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Corporate Tax Planning & Management Assignment 1 submitted by R.V. Raveendhar M.

com (Business Finance) II year


1. Explain the following terms Tax Planning, Tax Avoidance, Tax Evasion & Tax Management. a) Tax Planning: Tax planning can be defined as an arrangement of ones financial and economics affairs by taking complete legitimate benefit of all deductions, exemptions, allowances and rebates so that tax liability reduces to minimum. b) Tax Avoidance: The line of demarcation between tax planning and tax avoidance is very thin and blurred. The English courts about eight decades ago recognized the rights of a tax payer to resort to the legal method of tax avoidance. It is well settled that it is unconstitutional for the government to attempt tax collection without the authority of law of legal basis. Similarly, a taxpayer cannot escape tax payment outside the legal framework, as he renders himself liable for prosecution as a tax evader. c) Tax Evasion: All methods by which tax liability is illegally avoided are termed as tax evasion. An assesses guilty of tax evasion may be punished under the relevant laws. Tax evasion may involve stating an untrue statement knowingly, submitting misleading documents, suppressions of facts, not maintaining proper accounts of income earned, omission of materials facts on assessment. all such procedures and methods are required by the statue to be abided with but the assesses who dishonestly claims the benefits under the statue before complying with the said abidance by making false statement, would be within the ambit of tax evasion. d) Tax Management: Tax management involves the procedures of compliances with the statutory provisions of laws. This is called as tax management.

Example for Tax Planning, Tax Evasion, Tax Management & Tax Avoidance Tax understand the meaning of tax planning, tax evasion, one can go through the following cases-

CASE 1:
X is an individual for the assessment year 2009-10, his gross total income is Rs. 12,40,000. Tax on Rs. 12,40,000 is Rs. 3,13.840. to reduce his tax liability, he deposits Rs. 70,000 in public provident fund account. consequently, his taxable income and tax liability thereof will be reduced to Rs. 11,70,000 and Rs. 2,90,050 respectively. As the tax liability has been reduced within the legal framework, it is tax planning.

CASE 2:
Suppose in Case 2, the process of manufacturing actually takes place in Haryana. To get the benefit of deduction under section 80-IB, the company takes a factory building on rent in a village in Jammu and only on paper it is shown that the new manufacturing unit is situated in a village near Jammu. As the company wants to reduce the tax liability by making incorrect statement about the location of manufacturing process, it is tax evasion.

CASE 3:
If a sum of money is gifted by a husband to his wife, income generated there from is taxable in the hands of husband under the clubbing provisions of section 64(1).Section 64(1) is not applicable if gift is made by the same person out of the funds of his Hindu undivided family in capacity as karta of the family. If gift is made by karta of the family to his wife, clubbing provisions can be avoided and ultimate tax liability will be reduced. However, the tax liability will be reduced by taking the help of a loophole in the law but within the legal frame work. It is tax avoidance. It is tax avoidance. It is tax avoidance. It is tax avoidance. It is tax avoidance. It is tax avoidance.

2. Difference between Tax Avoidance & Tax Evasion?

TAX AVOIDANCE

TAX EVASION

1. Any planning of tax which aims at 1. All methods by which tax liability is reducing pr negating tax liability in legally illegally avoided is termed as tax evasion. recognized permissible ways can be termed as an instance of tax avoidance. 2. Tax avoidance takes into account the 2. Tax evasion is an attempt to evade tax loopholes of law. liability with the help of unfair means/methods. 3. Tax avoidances is tax hedging within the 3. Tax evasion is tax omissions. framework of law. 4. Tax avoidance has legal sanction. 4. Tax evasion is unlawful and assesses guilty of tax evasion may be punished under relevant laws.

5. tax avoidances is intention tax planning 5. tax evasion is intentional attempt to avoid before the actual tax liability arises payment of tax after the liability to tax has arisen.

3. What is Tax Management? How is different from Tax Planning? Tax management involves the procedures of compliance with the statutory provisions of tax law. The following are the broad areas of distinction between tax planning and tax management.

TAX PLANNING

TAX MANAGEMENT

1. The objective of tax planning is to reduce tax 1. The objective of tax management is to liability to the minimum. comply with the provisions of law. 2. Tax planning in futuristic in its approach. 2. tax management relates to past (assessment proceedings, rectification, revision, appeals etc,) present (filing of return of income on time on the basis of updated records) a futures (corrective actions)

3. Tax planning is very wide in its coverage and 3. tax management has a limited scope, i.e., it include tax management. deals with specific activities such as filing of returns of income on time, drafting appeals, deduction of tax source on time, updating records from time to time, etc. 4. the benefits arising from tax planning are 4. As a result of effective tax management substantial particularly in the long run. penalty, penal interest, prosecution etc, can be avoided.