BS-307: TAX PLANNING AND MANAGEMENT Objectives : The objective is to provide the student the knowledge about Income Tax Planning and Management. Course Contents: Introduction: Law relating to Income Tax, Principles Underlying certain Concepts as regards to Determination of Taxable Income, Concept and Definition of Income, Receipts which are not Income, Exemption from charge of Income Tax, Capital and revenue Gains and Expenditures. Provisions of Income Tax: Provision of Income tax Law relating to Various heads of Income with Special Emphasis on Profits and gains from Business and Profession, Capital gains, Income from other sources, Deductions, Techniques of calcu lation of Income Tax. Tax Planning: concept of Tax Planning, Tax planning with reference to setting up of new Business locational aspects, nature of business, planning for tax holiday benefits. tax planning with Reference to Specific Management Decisions, Tax planning with reference to Financial management Decisions, Tax planning and Cash Management. Problems of Tax Planning : Administrative, Legislative and Organizational Organizat ional Problems. Suggested Readings: 1. Bhagwati Prasad: Direct Taxes 2. Dr. V. K. Singhania: Students St udents Guide to Direct Taxes 3. Income Tax Law - Taxmans Publication 4. Bare Act
Ch.1 BASIC CONCEPTS Financial Year : The year starting from April 1 and ending on March 31 of the next year is known as a financial year. Assessment Year: AY is a financial year in which the income earned during the previous year is taxed. Previous Year (sec 3): The year in which the in come is earned is called the previous year. E.g.:1. Income earned by XYZ Ltd in the year 2007-2008 will be taxed in the year 2008-2009.
The same would be taxable irrespective of the accounting year followed by the assessee. In the aforesaid the year 2007-08 is the previous year and the year 2008-09 is the assessment year. 2. The income of X comprises of only property income till March 10, 2006. On March 10, 2006 he starts a new business of computer hardware. From the date given below, find out the taxable income of X or the assessment years 2005-06 to 2007-08. Property income: Rs. 42,000/- every year. Business income: Rs 10,000/- for the period ending 31 March 2006 and Rs.56000/-for the period ending 31 march 2007. What would be the taxable income of X for the AY 05-06, 06-07, 07-08? Income earned during the previous year is taxed during the assessment year. Therefore a year is an assessment year and previous year simultaneously. However in certain cases the income is taxed in the year in whi ch it is earned. The exceptions to the rule are as under: 1. Income of non-resident from shipping. (sec172) 2. Income of persons leaving India either permanently or for long period of time (sec174) 3.Income of bodies formed for short d uration. (sec174A) 4.Income of persons trying to alienate his assets with view to avoiding payment of his tax. (sec 175) 5. income of discontinued business.(sec176) ³Person ³sec 2(31): The term persons include: a) an individual b) a Hindu undivided family c) a company d) a firm e) an association of persons and a body of individuals whether incorporated or not f) a local authority g)Every artificial jurisdictional person not falling under any of the preceding category. The aforesaid is an inclusive list and the last category covers all those that do not fall in any of the preceding classification
Assessee [sec2 (7)]: Assessee means a person by whom any tax or any other sum of money (i.e. penalty or interest is payable under the act. It includes:
1.Every person in respect of whom any proceeding under the act has been taken for the assessment of his income or loss or the amount of refund due to him. 2. any person who is deemed to be an assessee.(representative assessee) 3. anassessee in default ( advance ta x and TDS not deducted) Overview of tax on income: Income Tax is an annual Tax charged at the tax rates applicable for the assessment year, which are fixed by the annual finance act. Basic concept of Income: 1. Regular and definite source 2. Different form of income (cash/kind) 3. Receipt v/s accrual 4. Illegal income 5. Disputed title 6. Relief or reimbursement of expense is not income 7. Diversion of income by over riding title v/s application of income 8.Surplus from mutual activity not an income. 9. Temporary or permanent income 10. tax free income 11.Receipt on account of dhrmada, gaushalaetc is n ot an income. 12. devaluation of currency 13.Income includes loss. 14.Appropriation of payment between capital and interest. 15. same income cannot be taxed twi ce 16. income should be real and not fictional 17. charge on person 18. Award receipt by sports man 19. revenue receipts v/s capital re ceipts 20. voluntary payment 21. prize of winning Extended meaning of income sec 2(24): 1. profits and gains 2. Dividend: dividend declared by domestic company is taxable in the hands of company
and not shareholders 3. Voluntary contribution received by trust. 4. Perquisites in the hands of employee 5. Any special allowance and benefits 6.City compensatory allowance 7.Benefits or perquisites of director 8.Benefit or perquisites to a representative assessee 9. Any sum chargeable u/s 28, 41 and 59 10. Capital gains 11. Insurance profit 12. banking income of a cooperative society 13. winning from lottery 14. employees contribution towards provided fund
15.amt received under keyman insurance policy 16. amount exceeding 50,000 by way of gift
Gross total income As per section 14, the income is computed under five heads : Rounding off total Income: The total income is to be rounded off to the nearest multiple of ten rupees.
