Corporate Tax Planning-Unit-1.pptx

CORPORATE TAX PLANNING
MBAT-313
(UNIT-1)
PREPARED
BY
ANIL KUMAR NIGAM
DATE: 19/09/2022

1) Basic Concepts
CONCEPT OF TAX PLANNING
• Tax planning can be defined as an arrangement of
one’s financial and business affairs by taking
legitimately in full benefit of all deductions,
exemptions, allowances and rebates so that tax
liability reduces to minimum.
• Example
• A deposits 45,000 in PPF account so as to reduce his
tax payable. This is an example of legitimate tax
planning through which tax is reduced.

1) Basic Concepts
• Tax evasion
• Tax evasion means avoiding tax by illegal means.
Generally, it involves suppression of facts, falsifying
records, fraud or collusion. It is an attempt to evade
tax liability with the help of unfair means. Tax
evasion is illegal and would result in punishment by
way of penalty, fines and sometimes prosecution

1)Basic Concepts
• Tax Avoidance
• Tax avoidance means taking undue advantage of
the loopholes, lacunae or drafting mistakes for
reducing tax liability and thus avoiding payment
of tax which is lawfully payable. Generally, it is
done by twisting or interpreting the provisions of
law and avoiding payment of tax. Tax avoidance
takes into account the loopholes of law. Example:
Sale and leaseback of assets, so that the
depreciation is diverted but the asset remains
with assesse

1)Basic Concepts
Tax Planning
• Tax planning means reducing tax liability by
taking advantage of the legitimate
concessions and exemptions provided in the
tax law. It involves the process of arranging
business operations in such a way that
reduces tax liability. Example:
• Investment in 80C, 80CCD, or reinvestment u/s
54, 54EC etc.

1) Basic Concepts
Tax Management
• Tax management involves the compliance of law regularly
and timely as well as the arrangement of the affairs of the
business in such a manner that it reduces the tax liability.
Functions under tax management includes maintenance of
accounts, filing of return, deduction and deposit of TDS on
timely basis, payment of tax on time. Poor tax management
can lead to imposition of interest, penalty, prosecution.
Losses may not be carried forward and set off if return of
loss is not filed by due date. Tax management emphasizes
on compliance of legal formalities for minimization of taxes
while tax planning emphasis on minimization of tax burden

1) Basic Concepts
TAX AVOIDANCE V/S TAX EVASION
Aspect Tax Evasion Tax Avoidance Tax Planning
Meaning Method of evading or
reducing tax liability by
dishonest means
Methods of tax evasion
include –
*Concealing of Income;
*Overstating Expenses;
*Manipulating accounts;
*Violating Rules.
Method to reduce or
minimize tax liability by
exploiting or taking
advantages of a loop holes in
the law. It does not give rise
toany critical offence.
It is the arrangement of
financial activities to
minimize the tax incidence by
making use of all beneficial
provisions of the Income Tax
Law.
Objective
To reduce tax bill by any
means whether legalor illegal
To reduce tax bill following
script but not moral of law
To reduce tax bill following
script & moral of law
Effect Result of illegality,
supper-sion,
misrepresentation and
fraud.
Result of actions none of
which is illegal or forbidden
either singly
or in any combination.
Result of availing the benefits
under various beneficial
provisions of Law.
Legality Illegal Technically Legal Legal
Permissibility Not Permissible Decided on the basis of –
a) Facts and
circumstances of each
Legally permissible under all
circumstances.

1) Basic Concepts
TAX AVOIDANCE V/S TAX EVASION
Aspect Tax Evasion Tax Avoidance Tax Planning
Violation ofLaw. Involves violation of law. No violation of laws. Loop
holes in law are taken
advantage of by
circumventing certain
provisions.
No violation or circumvention
of the provisions of tax laws.
Penalties Heavy penalty including
prosecution.
Does not invite any
penalty
No Penalties.
Benefit No benefit arises but Benefit arises in short Benefit arises in short run as
causes penalty and
prosecution
run but not in long run well as in long run
Requirement It is forbidden It is to be avoided It is valid
Practice
It is a practice of tax concealment It is a practice of tax saving It is a practice of tax saving

1) Basic Concepts
OBJECTIVES OF TAX PLANNING
1 Reduction of tax liability:
One of the supreme objectives of tax planning is the reduction of the tax liability of the taxpayer and
the resultant saving of the earnings for a better enjoyment of the fruits of the hard labour. By proper
tax planning, a taxpayer can oblige the administrators of the taxation laws to keep their hands off
from his earnings.
2 Minimization of litigation: Where a proper tax planning is resorted to by the taxpayer in conformity
with the provisions of the taxation laws, the chances of unscrupulous litigation are certainly to be
minimized and the tax-payer may be saved from the hardships and inconveniences caused by the
unnecessary litigations which more often than not even knock the doors of the supreme judiciary.
3 Productive investment: The planning is a measure of awareness of the taxpayer to the intricacies of the
taxation laws and it is the economic consciousness of the income-earner to find out the ways and
means of productive investment of the earnings which would go a long way to minimize his tax burden.
The taxation laws offer large avenues for the productive investment of the earnings granting absolute or
substantial relief from taxation. A taxpayer has to be constantly aware of such legal avenues as are
designed to open floodgates of his well-being, prosperity and happiness. When earnings are invested in
the avenues recognized by law, they are not only relieved of the brunt of taxation but they also
converted into means of further earnings.

