Tax Structuring is the first step involved in tax planning as it involves an intelligent application of the various provisions of the tax laws to practical situations m such a manner as to reduce the tax impact on the assessee to the minimum. A thorough understanding of the principles, practices and procedures of tax laws and the ability to apply such knowledge to various practical situations is expected at the final level.
A thorough up-to-date knowledge of tax laws is a pre requisite for a successful study of tax planning techniques, and an up-to-date knowledge of the statute necessary.
Planning is the formulation of a system which in its implementation is designed to achieve a specific result. Economic planning is the privilege of the State: tax planning is that of the subject. Men, material and money are the resources available at the disposal of a nation and to conserve the same, the State resorts to economic planning. Tax planning arms to reduce the outflow of cash resources made available the Government by way of taxes so that the same may be effectively utilized for the benefit of the individual or the business, as the case may be. Just as sound economic planning is indispensable for a welfare State, a sound tax planning is equally indispensable for the welfare of the citizen.
Before entering into a transaction or before starting a business, one normally considers its profitability and other aspects. Amongst other aspects, the tax implications of the transactions of the business have to be thought out before actually embarking on the deal, otherwise one may be caught unwittingly in huge tax liability. Planning from the point of view of taxation helps in generating greater savings of investible surplus.
Tax structuring may be defined as an arrangement of one’s financial affairs in such a way that, without violating in any way the legal provisions, full advantage is taken of all tax exemptions, deductions, concessions, allowances and other reliefs or benefits permitted under the law so that the burden of taxation on the assessee is reduced to the minimum.
It involves arranging one’s financial affairs by intelligently anticipating the effects which the tax laws will have on the arrangements now being adopted. As such it is a very stimulating intellectual exercise.
Any tax structuring scheme should be a natural one and should not give an appearance of an artificial arrangement on the face of it. The tax planner or the tax adviser should exercise great care and caution in designing any tax planning scheme as its failure will result in great difficulties and heavy burden of tax on the assessee for whom the scheme is evolved.
Three methods of saving taxes have been developed in most countries of the world n the past few decades: tax evasion, tax avoidance and tax planning.
Reduction of taxes by legitimate means may take two forms — tax planning and tax avoidance. ‘Tax planning is wider in range. At this stage, the distinction between ‘tax avoidance’ and ‘tax evasion’ may be noted. The dividing line between tax evasion and tax avoidance is very thin. The thin line to draw a distinction between the two items in the following words.
The distinction between evasion’ and ‘avoidance’, therefore, is largely dependent on the difference in methods of escape resorted to. Some are instances of merely availing, strictly in accordance with law, the tax exemptions or tax privileges offered by the Government, others are maneuvers involving an element of deceit, misrepresentation of facts, and falsification of accounting calculations or downright fraud. The first represents what is truly tax planning, the latter tax evasion. However, between these two extremes, there lies a vast domain for selecting a variety of methods which, though technically satisfying the requirements of law, in fact, circumvent it with a view to eliminate or reduce tax burden. It is these methods which constitute ‘tax avoidance’.
Thus tax structuring revolves around a thorough knowledge of taxes applicable, deductions on the same and the right way of taking up the benefits that are provided in the law, which involves minute study of the taxes involved along with its extensive knowledge and thus requires the correct professionals.
BMS has that right professionals to help you right away from the first day of the business.