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Tax planning,evasion and avoidance

basic concepts in tax planning

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Tax planning,evasion and avoidance

  1. 1. Tax planning, avoidance, evasion and tax management Priyanka Naik CO-34-2013
  3. 3. TAX PLANNING • 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 • Features:  Comprises arrangements by which tax laws are fully complied  No intention to deceit the legal spirit behind the tax law  All legal obligations and transactions are met  The gross total income of XYZ ltd. for the A.Y. 2014-2015 is Rs. 20,00,000. the tax liability will be Rs. 6,60,000. to reduce its tax liability the company avails total deduction of Rs. 3,50,000 u/s 30,31 and 32. consequently its tax liability is Rs. 5,44,500
  4. 4. TAX MANAGEMENT Tax management refers to the compliance with the statutory provisions of law. It includes maintenance of accounts, filling of return, payment of taxes, deduction of tax at source, timely payment of advance tax, etc. While tax planning is optional, tax management is mandatory. Poor tax management may lead to levy of interest, penalty, prosecution, etc. In some cases it may lead to heavy financial loss if proper compliance is not made, e.g. if a loss return is not filed in time it will result in a financial loss because such loss will not be allowed to be carried forward
  5. 5. TAX PLANNING V/S TAX MANAGEMENT The objective is to reduce tax liability to minimum The objective is to comply with the provisions of law It is futuristic in its approach Relates to the past It is wide in its coverage and includes tax management It has a limited scope The benefits arising are substantial in the long run As a result of effective tax management penalty, penal interest, prosecution, etc. can be avoided
  6. 6. TAX AVOIDANCE • Is reducing tax liability in legally permissible ways and has legal sanction • This is generally accomplished by claiming the permissible deductions • Features:  Legitimate arrangement of affairs in such a way so as to minimize tax liability  Avoidance of tax is not tax evasion  There is no element of mala fide motive in tax avoidance • A company in Haryana wants to start a new unit in the existing premises. But if it does so than it is not eligible for deduction u/s 80IB. So it decides to start the unit in Arunachal Pradesh. Now the company gets the benefit of deduction u/s 80IB.
  7. 7. TAX EVASION • All methods by which tax liability is illegally avoided is tax evasion • Involves:  Stating an untrue statement knowingly  Submitting misleading documents  Suppression of facts  Not maintaining proper accounts of income earned  Omission of material facts • An assessee guilty of tax evasion may be punished
  8. 8. • The company starts the new unit in its own premises but to claim deduction u/s 80IB it takes a factory building on rent in a village in Arunachal Pradesh and only on paper it is shown that the new unit is situated in a village.
  9. 9. TAX AVOIDANCE V/S TAX EVASION Is reducing tax liability in legally permissible ways and has legal sanction All methods by which tax liability is illegally avoided are tax evasion Takes into account all legal provisions It is an attempt to evade tax liability by unfair means It is tax hedging within the framework of law Tax evasion is tax omission It has legal sanction It is unlawful and the assessee may be punished It is intentional tax planning before the actual tax liability arises It is an intentional attempt to avoid tax payment after the tax liability has arisen
  10. 10. Thank You