1) Basic Concepts
OBJECTIVES OF TAX PLANNING
4 Healthy growth of economy: The saving of earnings is the only basement upon which the
economic structure of human life is founded. A saving of earnings by legally sanctioned
devices is the prime factor for the healthy growth of the economy of a nation and its
people. An income saved and wealth accumulated in violation of law are the scours on the
economy of the people. Generation of black money darkens the horizons of national
economy and leads the nation to avoidable economic destruction. In the suffocating
atmosphere of black money, a nation sinks with its people. But tax planning is the
generator of a superbly white economy where the nation awakens in the atmosphere of
peace and prosperity, a phenomenonundreamt of otherwise.
5 Economic stability: Under tax planning, taxes legally due are paid without any headache
either to the taxpayer or to the tax collector. Avenues of productive investments are largely
availed of by the taxpayers. Productive investments increase contours of the national
economy embracing in itself the economic prosperity of not only the taxpayers but also of
those who earn the income not chargeable to tax. The planning thereby creates
economic stability of the nation and its people by even distribution of economic

1) Basic Concepts
Tax planning is important for reducing the tax liability. However, there are other
factors also, because of which tax planning is considered as very important:
• 1 Timing is crucial for claiming deductions:
• Where an assessee has not claimed all the deductions and relief, before the
assessment is completed, he is not allowed to claim them at the time of appeal. It
was held in CIT v. Gurjargravures Ltd. (1972) 84 ITR 723 that if there is no tax
planning and there are lapses on the part of the assessee, the benefit would be the
least
• 2 Tax planning exercise is more reliable:
• Tax planning exercise is more reliable since the Companies Act, 2013 and other
allied laws narrow down the scope for tax evasion and tax avoidance techniques,
driving a taxpayer to a situation where he will be subjected to severe penal
consequences.
• 3 Incentives by Government to promote activities of public interest:
• Presently, companies are supposed to promote those activities and programmes,
which are of public interest and good for a civilized society. In order to encourage
these, the Government has provided them with incentives in the tax laws. Hence a
planner has to be well versed with the law concerning incentives
Importance of Tax Planning

1) Basic Concepts
• 4 Adequate time for tax planning:
With increase in profits, the quantum of corporate tax also increases and it necessitates the devotion of
adequate time on tax planning.
• 5 Enables to bear burden of taxes during inflation:
Tax planning enables a company to bear the burden of both direct and indirect taxation during inflation.
It enables companies to make proper expense planning, capital budget planning, sales promotion
planning etc.
• 6 Capital formation attracts huge deduction:
Capital formation helps in replacing the technologically obsolete and outdated plant and machinery and
enables the carrying on of manufacturing operation with a new and more sophisticated system. Any
decision of this kind would involve huge capital expenditure which is financed generally by ploughing
back the profits, utilization of reserves and surplus along with the availing of deductions are revenue
expenditure incurred for undertaking modernization, replacement, repairs and renewal of plant and
machinery etc. Availability of accumulated profits, reserves and surpluses and claiming such expenses as
revenue expenditure are possible through proper implementation of tax planning techniques.
• 7.Money saved is money earned:
In these days of credit squeeze and dear money conditions, even a rupee of tax decently saved may be
taken as an interest free loan from the Government which perhaps an assessee need not repay.
Importance of Tax Planning

1) Basic Concepts
• PRACTICAL QUESTIONS
• Illustration 1 Specify with brief reasons, whether the following acts can be
considered as (i) Tax Management, or
• (ii) Tax Planning, or (iii) Tax Evasion
PRACTICAL QUESTIONS
Question Reason Answer
(a) P deposits Rs. 50,000 in PPF Account so as
toreduce Total Income from Rs. 3,40,000
to Rs. 2,90,000
Tax Planning Reducing liability by use of
beneficial provisions of law
(b) PQR Industries Ltd installed an Air
Conditioner costingRs. 75,000 at the
Residence of a director as per terms of his
appointment, but treats it as fitted in Quality
Control Section in the factory. This is with
the objective to treat it as plant for
the purpose of computing
depreciation
Tax Evasion Reducing Tax Liabilty by
Dishonest Mean

1) Basic Concepts
considered as (i) Tax Management, or
• (ii) Tax Planning, or (iii) Tax Evasion
PRACTICAL QUESTIONS
Questio
n
Reason Answer
(c) SQL Ltd maintains a register of
Tax Deduction
Tax Management Objective to ensure comply
with Law
at Source effected by it to enable
timely
compliance.
R Ltd. issues a Credit Note for Rs. 40,000 for
brokerage payable to Suresh, who is son of
R, Managing Director of the Company. The
purpose of this is to increase him Income
from Rs. 1,40,000 to Rs. 1,80,000 and
reduce its Income
correspondingly.
Tax Evasion Making use of Loopholes in
the Provisions of Law

1)Basic Concepts
considered as (i) Tax Management, or (ii) Tax Planning, or (iii) Tax Evasion
PRACTICAL QUESTIONS
Questio
n
Reason Answer
(1) An Individual Taxpayer making Tax
Saver
Deposit of Rs. 1,00,000 in a Nationalized Bank
Tax Planning Reducing liability by use of
beneficial provisions of law.
(2)A Partnership Firm obtaining declaration
fromLenders / Depositors Form No. 15G/15H
and
forwarding the same to Income-Tax
Authorities.
Tax Management Objective is to insure complywith law
3) A company remitted Provident Fund Contribution
of Both its own Contribution and employees contribution
on monthly basis before due date
Tax Management Objective to ensure comply
with Law

