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Tax
1. A charge on sum of money levied on a person or property for the benefit of th
e state
2. It a payment to the government
3.It a kind or charge imposed by the state upon the citizen
4.Profit =revenue expenses
Types of taxes
Direct tax indirect ta
x
Income tax sales/cst /vat
Wealth tax excise
Corporate tax custom
Dividend decision tax service tax
FEATURES:
Levied on Income and Assets.
Tax Payer is tax Bearer.
Burden of tax cannot be shifted.
Slabs are applicable.
Tax planning avenues area available.
Regulated under Income Tax, Companies Act, Partnership act.
It is collected and monitored by CBDT
It is levied upon goods and services.
Tax payer is tax Bearer.
Burden of tax can be shifted.
There is no system of slabs
No such revenues available.
Regulated under Sales Tax and Excise Duty.
It is collected by Board of excise and custom.
'DIRECT TAX
A direct tax is paid directly by an individual or organization to an imposing en
tity. A taxpayer, for example, pays direct taxes to the government for different
purposes, including real property tax, personal property tax, income tax or tax
es on assets. Direct taxes are different from indirect taxes, where the tax is l
evied on one entity, such as a seller, and paid by another, such as a sales tax
paid by the buyer in a retail setting.
THE HISTORY OF DIRECT TAXES
Distinction between direct taxes and indirect taxes came about with the passing
of the 16th Amendment in 1913. Prior to the 16th Amendment, tax law in the Unite
d States was written so that any direct taxes were required to be directly appor
tioned to the population. For example, a state with 70% of the population in rel
ation to another state would only be required to pay direct taxes equal to 70% o
f the larger state.This ancient verbiage made it so many direct taxes, such as p
ersonal income tax, could not be imposed by the federal government due to apport
ionment requirements. However, the passing of the 16th Amendment changed the tax
code and allowed for the levying of numerous direct and indirect taxes.
AN EXAMPLE OF DIRECT TAXES
Corporate taxes are a good example of direct taxes. If, for example a manufactur
ing company operates with $2 million in revenue, $1 million in cost of goods sol
d (COGS) and $200,000 in total operating costs, its earnings before interest, ta
xes, depreciation, and amortization would be $400,000. If the company had no deb
t, depreciation or amortization, and had a corporate tax rate of 35%, its direct
tax would be $240,000, derived as: ($400,000 * 0.35) = $240,000.Additionally, a
person's income tax is an example of a direct tax. If a person makes $100,000 i
n a year and owes $40,000 in taxes, the $40,000 would be a direct tax.
TAX
It is arrangement of one s financial affairs so that legal provisions wont violate
.
It carried out the full enjoyment of Tax Rebates, Tax Exemptions, tax Deductions
.
It is within the four corners of LAW and regarded as fully legitimate.
Needs and objective of tax planning
Tax planning is done for the reduction of Tax Burden.
To avoid any sort of litigation.
Tax planning generally done to avoid any type of raid and penalty.
To get the benefit of concessions and exemptions given under law.
The tax planning avenues provide a financial cushionor backup for the use of con
tingencies in future.
Tax planning done for the preparation and maintenance of systematic records.
To discharge the responsibility of a good citizen.
Perquisites of TAX Planning
To have full usage of tax planning.
To evaluate fully tax planning avenues.
To consider all direct and indirect taxes.
It should be done as guided by Tax Laws.
TAX MANAGEMENT
Tax management was a term that was used by companies a few years ago. The tax
director made his management aware of nasty surprises in his department or, pref
erably, dealt with anything before they developed that way. Other than that, wha
t has now developed into a new practice area of its own, sometimes known as tax
risk management, was just another part of a tax director s role, without any more
significance than, for example, compliance or structuring. Regulation has change
d all that. Tax authorities are more and more aggressive around the world and ha
ving been doing their best to make sure that business managers can have no excus
es for ignorance about their tax function.
Other regulators, for example accounting standards organisations, with rules suc
h as the Sarbanes-Oxley Act and FIN 48, have ensured that the relationship betwe
en tax has taken on an importance for the rest of the business that it may not h
ave had. It is in this context that International Tax Reviews co-publishes the s
econd edition of its Tax Management in Companies guide with PricewaterhouseCoope
rs. The guide is the 44th in the Tax Reference Library series, which has also co
vered other topics such as transfer pricing, indirect taxes and outsourcing. The
y are designed to give in-house tax counsel the most cutting edge advice for pla
nning their corporation s tax strategy and structuring transactions in these field
s.
It includes maintenance of records in prescribed format.
It includes getting audited the records, filing returns and pay taxes. Etc.
It is a regular feature of business enterprises and a form of tax planning.
Employees use Central Board of Direct Taxes.
Employers use Tax deduction and collection Account No.
HINDU UNDIVIDEDFAMILY
TAX LIABILITY
Similar to individual or sole proprietor.
Allowed as many deductions as allowed to SoleProprietor
Salary of KARTA is fully tax deductible.
Interest on capital is not allowed
PARTNERSHIP FIRM
Firm registered under Partnership Act.
Limited to 20 person only.
If limit of person exceed then firm adopt company form of business organization.
TAX LIABILITY
Pay tax @30% + 10% surcharge + 3% Education cess.
Tax deducted under Sec 80G, 80GGA and 80JJA.
Allowed deduction similar to individuals and HUF.
Interest o capital is allowed as deduction.
Probability of raising additional capital can be solved byadmitting a new partne
r.
Remuneration paid is allowed as deduction
DEMEITS
Tax liability is similar to company form of organization but cannot raise capita
l by issue of share.
Liability of partners is limited to the extent capital contributed.
If Provident Fund wont comply with 184Section of Income Tax it is treated as AOP
(Association of Persons).
It comes to closure if lunacy of partners is found.
COMPANY
As per Indian s Company s Act 1956.
An artificial person or entity.
TAX LIABILITY
Pay tax @30% + 10% surcharge + 3% Educationcess.
Maximum amount of tax as no tax slab is available.
To pay FBT and DDT and Wealth Tax.
Indirect taxes like custom duty, excise duty, servicetax, VAT.
Deduction on interest paid on debentures andborrowings.
Salary paid is fully deductible.
Depreciation on assets is fully deductible
THE DIFFERENCE BETWEEN TAX PLANNING AND TAX MANAGEMENT .
Tax Planning Tax Management
(i) The Objective of Tax Planning is to minimize the tax liability The obje
ctive of Tax Management is to comply with the provisions of Income Tax Law and i
ts allied rules.
(ii) Tax Planning also includes Tax Management Tax Management deals with filing
of Return in time, getting the accounts audited, deducting tax at source etc.
(iii) Tax Planning relates to future. Tax Management relates to Past ,. Presen
t, Future.
Past Assessment Proceedings, Appeals, Revisions etc.
Present Filing of Return, payment of advance tax etc.
Future To take corrective action
(iv) Tax Planning helps in minimizing Tax Liability in Short-Term and in Long T
erm. Tax Management helps in avoiding payment of interest, penalty, prosecut
ion etc.
(v) Tax Planning is optional. Tax Management is essential for every assessee.