basic concepts in tax planning

1. Tax planning, avoidance,
evasion and tax management
Priyanka Naik
CO-34-2013

2. THERE IS NOTHING WHICH
HURTS MORE THAN PAYMENT
OF TAXES…..

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. 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. 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. 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. 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. • 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. 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. Thank You