1) Basic Concepts
• DIVERSION OF INCOME AND APPLICATION
PRACTICAL QUESTIONS
1 Diversion ofincome When income is diverted before is accrues to the assessee due to overriding
title then it is called diversion of income. It is not taxable in the heads ofassessee.
2 Applicationof
income
When income is applied after is accrues to the assessee due to overriding
title then it is called application of income. It is taxable in the hands ofassessee.
3 Example 1. An employee instructs to his employer to pay a certain portion of his salary to a charity and
claims it as exempts as it is diverted by overriding charge/title In the above case income is
not diverted because the instruction given by the employee to employer is not having
overriding title. Further here income is first accrued to assessee then applied. Hence it is
called application of income and taxable in hands of assessee.
2. A, B and C are co-authors. Entire royalty of Rs.900000was received by
A, Who in turn paid Rs.300000 each to B and C .Such a payments, is diversion of income.

1)Basic Concepts
• ESSENTIALS OF TAX PLANNING
PRACTICAL QUESTIONS
1 Up to date knowledge of tax laws:
It should be based on up to date knowledge of tax laws. Also, assessee must be aware of
judgments of the courts. In addition, one must keep track of the circulars, notifications,
clarifications and administrative instructions issued by the CBDT from time to time
2 Disclosure and furnishing of information to Income-tax department:
The disclosure of all material information and furnishing the same to the income tax department
is an absolute prerequisite of tax planning as concealment in any form would attract the penalty
clauses – the penalty often ranging from 100% to 300% of tax sought to be evaded.
3 Planning to be within the framework of law: Whatever is planned should not only satisfy the
requirements of legal provisions as stated but should also be within the framework of law. It
means that the use of sham transactions and colorable devices, which are entered into just with a
view to circumvent the legal provisions, must be avoided.
A genuine tax planning device, aimed at carrying out the rules of law and courts’ decisions and to
overcome heave burden of taxation, is fully valid

1) Basic Concepts
• TYPES OF TAX PLANNING The tax planning exercise ranges from devising a model for specific transaction
as well as
• for systematic corporate planning. These are
PRACTICAL QUESTIONS
Short range
and long range
tax planning
a) Short range planning refers to year to year planning to achieve
some specific or limited objective. For example, an individual
assessee whose income is likely to register unusual growth in
particular year as compared to the preceding year, may plan to
subscribe to the PPF/NSC’s within the prescribed limits in order to
enjoy substantive tax relief. By investing in such a way, he is not
making permanent commitment but is substantially saving in the
tax. It is one of the
examples of short range planning.
b) Long range planning involves charting out a plan at the beginning of the income year to
be followed around the year. This type of planning may not benefit immediately as in
case of short term tax planning but it is likely to help in long run. For example, when an
assessee transfers his equity shares to his minor son, he knowsthat the income from the
shares will be clubbed with his own income. But clubbing would also cease after
minor attains majority. Also if bonus shares are issued by the company, income from
such bonus shares

1) Basic Concepts
• TYPES OF TAX PLANNING The tax planning exercise ranges from devising a model for specific transaction
as well as
• for systematic corporate planning. These are
PRACTICAL QUESTIONS
Permissive tax
planning
It involves making plans which are permissible under different provisions of tax
laws. Tax laws of our country offer many exemptions and incentives. Planning to
take advantage different tax concessions and incentives and deductions etc
Purposive tax
planning
It involves making plans with specific purpose to ensure the availability of
maximum benefits to the assessee
-Through correct selection of investment
-Making suitable plan for replacement of assets
-Diversifying business activities and incomes etc.

1) Basic Concepts
• AREAS OF CORPORATE TAX PLANNING
• TAX PLANNING BASED ON NATURE OF ORGANISATION
• Organizational Forms - Individual, HUF, Firm and Company
PRACTICAL QUESTIONS
Particulars Individuals HUF Firm Company
Basic
exemption
Rs. 2,50,000 /
Rs. 3,00,000 /
Rs. 5,00,000
depending on ageof
Assessee
Rs. 2,50,000 No Basic
Exemption
No Basic
Exemption
Rate of tax Slab Rate ofTax Slab rate of tax Fixed rate oftax.
30%
Fixed rate of tax.
Domestic Co.
30%,
foreign Co. 40%
Aggregation of
Agri. Income
Applicable Applicable Not Applicable Not Applicable
Heads of
Income
All heads Except salaries Except salaries Except salaries
Interest on capital Personal nature.
Not allowable
Personal nature.
Not allowable
Allowable subject
to Sec.
40(b)
Not applicable.
But dividends
subject todividend

