Tax Management & Tax Planning Rectified
Tax Management & Tax Planning Rectified
Tax Management & Tax Planning Rectified
TAX PRACTICES
TAX PLANNING
Tax Planning is an exercise undertaken to minimize tax liability through the
best use of all available exemptions, deductions, rebates and reliefs to reduce
income. 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, reliefs and rebates so that tax liability reduces to minimum. In other
words, all arrangements by which the tax is saved by ways and means which
comply with the legal obligations and requirements and are not colourable devices
or tactics to meet the letters of law but not the spirit behind these, would
constitute tax planning.
The Hon’ble Supreme Court in McDowell & Co. v. CTO (1985) 154 ITR 148
has observed that “tax planning may be legitimate provided it is within the
framework of the law. Colourable devices cannot be part of tax planning and it is
wrong to encourage or entertain the belief that it is honourable to avoid payment
of tax by resorting to dubious methods.”
Actually the allowances, deductions, exemptions, rebates and reliefs were
given as per legal regulations to achieve social and economic goals. For instance
deductions as per 80C for individuals and HUF aim to encourage saving and
investment habits for the economic prosperity of the country.
Example of tax planning: where a person buys machinery instead of hiring it,
he is availing the benefit of depreciation. It is his exclusive right either to buy or
PROBLEM 1.1
Specify whether the following acts can be considered as an act of (a) tax
management; or (b) tax planning; or (c) tax evasion.
(a) Mr. A invests in Public Provident Fund so as to reduce tax payable.