Page 76 - DCOM508_CORPORATE_TAX_PLANNING

Unit 3: Corporate Tax Planning

Therefore, a company resident in Mauritius selling shares of an Indian company will not pay tax Notes
in India. Since there is no capital gains tax in Mauritius, the gain will escape tax altogether.

Did u know? The Indian and Cypriot tax treaty is the only other such Indian treaty to
provide for the same beneficial treatment of capital gains.

Under the Income Tax Act, 1961 of India, there are two provisions, Section 90 and Section 91,

which provide specific relief to taxpayers to save them from double taxation. Section 90 is for
taxpayers who have paid the tax to a country with which India has signed DTAA, while Section
91 provides relief to taxpayers who have paid tax to a country with which India has not signed a
DTAA. Thus, India gives relief to both kinds of taxpayers.

With DTAA, there are fixed TDS rates applicable for income in India. These rates vary from
country to country. Countries such as UK (15%), USA (15%), UAE (12.5%), Germany (10%), China
(10%), etc. have maintained good trade as well as income tax agreements with India. However,
it is advisable for all NRIs to consult with a financial advisor before entering into any fi nancial or

investment-related agreement.

3.4.2 Difference between Tax Avoidance and Tax Evasion

Tax evasion and tax avoidance are both practices designed to reduce the amount people pay in
taxes. The difference is that one involves legal means, while the other is illegal and is a form of
tax fraud. Professionals such as attorneys and accountants who assist people with illegal means
of reducing tax liability can be penalised along with the taxpayer.

In tax avoidance, people take advantage of the tax law to find ways to reduce their total tax
liability. This is entirely legal and many people practice is every year at tax time. Using the

services of a sharp tax attorney or tax accountant can save people significant amounts of money
on their taxes. With tax avoidance, taxpayers seek out tax credits, write-offs, and other means of
cutting down on their tax liability.

The tax code is constantly being updated. Tax professionals keep up with changes to the law so
that they can advise their clients on the best ways to reduce the amount of money they owe. With
tax avoidance, people declare all of their income as required by law and submit other fi nancial
documents as needed, and the means used to reduce their tax liability are clearly documented
on their tax returns.

With tax evasion, people avoid taxes not by scrupulously following the tax code, but by hiding or
moving income, making false claims on a tax return, and utilising other illegal means to pay less
on their taxes. Some tax evaders avoid paying taxes altogether; people who work as independent
contractors or receive monies under the table for their work, for example, may simply not declare
this income and thereby avoid paying taxes on it.

The line between tax avoidance and tax evasion can sometimes be very fine. There are some

things people can do with their money that are perfectly legal under the law, but could be read as
attempts to evade taxes. Moving funds suspiciously and with no clear reason or documentation
can attract the attention of tax authorities. Once tax authorities suspect someone of tax evasion,
they will scrutinise that taxpayer closely.

Notable members of the criminal community, including no less a figure than infamous gangster
Al Capone, have gotten in trouble for tax evasion. Sometimes, it is difficult to pinpoint illegal

activity and prosecute people for activities such as Mob involvement, but those individuals can
be thrown in jail for failing to pay taxes. In the eyes of the Internal Revenue Service, even income
acquired from illegal activities needs to be declared and taxed.

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