1) Basic Concepts
• AREAS OF CORPORATE TAX PLANNING
• TAX PLANNING BASED ON NATURE OF ORGANISATION
• Organizational Forms - Individual, HUF, Firm and Company
PRACTICAL QUESTIONS
Particulars Individuals HUF Firm Company
Remuneration Properties salary.
Personalnature.
Not allowable
Karta entitledfor
Remuneration,
subject to
40A(2).
Remuneration to
partners subject to
Section 40(b)
Directors Remn.
Subject to
section40A(2)
Restriction as
to payment to
relative
Restrictions
Applicable
Restrictions
Applicable
Restrictions
Applicable
Restrictions
Applicable
Share of
Income
Income taxable in
the Capacity of
Individual
Share income ofa
member exempt
u/s
10(2).
Share income ofa
partner exempt u/s
10(2A)
Dividend exempt
inshareholders
handsu/s 10(34)

1) Basic Concepts
• Money Laundering
• Money laundering is the process of making illegally
earned money appear to be “clean,” often through
complex bank transfers and transactions.
• Concealing the origin of money earned is often
used in criminal enterprises so criminals can spend
their earnings without raising the suspicions of the
government, but it has also been used to hide
money from debt collectors.
• An estimated 3-5% of global GDP are actually
money laundering transactions.
PRACTICAL QUESTIONS

1) Basic Concepts
• Three Main Steps
• There are three main steps to money laundering:
• Placement: putting the illegitimately earned money
into the legitimate stream of commerce, often through
a cash-only “front” business.
• Layering: placing the money continuously, in smaller
chunks, through multiple legal transactions to make its
origin harder to trace.
• Integration: finally returning the money into the hands
of the owner so it can be spent without drawing the
suspicion of the legal authorities.
• Each of these stages puts in place legitimate business
transactions to make it more difficult for an investigator
to discover the real source of the money.
PRACTICAL QUESTIONS

1) Basic Concepts
• Examples of money laundering techniques include:
• Cash businesses over-reporting their sales.
• Cash used to purchase casino chips, which are then
reported as winnings when the person cashes out.
• Multiple people depositing small amounts into
bank accounts to not trigger bank reporting
requirements.
• Foreign investors in countries with loose laws taking
cash owned by a launderer and investing it into the
launderer’s legitimate business.
• Each of these stages puts in place legitimate business
transactions to make it more difficult for an investigator
to discover the real source of the money.
PRACTICAL QUESTIONS

1) Basic Concepts
• An Overview of Taxation in India
• Tax is a mandatory fee imposed upon individuals or
corporations by the Central and the State
Government to help build the economy of a country
by meeting various public expenses.
Taxes are broadly divided into two categories-
Direct and Indirect taxes.
• What is Direct Tax?
• It is a tax levied directly on a taxpayer who pays it to
the Government and cannot pass it on to someone
else.
PRACTICAL QUESTIONS

1) Basic Concepts
• What are the direct taxes imposed in India?
• Some of the important direct taxes imposed in India are mentioned below:
• Income Tax- It is imposed on an individual who falls under the different tax
brackets based on their earnings or revenue and they have to file an income
tax return every year after which they will either need to pay the tax or be
eligible for a tax refund.
• Corporate tax- Companies incorporated or having operations in India have
to pay tax to the government. They need to pay tax on the profits earned
from the business. Unlike, income tax slab rates of individuals, the
companies have to pay tax at flat rates prescribed by the government.
• Securities Transaction Tax (STT)- STT is a tax levied while dealing with
securities listed on a recognised stock exchange. It is an amount that is
levied over and above the trade value, and hence, it increases the
transaction value.
• Estate and Wealth taxes are now abolished.
PRACTICAL QUESTIONS

1) Basic Concepts
• What are the advantages of direct taxes?
• Direct taxes do have a certain advantage for a country’s
social and economic growth. To name a few,
• It curbs inflation: The Government often increases the
tax rate when there is a monetary inflation which in
turn reduces the demand for goods and services and as
a result of descending demand, the inflation is bound
to condense.
• Social and economic balance: Based on every
individual’s earnings and overall economic situation,
the Government has well-defined tax slabs and
exemptions in place so that the income inequalities can
be balanced out.
PRACTICAL QUESTIONS

1) Basic Concepts
• What is the most common disadvantage of direct
taxes?
• Direct taxes come with a handful of disadvantages.
But, the very time-consuming procedures of filing
tax returns is a taxing task itself.
PRACTICAL QUESTIONS

1) Basic Concepts
• What is Indirect Tax?
• It is a tax levied by the Government on goods and services and not on
the income, profit or revenue of an individual and it can be shifted
from one taxpayer to another.
• Earlier, an indirect tax meant paying more than the actual price of a
product bought or a service acquired. And there was a myriad of
indirect taxes imposed on taxpayers.
• Goods and Service Tax (GST) is one of the existing indirect tax levied
in India. It has subsumed many indirect tax laws.
PRACTICAL QUESTIONS

1) Basic Concepts
• Let’s discuss a few indirect taxes that were earlier imposed in India:
• Customs Duty- It is an Import duty levied on goods coming from
outside the country, ultimately paid for by consumers and retailers in
India.
• Central Excise Duty– This tax was payable by the manufacturers who
would then shift the tax burden to retailers and wholesalers.
• Service Tax– It was imposed on the gross or aggregate amount
charged by the service provider on the recipient.
• Sales Tax– This tax was paid by the retailer, who would then shifts the
tax burden to customers by charging sales tax on goods and service.
• Value Added Tax (VAT)– It was collected on the value of goods or
services that were added at each stage of their manufacture or
distribution and then finally passed on to the customer.
PRACTICAL QUESTIONS

