Page 242 - DCOM508_CORPORATE_TAX_PLANNING

Unit 10: Tax Consideration in Specific Managerial Decisions

Notes

Caselet National Fertilizers Ltd. (NFL)
A
continuous chemical process industry, National Fertilizers Limited (NFL) is in the
business of producing fertilizers. It basically produces urea under a trade name.
Its production capacity is around 32 lakh million tonnes per year. With a market
share of around 14 per cent, NFL is one of the largest producers of nitrogenous fertilizers in
India. NFL also manufactures and markets industrial products, namely methanol, argon,
liquid nitrogen, liquid oxygen, nitric acid and carbon dioxide; sulphur is also produced as
a by-product.

The mission of NFL is to produce as well as market its products efficiently and economically

and serve the farmer community and other customers with quality products and maintain

its leading position in the fertilizer industry to the benefit of the national economy. Towards
this end, the company has been striving to move its workforce to improve production
capacity utilisation, securing optimum manpower utilisation, and reducing consumption
of major process material through better operation, process control and maintenance of
equipment. Therefore, various incentive schemes have been introduced from time to time
with objective of tax planning. These schemes give an opportunity to employees to improve
their earnings. After rethinking and a lot of deliberations with the help and guidance of an
outside consultant, NFL has recently restructured its salary and incentive scheme enabling
employees avail tax planning benefi ts.

Source: Compensation and Reward Management, 1st Edition, B. D Singh, Excel Books
Self Assessment

Fill in the blanks:
5. The scope of …………………….. is limited as the law gives the treatment of each and every
elements of the salary package.

6. The Tax is levied by the department of …………………., acting as a part of Ministry of
Finance as governed by the Income Tax Act, 1961.
7. To fix up the tax liability on both employer and employee in respect to salary income the

information about their residential status is of critically important to judge the amount of
the taxes to be paid by them in a …………………… year.
8. The tax is levied differently on every person depending on the components of his
……………… package.

10.3 Tax Planning Regarding Fringe Benefi t Planning

A fringe benefit is a form of pay (including property, services, cash or cash equivalent) in

addition to stated pay for the performance of services. Some forms of additional compensation

are specifically designated as “fringe benefits” in the Internal Revenue Code; others, such as

moving expenses or awards, have statutory provisions providing for special tax treatment but

are not designated as fringe benefits by the Code. Fringe Benefit Tax (FBT) is a tax on benefi ts

that employees receive as a result of their employment, including those benefi ts provided

through someone other than an employer. The definition of fringe benefits applies to services of

employees and independent contractors; however, unless otherwise indicated, this guide applies

to fringe benefits provided by an employer to an employee.

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