 Exemptions in Capital Gains Tax
 Lowering long-term capital gains for unlisted firms from three to two years.

Because of easy policy on start ups by Indian government resulted in increase of GDP

& FDI

31
 Graph2. Increase in FDI because of Made in India initiative

Graph3. GDP & GVA after make in India initiative

Effect Of Taxation On Different Business Decision?

32
Every individual and corporation within the India is taxed on income earned. Taxes

must be filed by corporate before September 30 & by individual before July 31 of

every year, and failure to file or pay taxes can subject you or your company to

penalties including fines, interest and even possible jail time. For most companies

and businesses, paying taxes is a necessary evil and the aim is to reduce the amount

of taxes owed as much as possible. Thus, the impact of tax on investment and

business decisions usually comes down to how to reduce taxes as much as possible

on income earned.

The taxes you pay on your investments can reduce the amount of money you

actually make from a given investment. For example, if you invest in a stock and

make 15 percent on your money, you may be taxed on those gains. If you are taxed

on the investment at 10 percent, then you really only made 13.5 percent on your

money. In reality, most people pay more than 10 percent on their gains. The rate a

person pays on an investment depends on whether the investment is taxed as

ordinary income or not. If the investment is taxed as ordinary income, the amount

you pay in taxes depends on your tax bracket. For example, you may be in the 10

percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent tax bracket.

Investments taxed as ordinary income include stocks you have held for less than one

year.

Certain other investments are taxed as capital gains taxes. The capital gains rate as of

2016 is 15 percent, but in 2017 the gains will revert to 15 percent, 28 percent, 31

percent, 36 percent, and 39.6 percent. If you buy a stock and hold that stock for at

least a year, then gains from the investment are taxed as capital gains. For real estate

33
investments, a whole different set of rules apply. If, for example, you have lived in the

home for two of the past five years before you sell it, you may be exempt from taxes

on the first 250,000 of taxes (500,000 if you are a married couple). If you didn't live in

the home and it was just a rental property, you may be able to sell the property and

use the proceeds to buy another, deferring taxes entirely using something .

The different tax rates can have an impact on how you choose to

invest. For example, you may decide not to hold a stock because you do not want to

be subject to capital gains taxes, or you may on the other hand opt to avoid day

trading to avoid income from your trades being taxed as ordinary income. You may

also prefer to consider real estate investments, if you want a more tax-free way of

earning income. Other individuals may also try to take advantage of tax deferred

investments or investments that offer certain tax advantages.

For example, you may opt to open an IRA, which allows you to invest tax

free, or a Roth IRA, which allows you to enjoy tax free gains, depending on whether

you believe your tax bracket is likely to rise or fall. The impact of taxes on your

investments generally depends on how much you have to invest and how

sophisticated an investor you are. You should consider speaking to a financial planner

or accountant or tax attorney, if you have a lot of money to invest and are concerned

about how taxes will affect your gains.

Tax can also impact business decisions in a number of ways. Since businesses can

deduct expenses of running a business, the company may wish to make a purchase

34
within a given year in order to get the tax benefit for that year. Businesses can also

take depreciation on certain property, so this can impact how and when new items

are purchased.

The biggest impact on taxes on business decisions, however, normally

focuses on how the business is structured. There are several major ways in which

businesses can be structured, each of which have different tax impacts. A sole

proprietor is taxed as an individual, and the individual normally files a personal tax

return that includes business profits and losses. For partnerships and limited liability

companies (LLCs) the individual members of the organization can also claim business

profits and losses on personal tax returns.

More complex business structures, however, have different tax structures.

S-corporations and C-corporations allow for different deductions and the business

generally files taxes separately and then pays a salary to the business owners

employees who declare profits on their personal tax returns. Incorporating a

business can thus dramatically change your tax picture. To make this decision, you

should speak with a tax professional who can help determine which business

structure is right for you.

For most investors and small business people, taxes play a role in how business and

investment decisions are made, but ultimately the most important thing is to

determine which investments or business decisions will have the best affect on your

personal or businesses value. As you gain more money and become a more

sophisticated investor, the impact of tax on investment and business decisions

becomes more important and getting help from a professional to reduce your tax

35
liability is usually advisable. The impact of tax on investment and business decisions

usually comes down to how to reduce taxes as much as possible on income earned.

Graph 4. Different sectors and their contribution for tax

36
 Chapter 4

SUMMARY & CONCLUSION

4.1 CONCLUSION

Tax can also impact business decisions in a number of ways. Since businesses can

deduct expenses of running a business, the company may wish to make a purchase

within a given year in order to get the tax benefit for that year. Businesses can also

take depreciation on certain property, so this can impact how and when new items

are purchased.

The biggest impact on taxes on business decisions, however, normally focuses on

how the business is structured. There are several major ways in which businesses can

be structured, each of which have different tax impacts. A sole proprietor is taxed as

an individual, and the individual normally files a personal tax return that includes

business profits and losses. For partnerships and limited liability companies (LLCs)

the individual members of the organization can also claim business profits and losses

on personal tax returns.

More complex business structures, however, have different tax structures. S-

corporations and C-corporations allow for different deductions and the business

37
generally files taxes separately and then pays a salary to the business owners

employees who declare profits on their personal tax returns. Incorporating a

business can thus dramatically change your tax picture. To make this decision, you

should speak with a tax professional who can help determine which business

structure is right for you.

4.2 LIMITATIONS

 Lack of resources for data collection.

 Difficulty in data analysis
 Improper representation of the target population
 Limited outcomes
 Requirement of extra resources to analyse the results

38
4.3 SUGGESTIONS

Corporate taxation is a key part of the taxation system that directly affects current and

future business decisions of the private sector. Corporate taxes impact capital and

labour costs and, hence, not just current production and hiring decisions, but also the

net present value of future production, which motivates corporate investment.

Corporate taxation policy has been used as an instrument to both

fine-tune investment and output fluctuations over the business cycle, and spur long-

term economic growth and national welfare. In the last few decades, the importance

of optimally designed, growth-friendly taxation policies has been further emphasised

by the enhanced international mobility of capital in search of a lower tax burden and

modest production costs to ensure competitiveness. Policy options, which reignite the

engine of economic growth in India, generating welfare and internal demand, offer the

only viable exit from the financial and debt crisis.

Taxes for start-ups and small companies should be low so that more and more people

are interested in investion & starting up new business. This will not only increase

number of business but also the money flow& economy will develop. Taxes play an

important role in decision making.

Study on Taxation effect can be done more deeply in cases of large firms , where

taxes are much more than they are applicable as compared to small scale plus the

39
multinational companies ,who need to work on the taxation rules of different

countries in which they are operating.

BIBILOGRAPHY

i www.moneycontrol.com
ii https://economictimes.indiatimes.com
iii https://www.cairn.info
iv https://www.livemint.com
v Scannella, E., 2012, Project Finance in the Energy Industry: New Debt-based

Financing Models. International Business Research,

vi Shiferaw, A. T., Klakegg, O. J., and Haavaldsen, T., 2012, Governance of

Public Investment Projects in India. Project Management Journal

vii Finnerty, J. D., 2007, Project Financing - Asset-Based Financial engineering

(second edition), John Wiley & Sons, Hoboken.

viii Taxation Laws Simplified By Tarun Bansal
ix From Wikipedia, the free encyclopaedia

40