1) Basic Concepts
• GST as Indirect Tax
• With the implementation of GST, we have already witnessed a number of positive
changes in the fiscal domain of India. The various taxes that were mandatory
earlier are now obsolete, thanks to this new reformed indirect tax. Not just that,
GST is making sure the slogan “One Nation, One Tax, One Market” becomes the
reality of our country and not just a dream.
• That said, with the dawning of the ‘Goods & Services Tax (GST), the biggest relief so
far is clearly the elimination of the ‘cascading effect of tax’ or the ‘tax on tax’
quandary.
• Cascading effect of tax is a situation wherein the end-consumer of any goods or
service has to bear the burden of the tax to be paid on the previously calculated tax
and as a result would suffer an increased or inflated price.
• Under the GST regime, however, the customer is exempted from the tax they
would otherwise pay as a result of the cascading effect.
PRACTICAL QUESTIONS

1) Basic Concepts
• There are several other benefits of GST. Let’s list a few:
• Input Tax Credit: At the time of paying tax on the final product, one can reduce the
tax they have already paid on their purchases and pay just the balance amount.
This is called Input Tax Credit which again reduces the burden of a hefty tax.
• Composition Scheme under GST: The government has done a commendable job by
introducing Composition Scheme for small businesses with a turnover below Rs.1
crore. As per the scheme, they don’t have to go through the time-consuming
formalities of GST but only pay the tax at a fixed rate based on their business
turnover. Isn’t that a relief for small taxpayers? It sure is!
• Zero-rated exports: GST on the export of any kind of goods or services will not be
charged. It will be considered as a zero-rated supply.
• Compliance: Various digital products, including new returns, e-wallet, and e-
invoicing are created to facilitate easier and efficient tax management.
PRACTICAL QUESTIONS

1) Basic Concepts
• COMMON TYPES OF DIRECT TAXES IN INDIA
• Some of the most common types of direct tax implemented in India are as follows-
1. Income Tax
• The most common type of direct tax in India is income tax. It is imposed on the
income you earn in a financial year based on the income tax slabs of the IT
department. The tax is paid by individuals as well as businesses directly to the IT
department. For individual taxpayers, there are also several tax deductions
available under various sections of the IT Act.
2. Securities Transaction Tax
• If you are involved in stock trading, each of your trade also has a small constituent
known as the securities transaction tax. Irrespective of whether you made money
on the trade or not, you will have to pay this tax. The broker collects this tax from
you and passes on to the securities exchange, which then pays it to the
government.
PRACTICAL QUESTIONS

1) Basic Concepts
• COMMON TYPES OF DIRECT TAXES IN INDIA
• Some of the most common types of direct tax implemented in India are as follows-
3. Capital Gains Tax
• Every time you make capital gains, you will be required to pay capital gains tax. This
capital gain could come from the sale of a property or from investments. Based on
the capital gains and the duration for which you held the investment, you will be
required to pay either LTCG (Long-Term Capital Gains) tax or STCG (Short-Term
Capital Gains) tax.
• BENEFITS OF DIRECT TAXES
• There are some key benefits of direct taxes such as- Curbs Inflation- In case if
there is monetary inflation, the government can increase direct tax rates so that
the goods and services demand can be reduced. As the demand falls, it helps in
condensing inflation.
Equitable- Direct taxes are also known to be equitable as the progression principle is at its
foundation. People with lower income pay lower taxes, and people with higher income pay
higher taxes.
Reduces Inequalities- The higher taxes collected from the rich are used by the government
to launch newer initiatives for the poor. The initiatives provide income sources to people
PRACTICAL QUESTIONS

1) Basic Concepts
• DISADVANTAGES OF DIRECT TAXES
• Direct taxes also have some drawbacks such as
• Considered a Burden- As taxpayers are required to pay direct taxes like income tax
in a single lump sum every year, they are considered a burden. Moreover, even the
documentation process is generally complex and time-consuming.
Evasion is Possible- While the government has made tax evasion very difficult now,
there are still many fraudulent practices through which individuals and businesses
can avoid or pay lower taxes than they should.
Restrains Investments- Due to the imposition of direct taxes like securities
transaction tax and capital gains tax, a lot of people avoid investing. So, in a way,
direct taxes restrain investments.
PRACTICAL QUESTIONS

1) Basic Concepts
• WHAT IS INDIRECT TAX?
• While direct taxes are imposed on income and profits, indirect taxes are levied on
goods and services. A major difference between direct and indirect tax is the fact
that while direct tax is directly paid to the government, there is generally an
intermediary for collecting indirect taxes from the end-consumer. It is then the
responsibility of the intermediary to pass on the received tax to the government.
Unlike a direct tax, indirect taxes do not depend on the income of an individual.
The tax rate is the same for everyone. The CBIC (Central Board of Indirect Taxes and
Customs) is mostly responsible for handling indirect taxes in India. Just like CBDT,
CBIC also works under the Department of Revenue.
PRACTICAL QUESTIONS

