Amity School of Business

Amity School of Business

Corporate Tax Planning, Semester V BBFNA Priyank Badola

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Income tax
Module 4 Indirect taxes

Service Tax

Amity School of Business

In India, selective approach to tax services are followed. It is a tax on services. Services means value addition to the product which is intangible.

Features

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Indirect tax Administered by CBEC (central board of excise and customs) Uniform rate of 12% + 2%+ 1%= 12.36% Not applicable in J&K Leviable on taxable services Payable by service provider
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Basis of charge It is charged on the value of service provided. Service tax is paid by the service provider but is recoverable from the recipient of the services. Registration for service tax is a must. Small service providers get an exemption of Rs 10,00,000 of Taxable services.
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Due date for service tax

Individuals payment has to be made every quarter. The due date is upto the 5th day of the next month. HUF & companies Payment has to be made every calendar month. Due date is on 5th day of the next month.

Service Tax-Penal Provisions

Section 75 Type of Default

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Quantum of Interest/Penalty

Delayed Payment of Simple Interest @13% Service Tax p.a for the period of delay on the amount by which crediting of tax or any part thereof is delayed Penalty for nonregistration Omitted by the Finance ( No.2) Act, 2002, w.e.f 10-9-2004
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75A

Service Tax-Penal Provisions

Section Type of Default 76 Failure to Pay Service Tax

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Quantum of Interest/Penalty In addition to paying S.T. & Interest u/s 75, not less than Rs.200 for everyday during which the failure continues or penalty@2% of such tax, whichever is higher. However, the penalty shall not exceed the amount of S.T.that assessee has failed to pay
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What is the rate of Service Tax?

Service tax @ 12% Education Cess @ 2% on service tax CENVAT credit of service tax available
Credit availed can be offset against payment of Central Excise duty as well as service tax Credit of Education cess to be utilised for payment of Education cess

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Introduction to VAT

Amity School of Business

Value added tax is a tax imposed on value addition by firms and companies. offsets input tax, turnover tax, surcharge on sales tax, additional sucharge, special additional tax etc. Aim was to reduce the price of product. General rate of 12.5%, reduced rate of 4% and 1% for gold.
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Advance tax

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Government collects advance tax from business in the previous year. Every person is liable to pay advance tax if advance tax payable is Rs. 10,000 or more. It is tax paid in advance. Advance tax need to be paid by 15th of every quarter end. Corporate assessees pay tax of 15%, 45%, 75% and 100% every quarter end starting June. Non corporate asseessees pay tax of nil, 30%, 60% and 100% every quarter end starting June.
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Tax Planning

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X is an individual. For the assessment year 2010-11, his gross total income is Rs 12,40,000. Tax is Rs 2,32,780. to reduce this tax liability, he deposits Rs 70,000 in public provident fund. Consequently, his taxable income and tax liability thereof will be reduced to Rs 11,70,000 and 2,11,150

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Tax evasion

Amity School of Business

X ltd. is a chemical manufacturing company. It has a factory in Haryana near Delhi. Within the factory campus a land of 2000 square meter is lying unutilized. The company wants to start a new unit to manufacture computer components. If the manufacturing unit is started in the existing factory campus, deduction under 80-IB is not possible. However if the new plant is started in Jammu & Kashmir, the company can claim deductions under 80-IB. But if the company manufactures in Haryana and in order to get the benefit, company takes a building on rent in J & K and show it on paper as a new manufacturing unit. As company reduces tax liability by making incorrect statement , It is tax evasion
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Tax avoidance

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If Rs 50,000 is gifted by a husband to his wife, income generated therefrom is taxable in the hands of the husband under the clubbing provision of section 64. Section 64 is not applicable if gift is made by the same person out of the funds of his Hindu undivided family in capacity as Karta. If the gift is made by the karta to his wife, clubbing provision can be avoided and ultimately tax liability will be reduced. However, the tax liability will be reduced by taking help of the loophole in the law but within the legal framework. It is tax avoidance.
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Tax Planning

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Arrangement of ones financial and economic affairs by taking complete legitimate benefits of all deductions, exemptions, allowance and rebates so that tax liability reduced to minimum. Essential features of tax planning are : Comply with tax laws Legal obligation are met No intention to deceit the legal spirit.
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Tax avoidance

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The line of demarcation of tax planning and tax avoidance is very thin. The government has approved for tax avoidance. The tax payer has the right to resort to legal method to avoid tax. Essential features are: Legitimate arrangement of affair. No public disgrace Here is no wrong motive
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Tax evasion

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All methods by which tax liability is illegaly avoided are termed as tax evasion. An assessee guilty of tax evasion may be punished under the relevant law.

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Tax avoidance/tax evasion

1. Permissible way of reducing tax liability 2. Takes into account the loop holes 3. Tax hedging within the framework of the law 4. It is Legal sanction 1. Illegal methods 2. Unfair means 3. Tax omission

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4. Unlawful and guilty may be punished 5. Intention attempt to avoid payment of tax
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5. It is intentional tax planning

Tax planning vs tax management

1. Objective is to reduce tax liability to the minimum 2. It is futuristic in its approach 3. Tax planning is very wide in its coverage and includes tax management 4. Benefits arising are substantially in long run

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1. Objective is to comply with the provision of law 2. Relates to past present and future (corrective action) 3. Tax management has a limited scope

4. Benefit arising will be towards penalty, penal interest, prosecution etc.

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