Basic Concepts

Group 2: Ankit Shah (114105) Dhwani Shah (114213) Krushang Shah (114227) Piyush Kumar (114239) Rima Shah (114244)

TAX PLANNING

Tax Planning
Tax planning can be defined as an arrangement of ones financial and economic affairs by taking complete legitimate benefits of all deductions, exemptions allowance and rebates so that tax liability reduces to minimum.

Tax planning Features

It comprises arrangements by which tax laws are fully compiled. All legal obligations & transactions (both individual & as a whole) are met. Transactions do not take form of colorable devices (i.e. those devices where statue is followed in strict word but spirit is marred colorable devices). There is no intention to deceit the legal spirit behind the law.

TAX MANAGEMENT

Tax Management
The objective of tax management is to comply with the provisions of law. Tax management relates to past, present, future. Tax management has a limited scope. As a result of effective tax management, penalty, penal interest, prosecution, etc can be avoided.

TAX AVOIDANCE

Features of Tax Avoidance

Legitimate arrangement of affairs so as to minimize tax liability Different from tax Evasion and no public disgrace carried with it No element of malafied motive involved

There is nothing sinister in so arranging ones affairs so as to keep taxes as low as possible. It is not bad morality for anybody. It can be done within legal framework even by taking help of loopholes in the Law.

Tax Avoidance
Tax avoidance is the means to reduce the tax liability by using the legal means. To make it simpler to understand, we can say that it is a methodology whereby one regulate the affairs in such a manner that individual or company pays the minimum tax imposed by the Act as opposed to the maximum. Example The example for tax avoidance can be seen in the light that a person forms a company and sell his products and pays 20% tax by virtue of claiming the depreciations and had the same person be selling the goods by himself without forming a company, he would have had been paying 30% as the income tax.

TAX EVASION

Tax Evasion
All methods by which tax liability is illegally avoided is termed as tax evasion. An assesse guilty of tax evasion may be punished under the relevant laws. It may involve stating an untrue statement knowingly, submitting misleading documents, suppression of facts, etc. All such procedures and methods are required by the statute to be abided with but the assesse who dishonestly claims the benefit under the statute before complying with the said abidance by making false statements, would be within the ambit of tax evasion. A person may plan his finance in such manner, strictly within the four corners of the taxing statute that his tax liability is minimized or made nil. If this is done and as observed strictly in accordance with and taking advantage of the provisions contained in the Act.

DIFFERENCE BETWEEN EXEMPTION, DEDUCTION & REBATES

Difference between Exemption, Deduction & Rebates

If an income is exempt from the tax, it is not included in the computation of income. Exemption can never exceed the amount of income. Deduction is generally given from income chargeable to tax. It can less than or equal to or more than the amount of income. If the amount deductible is more than the amount of income, the resulting mount is taken as loss. Rebate is one of many ways, which are used to promote sales of product. Actually, this is the amount paid by way of reduction, refund or return on what has already paid. Rebates are offered sometimes by manufacturers and sometimes by retailers

Difference between Exemption, Deduction & Rebates

Broadly speaking, exemptions and deductions both reduce taxable income, while rebate reduces tax. Tax exemptions and tax deductions both reduce taxable income. Exemption doesnt form part of your total income whereas deduction first forms part of your total income and later deducted from it. For instance, while PPF interest is exempt, NSC interest is taxable but deduction is allowed under section 80C. The most common example to illustrate the difference between deduction and rebate is the benefit of long term savings given to individuals. Up to AY 2005-06, rebate was allowed under section 88 which got replaced by deduction under section 80C by the Finance Act 2005.

DEMERGER

Demerger
Demerger in relation to companies means, transfer, pursuant to a scheme of arrangement under section 391 to 394 of the Companies Act, 1956 by a demerged company of its one or more undertakings to the resulting company.

Features of Demerger
All the property of the undertaking, being transferred by the demerged company, becomes property of resulting company. All the liabilities relatable to the understandings being transferred by the demerged company becomes liability of resulting company. The property and liabilities of the undertaking company being transferred by the demerged company are transferred at values appearing in books of account immediately before demerger. The resulting company issues shares to the shareholder of the demerged company on a proportionate basis as a consideration of demerger. The shareholders holding not less than 3/4th in value of shares in the demerged company becomes shareholder of the resulting company. The transfer of the undertaking is on a going concerns basis. The demerger is in accordance to conditions, if any, notified under Section 72(A)5.

TAX CONCEPT OF INCOME

Concept of Income
Income is a periodical monetary return with some sort of regularity. It may be recurring in nature. It may be broadly defined as the true increase in the amount of wealth which comes to a person during a fix period of time. Principles which clarify the concept of Income Regular and definite source Different forms of Income Receipt and Accrual Illegal Income Diversion of Income by over riding title Tax Free Income Same Income cannot be tax twice Award received by a sportsman Revenue receipt and capital receipt

TOTAL INCOME

Total income
Total income of an assesse is gross total income as reduced by the amount permissible as deduction under section 80C and 80U.

GROSS TOTAL INCOME

Gross total income

As per section 14, income of a person is computed under the following five heads Salaries Income from House Property Profits and gains of business and profession Capital gains Income from other sources The aggregate income under these given five heads is termed as Gross Total Income. In other words it is total income computed in accordance with the provisions of the act before making any deduction under section 80C to 80U.

AGRICULTURAL INCOME

Agricultural Income
Section 10(1) exempts agricultural income from income tax. By virtue of section 2(1A) the expression agricultural income means : Any rent or revenue derived from land which is situated in India and is used for agricultural purpose. Any income derived from such land by agricultural operations including processing of the agricultural produce, raised or received as rent in kind so as to render it fit for the market or sale of such produce. Income attributes to a farm house subject to certain conditions. With effect from the assessment year 2009-10, any income derived from saplings or seeding grown in a nursery shall be deemed to be agricultural income.