1) Basic Concepts
• COMMON TYPES OF INDIRECT TAXES IN INDIA
• Some of the most important types of indirect tax in India are as follows-
1. Goods and Services Tax (GST)
• GST subsumed as many as 17 different indirect taxes in India like Service Tax, Central Excise,
State VAT, and more. It is a single, comprehensive, indirect tax which is imposed on all the
goods and services as per the tax slabs laid by the GST council. One of the biggest benefits of
GST is that it mostly eliminated the cascading or tax-on-tax effect of the previous tax regime.
2. Customs Duty
• When you purchase something that needs to be imported from a foreign country, you are
required to pay customs duty on it. Irrespective of whether the product has come to India by
air, land, or sea, you will have to pay the customs duty on it. The goal of imposing this
indirect tax is to make sure that every product entering India is taxed.
3. Value Added Tax (VAT)
• A VAT is a type of consumption tax imposed on products whenever its value increases
throughout the supply chain. It is imposed by the state government, which also decides the
VAT percentage on different goods. While GST has mostly eliminated VAT, it is still imposed
on some products such as items that contain alcohol.
PRACTICAL QUESTIONS

1) Basic Concepts
• BENEFITS OF INDIRECT TAX
• Some significant benefits of indirect taxes are listed below-
Poor Contributes Too- It is essential for the country that every individual
contributes towards its development. As the poor are often exempt from paying
direct taxes, the indirect taxes ensure that even poor contribute towards nation-
building.
• Convenience- Unlike direct taxes which are generally paid in a lump-sum, indirect
taxes like GST are paid in small amounts. When you purchase a product or service,
a small amount of GST is already included in the price, and this makes its payment
more convenient for the taxpayers.
• The collection is Easy- If you want to know what is the difference between direct
and indirect tax, one of the biggest of them is how they are paid. Unlike direct
taxes, there are no documents or complex procedures involved in paying indirect
taxes. You are required to pay the tax right when you purchase a product or service.
PRACTICAL QUESTIONS

1) Basic Concepts
• DISADVANTAGES OF INDIRECT TAXES
• A few cons of indirect taxes are as follows-
Regressive- Indirect taxes are widely known to be regressive in nature. While they
make sure that everyone pays taxes irrespective of their income, they are not
equitable. People from every income group are required to pay indirect taxes at the
same rate.
• Makes Products and Services More Expensive- As indirect tax is added to the price
of goods and services, it makes them more expensive. For instance, products like
cigarettes, high-end bikes, premium cars, etc. are included in the 28% tax slab of
GST.
• Lacks Civic-Consciousness- As indirect tax is added to the price of the product or
service, the consumers are generally unaware of the tax they are paying. This is
opposite to direct taxes where the taxpayer clearly knows the taxes he/she is
paying.
PRACTICAL QUESTIONS

1) Basic Concepts
• THE BIGGEST DIFFERENCES BETWEEN DIRECT AND INDIRECT TAX
• Here is a table pointing out the biggest direct vs. indirect tax
PRACTICAL QUESTIONS
Context Direct Tax Indirect Tax
1.Imposed on Income and Profit All the Goods and Services
2. Who Pays Individual and Businesses End-Consumer
3.How Much Depends on income and
profits
Same for everyone
4.Transferability Not transferable Transferable
5.Tax Evasion Possible Not possible
6. Nature Progressive Regressive
7. Collections Complex Convenient
8. Common examples Income tax and securities
transaction tax
GST, excise duty, and VAT

1) Basic Concepts
• CUSTOM ACT:-
• What do you mean by customs Act?
• The Customs Act, 1962 is the basic statute which governs entry or exit of different
categories of vessels, aircrafts, goods, passengers etc., into or outside the
country. The Act extends to the whole of the India.
• What is the purpose of the customs Act?
• The Customs Act of 1962 is the most crucial Act that provides for the
implementation and collection of duty on goods imported and exported in the
country. This Act also deals with the Import and Export procedures, Prohibitions on
importation and exportation of goods, penalties, offences and much more.
PRACTICAL QUESTIONS

1) Basic Concepts
• CUSTOM ACT:-
• What are the different types of customs Act?
• Types of Customs Duty
• Basic Customs Duty. Basic custom duty is the duty imposed on the value of the
goods at a specific rate. ...
• Countervailing Duty (CVD) ...
• Additional Customs Duty or Special CVD. ...
• Safeguard Duty. ...
• Anti Dumping Duty. ...
• National Calamity Contingent Duty. ...
• Education Cess on Customs Duty. ...
• Protective Duties.
PRACTICAL QUESTIONS

1) Basic Concepts
• What is prohibited goods under customs Act?
• The expression " Prohibited Goods" is defined in Section 2(33) of the Customs Act,
1962 to mean "any goods, the import or export of which is subject to any
prohibition under the Customs Act or any other law for the time being in force, but
it does not include any such goods in respect of which, the conditions subject
• What are the sections for prosecution under customs Act 1962?
• Any person guilty of serious offence under Customs Act which is punishable
under Section 132, 133, 135, 135A and 136 of the said Act, can be arrested by a
Customs officer authorized in this behalf, as provided under Section 104(1) of the
said Act.
• What does section 12 of the customs Act 1962 deals with?
• (1) Except as otherwise provided in this Act, or any other law for the time being in
force, duties of customs shall be levied at such rates as may be specified under
1[the Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in
force, on goods imported into, or exported from, India.
PRACTICAL QUESTIONS

