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Summer-2013
Master of
Business Administration- MBA Semester 4
MF0012–Taxation
Management-4 Credits
(Book ID:
1759)
Assignment
(60 Marks)
Note: Answer
all questions (with 300 to 400 words each) must be written within 6-8 pages.
Each Question carries 10 marks 6 X 10=60
Q1. Explain the objectives of tax
planning. Discuss the factors to be considered in tax planning.
Answer. Objectives of tax planning
Tax planning
is a broad term that is used to describe the processes utilized by individuals
and businesses to pay the taxes due to local, state, and federal tax agencies.
The process includes such elements as managing tax implications, understanding
what type of expenses are tax deductible under current regulations, and in
general planning for taxes in a manner that ensures the amount of tax due will
be paid in a timely manner.
One of the main focuses of tax planning
is to apply current tax laws to the revenue that is received during a given tax
period. The revenue may come from any revenue producing
Q2. Explain the categories in Capital
assets. Mr. C acquired a plot of land on 15th June, 1993 for 10, 00,000 and
sold it on 5th January, 2010 for 41, 00,000. The expenses of transfer were 1,
00,000.Mr. C made the following investments on 4th February, 2010 from the
proceeds of the plot.
A) Bonds of Rural Electrification
Corporation redeemable after a period of three years, 12, 00,000.
B) Deposits under Capital Gain Scheme
for purchase of a residential house 8, 00,000 (he does not own any
house).Compute the capital gain chargeable to tax for the AY 2010-11.
(Explanation of categories of capital
assets 4 marks ; Calculation of indexed cost of acquisition 2 marks;
Calculation of long term capital gain 2 marks; calculation of taxable long term
capital gain 2 marks) 10marks
Answer. Categories of capital assets
1. Business Assets
Fixed assets
used in your business are taxed as ordinary gains. Business assets include all
furniture, equipment, and machinery used in a business venture. Examples
include computers, desks, chairs, and photocopiers. Ordinary gains are reported
on IRS Form 4797.
2. Small Business Stock
Capital
gains and losses on small business stock may qualify for preferential tax
treatment. Gains may be partially excluded under Section 1202, Gain on Small
Business Stock, if the company had total assets of $50 million or less when the
stock was issued. Losses may be
Q3. X Ltd. has Unit C which is not
functioning satisfactorily. The following are the details of its fixed assets:
Asset
|
Date
of acquisition
|
Book
value (Rs. lakh)
|
Land
Goodwill
(raised in books on 31st March, 2005)
Machinery
Plant
|
10th
February, 2003
5th
April, 1999
12th
April, 2004
|
30
10
40
20
|
The written down value (WDV) is Rs.
25 lakh for the machinery, and Rs.15 lakh for the plant. The liabilities on
this Unit on 31st March, 2011 are Rs.35 lakh.
The following are two options as on
31st March, 2011:
Option 1: Slump sale to Y Ltd for a
consideration of 85 lakh.
Option 2: Individual sale of assets
as follows: Land Rs.48 lakh, goodwill Rs.20 lakh, machinery Rs.32 lakh, and
Plant Rs.17 lakh. The other units derive taxable income and there is no carry
forward of loss or depreciation for the company as a whole. Unit C was started
on 1st January, 2005. Which option would you choose, and why?
(Computation of capital gain for both
the options 4 marks; Computation of tax liability for both the options 4 marks
; Conclusion 2 marks) 10marks
Answer.
Q4. What do you understand by customs
duty? Explain the taxable events for imported, warehoused and exported goods.
List down the types of duties in customs. An importer imports goods for
subsequent sale in India at $10,000 on assessable value basis. Relevant
exchange rate and rate of duty are as follows:
Particulars
|
Date
|
Exchange
Rate Declared by CBE&C
|
Rate
of Basic Customs Duty
|
Date
of submission of bill of entry
|
25th
February, 2010
|
Rs.45/$
|
8%
|
Date
of entry inwards granted to the vessel
|
5th
March, 2010
|
Rs.49/$
|
10%
|
Calculate assessable value and
customs duty.
Answer. A tax levied on imports (and,
sometimes, on exports) by the customs authorities of a country to raise state
revenue, and/or to protect domestic industries from more efficient or predatory
competitors from abroad.
Customs duty is based generally on the value of
goods or upon the weight, dimensions, or some other criteria of the item (such
as the size of the engine, in case of automobiles). Customs duty is levied on
goods imported in India. It is levied on Ports. If goods are imported by
illegal means and CD is not paid then these goods are called smuggled goods and
liable for prosecution. Only permitted goods can be imported into the country.
There are restrictions on
Q5. Explain the Service Tax Law in
India and concept of negative list. Write about the exemptions and rebates in
Service Tax Law.
Answer. Service Tax is a tax levied on the transaction
of certain specified services by the Central Government under the Finance Act,
1994. It is an indirect tax, which means that normally the service provider
pays the tax and recovers the amount from the recipient of taxable service. In
certain cases Government may shift the liability of payment of service tax to
the receiver of service as a measure of administrative convenience. It is often
referred to as ‘reverse charge’ in common language.
Q6. Explain major considerations in
capital structure planning. Write about the dividend policy and factors
affecting dividend decisions.
Answer. There are three major considerations in capital
structure planning, i.e. risk, cost of capital and control, which help the finance
manager in determining the proportion in which he can raise funds from various
sources.
Risk- Risk is of two kinds, i.e. financial
risk and business risk. Here we are concerned primarily with the financial
risk. Financial risk is also of two types:
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