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Unit 10: Tax Consideration in Specific Managerial Decisions

The Tax is levied by the department of Central Board of Direct Taxes (CBDT), acting as a Notes
part of Ministry of Finance as governed by the Income Tax Act 1961.

Fringe Benefit Tax (FBT) is a tax levied on perquisites-or fringe benefits -provided by an
employer to his employees, in addition to the cash salary or wages paid and was introduced
in India in the year 2005-2006.
Remuneration planning refers to minimisation of the employees’ tax liability.
Salary restructuring as the process of redesigning your salary in such a way that it results
in minimisation of total tax liability.

10.6 Keywords

Allowances: Money that a company or government agency provides to an employee for a specifi c
purpose, such as transportation, healthcare costs or a flexible spending account.

Buy or Lease Decision: Business decision that compares the cost and benefits of a lease arrangement

with the cost of a purchase.
Employees Remuneration: Employee remuneration refers to the reward or compensation given
to the employees for their work performances.

Fringe Benefit Tax (FBT): It is a tax levied on perquisites-or fringe benefits -provided by an

employer to his employees, in addition to the cash salary or wages paid.
Fringe benefi t: It is a form of pay (including property, services, cash or cash equivalent) in addition
to stated pay for the performance of services.
Make-or-buy decision: It is the act of making a strategic choice between producing an item
internally (in-house) or buying it externally (from an outside supplier).

Managerial decision: It may be defined as a systematic approach to formulate strategies for
positioning the business in relation to its environment to ensure continued success and offer
security from surprises.

Perquisites: The term perquisite is defined to signify some benefit in addition to the amount that
may be legally due by way of contract of services rendered.
Remuneration planning: It refers to minimisation of the employees’ tax liability.
Salary restructuring: It is the process of redesigning your salary in such a way that it results in
minimisation of total tax liability.

Stock Options: An option in which the underlier is the common stock of a corporation, giving

the holder the right to buy or sell its stock, at a specified price, by a specific date which is also

called equity option.
10.7 Review Questions

1. Define managerial decision. What are the dimensions of managerial decision-making?

2. Discuss the considerations involved in choosing between taxable and tax-free sales or
acquisitions.
3. Write short note on the following:
(a) Make or buy decision
(b) Buy or lease decision
(c) Export or local sales decision

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