1) Basic Concepts
• What is baggage under Customs Act 1962?
• The term baggage means luggage of the passengers and it refers to all dutiable
goods. imported by a passenger or a member of a crew in his baggage As per
section 2 (3) of Customs. Act 1962, Baggage includes unaccompanied baggage but
does not include motor vehicle.
• How many types of goods are under the Custom Act?
• In fact export duties are leviable only on listed 26 commodities but by exemption
notifications, all but one set of item (i.e., leather items) are completely exempt
from export duties. In the Central Excise Tariff, an Excise Duty is specified against
each subheading.
• What is illegal import?
• Section 11A which defines illegal import to mean import of any goods in
contravention ... protection of national and public interest in matters of illegal
importation of certain goods which may have pernicious impact.
PRACTICAL QUESTIONS

1) Basic Concepts
• Central Excise Tax..
• What is Central Excise?
• Central excise duty is an indirect tax, i.e. each person, rich or poor, is liable to pay tax
indirectly on purchase of goods which have already been charged to duty. This tax is
administered under the authority of Entry 84 of Union List of the Seventh Schedule read
with Article 226 of the Constitution of India.
• What are three types of excise taxes?
• Today, there are federal excise taxes on motor fuel, tobacco, and alcohol, among other
goods, services, and activities, in addition to a wide range of state excise taxes.
• Who are liable to pay excise duty?
• Excise duty is to be paid by the manufacturer of the goods and not by the consumer. Custom
duty is to be paid by the importer of the goods. A number of provisions are common for
excise duty and custom duty with the major difference being the place of production of the
goods in question.
• What are the advantages of excise tax?
• The advantages include: • They have significant revenue potential. The revenue is relatively
easy to collect. They can be used to generate behaviour change for wider social and
environmental objectives, e.g. concerning public health.
PRACTICAL QUESTIONS

1) Basic Concepts
• Service Tax
• Who is liable for service tax?
• the service provider
• Person liable to pay service tax The tax is normally payable by the service provider. However
law empowers the Government to notify a person other than the service provider to pay the
service tax.. In some of the cases liability of payment of service tax has been shifted to the
service provider
• .Is it mandatory to pay service tax?
• Service charge is different from service tax, which is a statutory levy under the Goods and
Services Tax. It is not mandatory under Indian consumer laws, according to the consumer
affairs ministry.
• Is service tax mandatory after GST?
• While the Centre has made GST mandatory, it is the service charges that are optional.
However, there have been many instances wherein the restaurants have forced customers to
pay service charges despite the latter's disapproval.
• How do you calculate service tax?
• The amount of tax that can be levied is calculated as a percentage of the charges
received/paid for the provision/receipt of services. Service tax is levied at the rate of 15% of
the value of taxable services. However, one cannot impose service tax on the entire amount
PRACTICAL QUESTIONS

1) Basic Concepts
• Sales Tax
• What do u mean by sales tax?
• Sales tax is an amount of money, calculated as a percentage, that is added to the cost of a product or
service when purchased by a consumer at a retail location.
• What is sales tax and VAT?
• VAT is computed on each stage of the sales of good and is completely different from sales tax as tax is
collected from both producer and consumer. In case of sales tax, it is only the consumer who pays the
tax. In case of VAT, fewer rates are levied, while for sales tax, a higher rate is implemented.
• Why do we pay sales tax?
• Sales Tax is a form of tax paid to a governing body for the sale of goods and services. Sales tax is an
indirect tax and is generally charged at the point of buy or exchange of certain taxable goods, charged as
a percentage of the value of the product.
• Why do customers pay sales tax?
• Sales tax is used to pay for state and local budget items like schools, roads and fire departments. Many
areas rely on sales tax to fund their budgets, so they are very serious about collecting all the sales tax
they are owed.
• Who is liable to pay sales tax?
• These taxes are imposed on the retail sale transaction itself, with the primary liability for paying the tax
falling upon both the sellers and the purchasers. Sellers are responsible for collecting and paying the
tax, and purchasers are responsible for paying the tax that the sellers must collect and pay.
PRACTICAL QUESTIONS

1) Basic Concepts
• VAT (Value Added TAX) and GST
• What is difference between GST and VAT with example?
• VAT is payable only through offline mode. GST is payable both through the online and
offline mode. The compliance system for the movement of goods between states is different
from one state to another. The compliance system for the movement of goods between
states is similar across different states.
• What is the present status of GST in India?
• The Union finance ministry proposal to the GST council increased the number of rates to
four i.e. 6%, 12%, 18% and 26%, plus cesses on some of the commodities in the 26% slab.
The GST council, in its wisdom, worsened the situation by widening the spread, lowering the
lowest rate to 5% and increasing the highest to 28%
• What are the 3 types of VAT?
• There are three categories of supplies that can be made by a VAT vendor: standard-rated,
zero-rated and exempt supplies.
• What are the 4 types of GST?
• The Central Goods and Services Tax (CGST)
• The State Goods and Services Tax (SGST)
• The Union Territory Goods and Services Tax (UTGST)
• The Integrated Goods and Services Tax (IGST)
PRACTICAL QUESTIONS

