INSTITUTE –University School of

Business
DEPARTMENT -Management
M.B.A
TAXATION-BAT 738
Faculty Name : Dr. Shalini Aggarwal
(Associate Professor)

DISCOVER . LEARN . EMPOWER

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 Course Outcome

CO Title Level
Number
CO1 To make the students know how the tax planning is Remember
done.

CO2 To know the tax planning with respect to various Understand

management decisions.

CO3 To make the students understand the various aspects Understand

relating to taxation to be considered before starting any
business.
CO4 To help the student understand Tax planning decisions Understand
regarding capital structure, dividend policy

CO5 To help the student understand financial management Understand

decisions regarding capital structure, dividend policy
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 Course Objective

• To make the students know how the tax planning is done. To know the tax planning
with respect to various management decisions.
• To make the students understand the various aspects relating to taxation to be
considered before starting any business.
• To help the student understand Tax planning and financial management
decisions regarding capital structure, dividend policy
 A “TAX” IS A “FINE” FOR DOING WELL

A “FINE” IS A “TAX” FOR DOING “WRONG”.

Common Practices To Save Tax

• Taxpayers generally plan their affairs so as to attract the least incidence of tax.

• Three common practice to save taxes

– Tax Planning
– Tax Avoidance
– Tax Evasion
 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
Tax Planning

• It is not avoidance to payment of tax.

• It should not be done with an intent to defraud the revenue.
• Tax planning works within the framework of law and its not illegal.
Tax Avoidance

• Tax avoidance is minimizing the incidence of tax by adjusting the affairs in such a
manner that although it is within the four corners of the taxation laws but the
advantage is taken by finding out loopholes in the laws.

• The shortest definition of tax avoidance is that it is the art of dodging tax without
breaking the law.

• Components of tax are made to appear natural and legal requirements are compiled
with artificially.
Tax Avoidance

• In the case of tax avoidance, the tax payer apparently circumvents the law, without
giving rise to a criminal offence, by the use of a scheme, arrangement or device, often
of a complex nature but where the main purpose is to defer, reduce or completely
avoid the tax payable under the law.

• Tax Avoidance involves:

• Use of colorable devices
• Defeating genuine spirit of law
• Misrepresentation and manipulation of facts
Tax Avoidance

[McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 (Supreme Court)]

Colorable devices cannot be part of tax planning and it is wrong to encourage or

entertain the belief that it is honorable to avoid payment of tax by resorting to
dubious methods.
Tax Evasion

• All methods by which tax liability is illegally avoided are termed as tax evasion. Tax
evasion may involve:
• Concealment of income;
• Inflation of expenses to suppress income;
• Falsification of accounts;
• Conscious violation of rules.

• These devices are unethical and have to be condemned. The courts also do not favor
such unethical means. Evasion, once proved, not only attracts heavy penalties but may
also lead to prosecution.
Reasons of Tax Evasion

1. High tax rates.

2. Complicated tax laws and filing mechanism.
3. Weak surveillance system.
4. Inflation and unstable economy.
5. Non existence of effective judiciary.
6. Lack of transparency in government spending.
7. Uncontrollable corruption at different levels.
 Tax Management

• Tax management is a part of Tax Planning.

• Tax management refers to the compliance with the statutory provisions of law.
• While tax planning is optional, tax management is mandatory. It includes maintenance
of accounts, filling of return, payment of taxes, timely payment of advance tax, etc.
• 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.
Objectives of Tax Planning

1. Reduction of tax liability

2. Minimization of litigation
3. Healthy growth of economy
4. Economic stability
Types of Tax Planning

Short Term Tax Planning

Long Term Tax Planning

Permissive Tax Planning

Purposive Tax Planning

Types of Tax Planning

Short Term Tax Planning

Short term planning refers to year to year planning to achieve some specific or
limited objective. In such type of planning there will be no permanent commitment.

Long Term Tax Planning

Long Term Tax Planning involves entering into activities, which may not pay off
immediately.
Types of Tax Planning

Permissive Tax Planning

Permissive Tax Planning is a planning of tax under the express provisions of tax laws.
Indian tax laws offer many exemptions, rebates, deductions and incentives.

Purposive Tax Planning

It means making plans with specific purpose to ensure the availability of maximum
benefits to the assessee.
 Importance of Tax Planning

1. Assessee can avail benefit of relief, deductions, rebates.

2. Tax Planning is more reliable as it narrow down the scope for tax avoidance and tax
evasion.
3. It enables companies to make proper expense planning, capital budgeting planning,
sales promotion planning.
4. Increase in disposable income.
5. Avoidance of litigation.
6. Shield against high taxation.
Limitations of Tax Planning

1. Limited scope.
2. Dynamic laws.
3. Preconditions.
4. Complicated laws.
5. Thorough knowledge required.
6. Time Consuming.
 EVERY PERSON IS CHARGEABLE TO TAX
ON THE TOTAL INCOME EARNED IN THE PREVIOUS YEAR
AT RATES APPLICABLE TO THE ASSESSEE
 AREAS OF TAX PLANNING IN CONTEXT OF INCOME TAX
ACT, 1961

