corporate tax planning

All You Should Know About Corporate Tax Planning

Corporate Tax planning plays an important role in managing the company’s value-adding activities and strategic choices. It helps companies to ease the tax burden and operate a bit smartly by increasing the efficiency of the company.

The main objective of corporate tax planning is to reduce the company’s effective tax rate or ETR to minimize the tax that applies to it. Unlike tax planning, corporate tax planning only deals with the aspects of the company, which strategizes with the help of the tools that are available to the company.

The corporate tax applies to the financial gain attained by the businesses, whether or not domestic or foreign. The Tax Act, 1961, is accountable for charging company tax in the Republic of India. The worldwide financial gain of the businesses registered within the country is taxed under this. Whereas within the case of foreign corporations, solely the financial gain received or increased in the Republic of India is taxed under company taxation. This tax is paid by the corporate registered under company law in India on the actual net profit that it makes from businesses.

It is then taxed at a given rate as prescribed by the taxation act subject to changes in rates once a year by the IT department.

Tax Planning In India

In India, both taxpayers have a range of tax-saving choices. Such options allow a wide range of exemptions and deductions to help limit the overall tax liability. Qualifying taxpayers can seek the deductions from Sections 80C through to 80U. All deductions are made against the number of tax liabilities. If tax planning is carried out within the guidelines established by the respective authorities, it is a smart decision that is entirely legal.

Nonetheless, it is illegal to use Machiavellian techniques to avoid tax payments, and you may find it challenging to do so. Practices of tax savings include tax avoidance, tax evasion, and tax planning. The only legal way out of this tax planning is to reduce your tax liabilities.

Objectives Of Corporate Tax Planning

Reduction of tax liability

Arranging the operations of the company as per the requirement of the law can help the company to save the maximum amount of tax. The only aspect that the assessee must take care of is binding themselves within the framework of the statute.

Minimization of litigation

A taxpayer always wants to minimize the tax, whereas a tax collector always tries to collect the maximum from the assessee, which causes a tendency of disputes. So as in to reduce the incidence of litigation, proper tax planning helps in minimizing the conflicts by laying appropriate provisions.

Productive investment

This is one of the significant objectives of tax planning because it helps in channelizing productivity according to different investment plans.

Healthy growth of the economy

The growth of the economy largely and mainly depends upon the betterment of its citizens. The circulation of white money in the economy is the result of tax planning.

Economic stability

Stability is achieved once the tax planning behind the business is accurate.

Types Of Corporate Tax Planning

Purposive Tax planning

Purposive tax planning relates to the kind of tax planning that misleads the statute. The law does not provide any express provision under this type. Tax planning involves intelligently applying tax rules to handle an individual’s affairs, in compliance with the needs of the general public and government, to make use of tax benefits based on national objectives.

Permissive tax planning

Tax planning in which the plan is carried out under the explicit provision of the tax laws is called lax tax planning.

Short-range and long-range tax planning

Tax planning is called short-range tax planning, which is made every year to achieve specific or limited goals. Long-term tax planning, on the other hand, alludes to activities undertaken by the assessee that are not automatically paid off.

Each taxpayer knows the toll their financial income takes from paying taxes. Tax planning is essential to mitigate this effect and needs to be done wisely. Corporate tax planning lets you invest smartly in savings tools, providing the rewards of investment growth as well as a reduction in taxes paid to the government.