1) Basic Concepts
• Income Tax
• What means income tax?
• Income tax is a type of tax that governments impose on income generated by businesses
and individuals within their jurisdiction. Income tax is used to fund public services, pay
government obligations, and provide goods for citizens.
• What is importance of income tax?
• The money received by the government is known as tax revenue and may be utilized for a
broad spectrum of purposes such as infrastructure development in the form of roads,
railways, bridges, dams etc., public healthcare and education, defence and civil services, to
name a few.
• What is exempt income?
• Exempt Incomes are the incomes that are not chargeable to tax as per Income Tax law i.e.
they are not included in the total income for the purpose of tax calculation while taxable
Incomes are chargeable to tax under the Income Tax law. Exempt income are those on which
tax is not likely to be paid.
• Who donot pay income tax in India?
• In fact, the top 10% of Indians have an annual income of just ₹3 lakhs! And the ₹5 lakhs
threshold is extremely relevant because the government exempts all those who make less
than ₹5 lakhs. They don't have to pay a tax on their income.
•
PRACTICAL QUESTIONS

1) Basic Concepts
• Wealth Tax
• What is meant by wealth tax?
• [As amended by Finance Act, 2022] WEALTH TAX. Income-tax is levied on the income of the
taxpayer, whereas wealth tax is levied on the wealth of the taxpayer. Wealth tax is governed
by Wealth Tax Act, 1957.
• What is wealth tax in income tax?
• Wealth tax is imposed on the richer section of the society. The intention of doing so is to
bring parity amongst the taxpayers. However, wealth tax was abolished in the budget of
2015 (effective FY 2015-16) as the cost incurred for recovering taxes was more than the
benefit is derived.
• Who is eligible for wealth tax?
• All individuals and Hindu Undivided Family with net wealth above Rs. 30 lakh were
required to pay wealth tax. Wealth tax was based on the valuation of assets as on March 31
and would, therefore, be applicable on any assets acquired at the end of a financial year.
• What is the difference between income tax and wealth tax?
• More simply, wealth taxes are levied on the wealth stock, or the total amount of net wealth
a taxpayer owns, while an income tax is imposed on the flow from the wealth stock. The
income earned from returns to wealth becomes part of the wealth tax base for the next
year, as the wealth stock grows.
PRACTICAL QUESTIONS

1) Basic Concepts
• Gift Tax
• How much gift from parents is tax free?
• all gifts are charged to tax
Hence, if the aggregate value of gifts received during the year exceeds Rs. 50,000, then
total value of all such gifts received during the year will be charged to tax (i.e. the total
amount of gift and not the amount in excess of Rs. 50,000).
• How much is gift tax in India?
• The gift tax liability is then calculated as per the income tax slab rate of the donee. So,
potentially, individuals in the highest income tax bracket will have to pay 30% tax (plus
applicable Health and Education Cess) on presents received during a financial year.
• 5 Tips to Avoid Paying Tax on Gifts
• Respect the gift tax limit. The best way to avoid paying the gift tax is to stay within the limit
set by the IRS. ...
• Spread a gift out between years. ...
• Provide a gift directly for medical expenses. ...
• Provide a gift directly for education expenses. ...
• Leverage marriage in giving gifts.
•
PRACTICAL QUESTIONS

1) Basic Concepts
• GAAR (General Anti Avoidable Rule)
• What is GAAR in income tax?
• General Anti Avoidance Rule (GAAR) is an anti-tax avoidance law for keeping a check on the
businesses that entered into an agreement with the objective of avoiding tax. Chapter X-A
of the Income Tax Act, 1961 of India deals with the concept of GAAR.
• Is GAAR implemented in India?
• Effective in India from 1 April 2017, almost eight years after it was first introduced in the
then proposed Direct Taxes Code Bill (DTC), 2009. The approach of the government in the
entire process of introduction of GAAR has been consultative, which is quite appreciable.
• In which of the following provision GAAR will not apply?
• GAAR provisions will not be invoked in such a case. this is an arrangement of tax evasion and
not tax planning. Tax evasion, being unlawful, can be dealt with directly by establishing
correct facts. GAAR provisions will not be invoked in such a case.
• Is VAT subject to GAAR?
• The GAAR applies to a 'tax avoidance transaction' involving any of the taxes which are
covered by section 811C. Those taxes are: Income Tax, Corporation Tax, Capital Gains Tax,
the Universal Social Charge, Value Added Tax, Capital Acquisitions Tax and Stamp Duties.
PRACTICAL QUESTIONS

1) Basic Concepts
• Central/Capital Gain Tax
• The capital gains tax is the levy on the profit that an investor makes
when an investment is sold. It is owed for the tax year during which
the investment is sold. The long-term capital gains tax rates for the
2021 and 2022 tax years are 0%, 15%, or 20% of the profit, depending
on the income of the filer.
• How can I avoid capital gains tax on sale?
• Offset your capital gains with capital losses. ...
• Consider using the IRS primary residence exclusion. ...
• Also, under a 1031 exchange, you can roll the proceeds from the sale
of a rental or investment property into a like investment within 180
days.
PRACTICAL QUESTIONS

References
• Suggested Readings
1.Ahuja,Grish,and Ravi Gupta,Corporate Tax Planning
and Management,BharatLawHouse,Delhi.
2.Singhania,Vinod K., Kapil Singhania,and Monica
Singhania, Direct Taxes Planning and
Management,Taxmann Publications Pvt.Ltd., New
Delhi.
3.Pagare,Dinkar,DirectTaxPlanningandManagement,Sul
tanChandandSons,NewDelhi.
4.S P Goyal, Direct Tax Planning, Sahitya Bhawan,Agra
5.Bare Acts of Relevant Enactments

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