Monday, 6 January 2020

Unit 12: Advance Tax Planning and Tax Relief

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Unit 12: Advance Tax Planning and Tax Relief


Advance Payment of tax is another method of collection of tax by the Central Government in the Form of ‘Prepaid Taxes’.


Advance Tax can be deposited through Challan No.280 in the Government Treasury (RBI) or any of the authorised branches of nationalised banks.

Advance Tax is liable to be paid by all assesses like salaried, self-employed, businessman etc. before the filing of Income Tax Return.


Double taxation refers to a situation where the same income becomes taxable in the hands of the same company or individual (tax-payer) in more than one country.


Double taxation arises from the two basic rules that enable the country of residence as well as the country where the source of income exists to impose tax namely, the source rule and the residence rule.


DTAAs lay down the rules for taxation of the income by the source country and the residence country.


In India, the liability under the Income tax Act arises on the basis of the residential status of the assessee during the previous year.


Relief from double taxation is provided by abatement on the basis of mutual agreement between two states concerned whereby the assessee is given relief by credit/refund in a particular manner even though he is taxed in both countries.


In order to determine the taxability of business income of foreign enterprises operating in India, it is important to determine the existence of a Permanent Establishment (‘PE’).


Sections 90 and 91 of the Income tax Act, 1961 provide for double taxation relief in India.


Advance Tax: Advance tax is the income tax payable if the person’s tax liability exceeds ` 10,000 in a financial year.

Assessee: As per Section 2(7) of Income Tax Act 1961 ‘assessee’ is a person by whom any tax or any other sum of money is payable under the Act.

Bilateral Relief: In this the governments of two countries can enter into an agreement to provide relief against double taxation by mutually working out the basis on which the relief is to be granted.

Business Process Outsourcing: The contracting out of a particular business function to an outside company in order to reduce costs.

Deferred Tax Liability: It is an account on a company’s balance sheet that is a result of temporary differences between the company’s accounting and tax carrying values, the anticipated and enacted income tax rate, and estimated taxes payable for the current year.

Double taxation: It refers to a situation where the same income becomes taxable in the hands of the same company or individual (tax-payer) in more than one country.

Such a situation arises due to different rules for taxation of income in different countries.

Income Tax Return: It is a completed tax form, with details of income and allowances.

Income: The flow of cash or cash-equivalents received from work (wage or salary), capital (interest or profit), or land (rent).

Provisions: A legal clause or condition contained within a contract that requires or prevents either one or both parties to perform a particular requirement by some specified time.

Unilateral Relief: This method provides for relief of some kind by the home country even where no mutual agreement has been entered into by the two countries

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