Category Archives: Accounting

Corporate Tax Planning

There are two certainties in this world: Death & Tax.Unavoidable circumstances. Reduce it. How to do that? Understand Tax Laws and apply. Why to understand and how to apply? Illustrations [in individuals].  Give money to spouse and spouse should purchase/construct house property they can use which for self-purpose to avoid provisions of Sec.27.

 Transfer of house property to son’s wife or minor grand child(son’s son) without adequate consideration would attract provisions of Sec. 64.Because sec. 27 does not cover these two transfers (only spouse and minor child(not being a married daughter) covers. So, if the property is under self-occupation, then the nail income will be the club.

Transfer it satisfies income yielding assets. Create income-yielding assets from income of assets transferred the to spouse. Using spouse in a sister concern of the entity where the assesses has the substantial interest would help to avoid clubbing.

SCOPE: Not only corporate entities, but all come under the purview of CTP (contrary to the common belief). Knowledge of taxation is an unimportant ingredient in any financial decision making. In tax planning, direct tax laws are the most crucial input. The Income Tax Act is the prime field of study in this context.

The interpretation process and demonstration of application would equip us with the art of getting into other legislations. It would take the holistic approach wherever necessary to comprehend decision situations involving knowledge of multiple pieces of legislation.

Stages in taxing statute:

  1. Chargeability: By express enactment, can not infer
  2. Assessment: Quantifying chargeability
  3. Collection: TDS, Advance tax, Self-assessment tax (under IT Act )

Rules of interpretation:

A. LITERAL RULE: ordinary, natural and grammatical meaning:

If the provision is free from ambiguity, we must ascribe plain meaning to the words used without impeding subtracting anything from the words. If a narrow interpretation emerges, which cannot serve the manifest purpose of the act, then a broad meaning can ascribe. (Ex. Sec. 173 (1) of the Companies Act, 1956: The nature of the concern or interest of the director or manager of a company in the subject-matter of the proposed motion discloses. Here we cannot confine the interest only to monetary interest alone.)

B.GOLDEN RULE: Rule of reasonable construction: If application of literal rule yields absurd result by which object sought to achieve would defeat, words changes to produce sensible meaning. It should not be guesswork.

C.MISCHIEF RULE/ RULE OFBENEFICIAL CONSTRUCTION: suppress the mischief and advance the remedy. The earlier mischief for which the earlier law provided none solution and the true intent of the present legislation with its remedy to the mischief.

D.RULE OF HARMONIOUS CONSTRUCTION

When two or more provisions of the cat conflict with each other, they have to understand in such a manner that all have to satisfy. [Ex. Sec. 210 (date of balance sheet shall not precede the date of meeting by over six months) and 166(1)(gap between two AGMs should not be over 15 months)]

E.EJUSDEM GENERIS: of the same kind or species

If there is a plain conflict between two provisions, the special one prevails. General words following specific words have to draw their colour from the specific words [You can keep dogs, cats, cows, buffaloes and other animals (not a lion)]. If the particular words used exhaust the whole genus, then the general words can cover a larger genus.

INTERNAL AIDS TOINTERPRETATION OF STATUTE:

  1. Long title is a part of the act (short title only identifies the act)
  2.  Preamble: scope, object and purpose of the act, but can not override the plain words of the act.
  3. Heading and title of a chapter: preamble to the sections
  4. Marginal notes: In India, they can refer to.
  5. Definitional sections / cause illustrations are not part of the section, but definitely a part of the act. But they cannot expand or curtail the ambit of the section.
  6. Proviso: The exception to the section.
  7. Explanations to read in harmony with the main section and clarifies its meaning
  8. Schedules: to read together with the act. If they are in conflict with the act, actprevails.

EXTERNAL AIDS TOINTERPRETATION OF STATUTE:

  1. Earlier acts, historical settings
  2.  Dictionary meaning
  3. Foreign decisions

FUNDAMENTAL:

  1. Act, Ordinance, Rules
  2. Structure of an Act – Chapter, Sections, Sub-sections, Clauses, Sub-clauses, Provisos, Illustration, etc.
  3. Deductions, Allowances, Rebates, Relief, Exemption, etc.
  4. Benevolent circular – Binding force of a circular
  5. Heads of Income & Sources of Income, GTI, Total Income
  6. Reason to believe v. Reason to Suspect
  7. Application of mind
  8. Principle of unjust enrichment

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Cash-On-Cash Return and Real Estate Marketing

During the regime of Margaret Thacher in the UK pioneered the concept of disinvestment in real estate. Then this concept spreads through America than to China Singapore, Japan, South Korea, Taiwan, Brazil and now to India. The new economy of Canada and Mexico as a result of the North American Free Trade Agreement (NAFTA), has opened up new revenues and avenues for real business there as well.

A rate of return often used in real estate transactions. The calculation determines the cash income on the cash invested. Cash-on-cash return would measure the annual return you made on the property in relation to the down payment.

Cash-On-Cash Return= Annual Dollar Income/Total Dollar Investment:


When a decision is made to involve the private sector in the provisioning of housing and infrastructure, there are various options and procurement rules there to be followed. It is important for the private sector because the procurement route defined will be responsible for various crucial aspects. Housing is the basic need for humanity and the challenges embedded within it can be through housing research. Cash on cash return in real estate investing in the real estate industry can be aptly classified basically three broad categories. Mega privatization, macro privatization, and micro privatization. Mega privatization brings the catalytic influence to the life of the citizens which ultimately helps the other two categories.

Cash on cash return in real estate investing is must for the investor and its success depends upon de-bureaucratization , internal privatization contracting out, Greenfield privatization, franchising, cold privatization corporation, divestiture, re-privatization , liberalization, deregulation, rolling privatization and distressed privatization. Cash on cash return in real estate investing depends upon the above-described factor. Cash on cash return in real estate investing depends upon various market forms and then the investor can take advantages with it by following some prescribed customs and traditions.

Observe the changing of the competitive private market from absolute state monopolies. Change to private production run from purely government production run. Change to consumer payment from government subsidy. Change to unviable form viable category of items. Change to non-merit from merit categories of items. Change to profit making from loss-making. Cash on cash return in real estate investing can take advantage of investing in this market scenario.

Look for the organization or public entity where quick decision making, carrot and the stick method, government bars the competitive advantages, incentives from the government and the real estate, hire and fire method, shareholders and investors must be the partners of the business ,and the motivation factor and good communication to investors is available.

Cash on cash return in real estate investing can be used to one’s advantage by following some procedures like avoid imperfect communication and outdated information from the organization , observe the frequency of transactions in housing by individuals, asses the every unit of the real estate organization separately as need-based , observe the variance of pricing ,the purchasing opportunities , minimize use of subsidies ,leverage financial resources , scope for innovations , a provided target safety net for the investors ,tax incentive to housing and urban link investments , mass media for public opinion, privatization in administrative control and procedures , consultancy services and special court for dispute redressal and settlement then decide whether to invest it or not. If you already have invested in the real estate organization then these points can be examined if you want to know the real health of the organization.

No single modalities of cash on cash return in real estate investing are free from fault. Since the individual investor can play a significant role so the emergence of stronger individual investment should be supported.

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