 At the time of setting up of new business entity:

i. Form of organization/ownership pattern;
ii. Location aspects;
iii. Nature of business.
 AREAS OF TAX PLANNING IN CONTEXT OF
INCOME TAX ACT, 1961
For the business entities already in existence:
i. Tax planning in respect of corporate restricting;
ii. Tax planning in respect of financial management;
iii. Tax planning in respect of employees remunerations;
iv. Tax planning in respect of specific managerial decisions;
v. Tax planning in respect of Foreign Collaborations and Joint Venture Agreements;
vi. Tax planning in the light of various Double Taxation Avoidance Agreements.
 Tax planning for Capital structure

• The Cost raising owner’s fund is treated as capital expenditure therefore not allowed as
deduction. However if conditions of Sec. 35D is satisfied then specified expenditures can
be amortized.
• The Cost of raising dent fund is treaded as revenue expenditure. It can be claimed as
deduction in computing the total income.
• Where the assesses is entitled to incentives u/s 10A etc. maximum equity fund should
be utilized.
• Where interest on debt fund is payable outside India, tax should be deducted at source
otherwise deduction is not allowed.
 Tax Management With Reference To Capital Structure

• Interest on debt fund is allowed as deduction as it is a business expenditure. Therefore, it may

increase the rate of return on owner’s equity.
• Dividend on equity fund is not allowed as deduction as it is the appropriate of profit. Dividend is
exempt in the hands of shareholders u/s 10(34) . However, the company declaring the dividend
shall pay dividend distribution tax @ 12.5% + surcharges + education cess.
 Dividend

• Dividend is like a bonus or reward a company or fund house doles out to its shareholders
or investors. It can be given in the form of liquid cash or benefits or even stocks.

•
 Tax implication

• Equity
• Mutual funds
• Debt funds
• company
 Tax implication for dividend
ELSS Equity Funds Debt Funds Company
Claim up to Rs. 1.5 lakh as Section 10(35) exempts Section 10(35) allows Section 10(34) exempts tax
deduction as allowed under dividend income from SEBI- exemption of dividend income on dividend to individual/HUF
Section 80C approved schemes from SEBI-approved by Indian companies
schemes
Dividend gained and Subject to DDT (Dividend The AMC must pay Dividend Section 115BBDA levies 10%
reinvested in ELSS is exempt Distribution Tax) paid by the Distribution Tax to the tax on dividend income from
from taxation under 80C fund house government before companies that exceeds Rs.
distributing dividends to 10 lakhs
investors
Dividend given, but not 10% LTCG if the capital gains Taxes to be imposed as per Section 115BBD makes
reinvested, is not eligible for exceed Rs.1 lakh in a the tax slab rate dividend income from
80C deduction financial year overseas companies as fully
taxable under “Income from
other sources” as per
individual tax slab rate
3 year lock-in period is Section 115-R imposes 10% Section 115-R mandates Section 115-O levies
applicable – from the time DDT on equity fund house 28.84% DDT on debt funds 17.304% DDT on domestic
you reinvest the dividend and liquid funds. This companies. This includes
includes surcharges and cess 12% surcharge and 3%
education cess
References

• https://cleartax.in/s/dividends
 IMPLICATIONS

Students will get the knowledge of Corporation tax, Tax Planning, Tax Evasion, Tax Avoidance,
Tax Management for the corporate houses working inside geographical boundaries of India
To help the student understand Tax planning and financial management decisions
regarding capital structure, dividend policy
 FAQ

• What do you mean by Tax Planning

• What do you mean by Tax Evasion
• What do you mean Tax Avoidance
• Difference between Tax planning, tax evasion and tax avoidance
• financial management decisions regarding capital structure, dividend policy
 COURSE OUTCOMES

• Students will apply critical thinking and problem-solving skills related to taxation of entities and
corporations (New and Old). In addition, students will recognize potential opportunities for tax
savings and tax planning which will be related to various management decisions. Students will
demonstrate understanding of and apply consistently the ethical principles and professional
standards related to the profession, including the standards in taking a tax position.
• To help the student understand Tax planning and financial management decisions
regarding capital structure, dividend policy
 References

• http://www.charteredclub.com/tax-planning-evasion-avoidance/
• http://www.academia.edu/9487453/TAX_AVOIDANCE_TAX_EVASION_AND_TAX_PLANNING
• http://taxguru.in/income-tax/tax-planning-tax-evasion.html
 Applications

• To make the students know how the tax planning is done.

• To know the tax planning with respect to various management decisions.
• To make the students understand the various aspects relating to taxation to be considered
before starting any business.
• To help the student understand Tax planning and financial management decisions regarding
capital structure, dividend policy

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 References

• Ahuja, H.L. Macroeconomics, Theory and Policy, S. Chand & Co., New Delhi.
• Chopra, P.N. (2010). Managerial Economics, Kalyani Publishers, New Delhi.
• Karl E. Case / Ray Fair, Principles of Economics Ninth Edition.
• D.M Mithani (2015) ,Managerial Economics
• Keat Paul and Philips Young (2015), Managerial Economics
• http://www.economicsdiscussion.net/demand-forecasting/demand-forecasting-concept-
significance-objectives-and-factors/3557
• https://sites.google.com/site/economicsbasics/demand-forecasting
• International Journal Of economics

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Assessment Pattern

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THANK YOU

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