Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT Audit :: due date for vat payment :: VAT RATES :: cpt :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARDS :: Central Excise rule to resale the machines to a new company :: articles on VAT and GST in India :: list of goods taxed at 4% :: empanelment :: form 3cd :: TAX RATES - GOODS TAXABLE @ 4% :: TDS :: ACCOUNTING STANDARD
Indirect Tax »
 Finance Minister Favours Cess Over Additional Tax To Compensate States Under GST
  Indirect Tax collections up
 A GST rate that can unlock India’s potential
 Why India fared badly in World Bank’s Doing Business survey
 Income Tax dept to intensify anti-black money operations
 Applicability of TDS provisions of section 194-I of the Income-tax Act, 1961 on lump sum lease premium paid for acquisition of long term lease-regarding
 CBDT seeks monthly data of disposed I-T appeals
 Further indirect tax may be levied in 2017
 India has to make its own tax law
 Centre warns against criticism of GST network
 Indirect tax collection jumps 26% in April-September, direct tax 9%

Can you plan for indirect tax?
November, 10th 2008

It is a standard conversation in any board meeting of companies to ask the chief financial officer to find out how the income tax could be reduced. It is a done thing. There are chartered accountants who rack their brains only to achieve income tax planning. But nobody talks of tax planning on the reducing indirect tax side. The reason is in the difference in the nature of their taxable events.

The taxable event in income tax is the act of generation of income, which is measured in terms of net profit. It is an accounting concept. The taxable events in the case of indirect taxes are transaction based. In the case of Customs duty it is the act of import or export. In the case of Excise duty it is the act of manufacture. In the case of VAT, it is the act of adding value. In the case of service tax, it is the act of providing service.

These are all precise and physical concepts. Import is bringing things into India from a foreign country, which is a very precise concept. Manufacture is a physical concept. The act of addition of value for the purpose of value added tax is reflected on paper but it is a simple concept. The act of providing service is also a clear concept with few controversies about whether something is a service or not.

Thus, we find that the taxable events on indirect taxes are much more precise. Either they are physical or easily identifiable. On the other hand, net profit can be shown as less or more due to manipulation of accounts. There are very many provisions in the income tax law to provide for bad debts or other receivables which can suitably lead to a lesser net profit.

But a tax advisor on the indirect tax side cannot reduce the amount of indirect tax by manipulation of the production or manufacture or import etc. He can only correctly interpret the law to come to the proper taxable amount.

Evasion is not the same as tax planning. If a manufacturer does not show his production in the register and thereby avoid tax, it is evasion, pure and simple. It is not tax planning. In income tax, some people argue that legal avoidance is different from evasion. I however, hold that there is no such concept.

There is nothing like legal avoidance. Legal avoidance is a contradiction in terms. If it is legal, it is compliance to law. If it is illegal, it is evasion. There is a legendary judgement known as MacDowell case[1][1] in which Justice Chenappa Reddy and Justice Ranganath Misra observed that the notion that tax avoidance is legal is wrong.

This judgment has been quoted by many subsequent judgements even on the indirect taxes side only to emphasise that interpretation should not encourage evasion.

It is important to clarify that availing of an exemption is neither evasion not tax planning. An exemption for opening a factory in a designated area such as Uttarakhand or for using some special types of input is clearly available to the manufacturers. If they avail of it, it is just legal and not an evasion. This cannot be called tax planning. The word tax planning has a shady connotation. It smacks of suitable manipulation of accounts.

The conclusion is that tax planning can be done on the direct tax side by manipulating net profit but there is no such scope on the indirect tax side as it is transaction based.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - We Bring IT. Offshore software outsourcing company. We use Global Delivery Model (GDM) and believe in Follow The Sun principle

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions