Professional Documents
Culture Documents
To
Guide:
Submitted by:
00624488816
1
Institute of Innovation in Technology &
Management,
New Delhi – 110058
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3
ACKNOWLEDGEMENT
The internship I had with Rakesh Vipin & Associates was a great opportunity for
meet so many wonderful people and professionals who led me though this internship
period.
I thank CA Vipin Karbanda sir who in spite of being extraordinarily busy with his
duties, took time to hear, guide and keep me on the correct path and allowing me to
I also express my gratitude to Ms Payal Jha Ma’am ,our project guide for help and
guidance during our training , without whom it would not have been possible for the
project
to use gained skills and knowledge in the best possible way, and I will continue to
Sincerely,
B.COM(H)
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EXECUTIVE SUMMARY
This study examined the effect of taxation in business development and decision
making. Taxation in business development and decision is one that established two
divides for assessment of subjects. . Most actions of economic entities are influenced
consider the impact of taxes. However, business decisions are often based on very
simplistic tax models. The implementation of these concepts in the finance curriculum
approach helps businesses to focus on the essentials and to understand the idea behind
Business decisions in all areas of responsibility have the common goal of maximizing
long-term wealth by cash flow enhancement. The business decision making involves
identifying and analyzing alternative courses of action, including after-tax cash flows.
Since the amount and timing of income tax can vary significantly between
of and apply known tax law, as opposed to interpreting tax law which is the function
one of the central questions in both public finance and development. This effect
matters not only for the evaluation and design of tax policy, but also for thinking
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about economic growth. In my report i tried to simplify things & tried to understand
CONTENT
1 Certificate(s) 2-3
2 Acknowledgement 4
3 Executive summary 5
9 BIBILOGRAPHY 39
7
LIST OF TABLES
LIST OF GRAPHS
S No Title Page No.
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Chapter1
INTRODUCTION
Rakesh vipin & Associates is a indian chartered accountant firm based in Azadpur
Delhi. They provide all sort of chartered accountant services related to accounting,
auditing, income tax, financial services, company law matters, foreign collaborations,
related matters etc. In order to meet the specific requirements of the clients, they
provide the best possible solution and consultancy for their respective matters.
With the active support they receive from competent team of professionals, they have
managed to provide the effective services to our various esteemed clients. Company is
a full services firm providing Accounting, Assurance and Consultancy as our core
business lines for domestic and global businesses of medium to large size. The firm
also has expertise and vast experience in providing end to end solutions for Company
Law Matters, IFRS Convergence, Transfer Pricing, Risk and Transaction Advisory.
COMPANY’S SERVICE
1. Audit Services
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Rakesh Vipin & Associates has been empaneled on the United Nation’s
since 2008 for NEX/ NIM Audit and HACT assessment. Firm has
the applicable tax rules and rates for the home country and foreign
jurisdictions.
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1.2 OBJECTIVES OF THE STUDY
Dynamic Economy-
The objective is to study & evaluation of the effect of tax differential on choice of
business form of investors. The study reveals that tax differential affect investors
decision on choice of Business form and that the existing differential reduces
investing and Indian tax laws, many Compnies don't understand how to manage
their Investment to minimize their tax burden. Investment opportunities is also one
of the main factor in which inidan companies lack. The more an investment relies
on investment income – rather than a change in its price – to generate a return, the
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3. To Identify The Difference Between Tax Structure Of Domestic & Foreign
Companies.
Like all individuals earning income are supposed to pay a tax on their income,
business houses too are supposed to pay as tax a certain portion of their income
earned. Generally the domestic companies have less tax burden as compared to
foreign companies. One of the main reason is to boost to domestic market & make
Various types of taxes are levied by government on different sevices and sectors.
But at same time to ease the business government also provide many exemptions
after-tax cash flows. Since the amount and timing of income tax can vary
organizations.
assets and liabilities, (known as elements of the balance statement) over time under
participants aim to price assets based on their risk level, fundamental value, and their
expected rate of return. Finance can be broken into three sub-categories: public
(the information being verified) are stated in accordance with specified criteria.
Normally, the criteria are international accounting standards, although auditors may
conduct audits of financial statements prepared using the cash basis or some other
absolute assurance, that the financial statements are presented fairly, in all material
respects, and/or give a true and fair view in accordance with the financial reporting
framework.
examination of the financial statements, which increases the value and credibility of
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the financial statement, reduce investor risk and consequently reduce the cost of
situation where two businesses probably, making similar profit from similar turnover
that is also a result of equivalent level of investment, pays different amount as tax
simply because one comes under different sector & the other one comes under
could lead to is a form of tax avoidance in which case, investors who are conscious of
above facts may from the threshold (even with all the capabilities of floating a
appropriate, because of tax advantage. A second possibility is the fact that existing
The term investment can have more than one meaning In economics
or inventory or individual’s purchase of a new home. To the lay person, the word
denotes buying stock or bonds [or maybe even a house], but it probably does not
as the purchase of an asset for the purpose of storing value [and hopefully increasing
that value in time], if in the aggregate there is only a transfer of ownership from one
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seller to the other. Investment is a necessity for the development of a nation.
Investment, apart from assisting in producing needs for man’s survival, can also be
used as a tool for transmitting technical change and product innovation they
able to assess how investment responds to changes in government policy, not only in
designing long – term strategies but also in implementing short term stabilization
programmes.
directors or management as to how, when, where and how much capital will
determine costs and return for each option. Investment decision making is an
of fund to long – term assets that would yield benefits in the future. Success of
2. Tax & Investment Decision - The cost of capital is the required rate of return
that an investment project must earn, at least, for the project to break even and
to be accepted by the firm. The cost of capital depends upon two components:
the cost of finance for the project or economic depreciation. The tax system
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It may lower the rate of return of the project
Change the cost of different forms of finance and change the cost of different
forms of investment.
depreciation [wear and tear due to economic usage of assets]. The company income
Ti = ti [ri-ki] where
Automatically, the amount Ti has reduced the profitability of the project to the extent
of ti. If ti is substantial, investment may be discouraged because the net present value
[NPV] of the investment may be negative. The NPV is the discounted cash flow
during investment useful life. For an investment project to be worth carrying out, it
must be expected to earn a rate of return which is at least as high as the cost of capital.
The cost of capital is the cost of finance plus the cost of economic depreciation, i.e.
p+d–g; where( p is cost of finance and d – g is the rate of economic depreciation). The
expected gross rate of return, R will be viable if and only if R≥ p+d–g. The
government financial economic policy. Government may want to use the CIT as a
policy tool, in order to encourage some firms and discouraged others. From the
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ongoing discourse, it is clear that the mechanics of the tax system is the most
important.
The significance of corporation tax has equally been empirically validated concluding
that: “The policy implication is revealed in the evidence that corporation tax exert
significant and negative long term influence on Gross Fixed Capital Formation.
India to the degree that will trigger more private investments.” There is a large body
of literature investigating the effect of taxes on company investment and though most
of the results agree that taxes do influence investment decision the size and
foreign companies. Like all individuals earning income are supposed to pay a tax on
their income, business houses too are supposed to pay as tax a certain portion of their
income earned. This tax is known as corporate tax, corporation tax or company tax.
For the purpose of tax calculation, companies in India have been broadly
Domestic Corporate:
foreign but the control and management is wholly situated in India then also it is
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A flat rate of 25% corporate tax is levied on the income earned by a domestic
corporate.
earnings of the domestic company. This takes into account income earned by
Foreign Corporate:
A foreign company means an enterprise that has operations and origin in any other
country except India. The taxation rules are not as simple for foreign enterprises as
for domestic businesses. Corporate tax on foreign companies depends a lot on the
taxation agreements made between India and other foreign countries. For example,
corporate tax on an Australian company in India will depend upon the taxation
4. Small and Medium Scale Enterprises - The classification criteria of Small and
Medium Enterprises [SME] has been subjected to various sectors of the economy. At
international level, classification differs from one country to another. In India the
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4 The amount of insurance cover if it is an insurance business and
Enterprises have been classified under the Micro, Small and Medium Enterprises
any industry
The manufacturing and service enterprises have been further classified into micro, small and
Micro Entreprises Investment upto Rs.25 lakhs Investment upto Rs.10 lakhs
Small Entreprises Investment above Rs.25 lakhs Investment above Rs.10 lakh
and upto Rs.5 crore and upto Rs.2 crore
Medium Entreprises Investment above Rs.5 crore Investment above Rs.2 crore
and upto Rs.10 crore and upto Rs. 5 crore
Chapter 2
Research Methodology
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2.1 Significance of the study
In this report, the significance of this study is to bring together the various ways and
facts as regards to subject matter, the effect of taxation in business development and
decision making.
2. The report work will provide them with vital information regarding challenges
of lapses that may be affecting the business development and decision for
4. This report work will also serve as a vital material to those who may want to
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Research design is overall operational pattern of framework of project that stipulates
what information needs to be collected and from which method and procedure.
Exploratory: This type of research is done when objective is not known and it helps
Two types of data collection which I used during my project to know the importance
of Taxation for financial statements and its effect on investment & different business
decision.
1) Primary Data:
questionnaire and interviews. In this project, primary data has been collected
by the means of observation and interview. I got chance to ask personally from
some owners of different small & medium scale company in our office only.
2) Secondary data:
Secondary data means data that are already available i.e. they refer to the data
The secondary data involve in this project has been gathered from the
following sources:
c) Internet
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d) Client’s ledger
MS Excel.
Tally
Sampling Techniques
Convenience sampling
Probability sampling
privately owned and provide goods and services to customers in exchange for
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Development: - The act or process of developing, growth and progress.
Decision: - This can be regarded as the cognitive process resulting in the selection of
making process produces a final choice that may or may not prompt action.
Revenue: - Is income that a company receives from its normal business activities,
usually from the sale of goods and services to customers. In many countries and
Tax: - Is a financial charge or other levy imposed upon a taxpayer (an individual or
legal entity) by a state or the functional equivalent of a state to fund various public
expenditures.
GST:- Goods and Services tax is introduced in india by Modi government . The GST
is paid by consumers, but it is remitted to the government by the businesses selling the
goods and services. In effect, GST provides revenue for the government.
International Tax:- International tax issues include all tax rules that are imposed by
country’s borders
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CHAPTER- 3
This report examined the effect of taxation in business development and decision
making. Taxation in business development and decision is one that established two
divides for assessment of subjects. One taxed alongside employment and the other as
a body corporate. Those taxed alongside employment pays less, these may influence
the study, an equal business tax could not be recommended, rather the kind of
differential that currently exist under company income tax was recommended.
High taxes are very dangerous for the business. Following are the result of high taxes
affect company:
tax result in low income as now business is left with less amount of income.
High prices: - When tax is charged high , it will result in increase of per cost
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only cure for stagflation is to cut both taxes and government spending. But
this takes time to happen, keeping the effects of over taxation in place for a
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Taxes play an important role when companies decide where they should locate their
considered one of the most important instruments taken by financial managers, for
the business environment and increase its market share. It concerns with the issue of
capital allocation for fixed assets or financial assets; central place returns to fixed
material stocks, in the appropriate volume and adequate structure for its function at
the highest parameters. Also, the available liquidities may be placed respecting the
the general policy of the enterprise. Trying to retain and attract businesses in
multinational companies is something many countries aspire. What impact has the
corporate tax on foreign direct investment, FDI, and where the corporate profits are
When the company has determined where to locate, the third stage is to determine
how much to invest. A fourth stage can be added to this, where the company
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determines where generated profits are to be located, something multinational
This framework can be used to understand what tax measures should be studied for
is to be located is based on maximising profit after tax. This means that primarily, it is
not the formal corporate tax that is decisive to the company's decision, but what the
company actually pays in tax after the options of various deductions and write-offs –
which are measured by the effective corporate tax rate. Tax research differentiates
between effective average and effective marginal tax rates. As the first two
investment decisions are discrete choices, the effective average tax rate is considered
to be of greatest significance. How much is invested when the business has chosen
its location, however, is a decision of margins, and it is therefore considered that the
formal corporate tax rates, as all options to use deductions are then considered to be
exhausted. How different taxes affect investments in various sectors. His study
showed that whilst the effective average corporate tax rate is of significance to the
manufacturing industry, it is the formal corporate tax rate that is key to the service
industry, the financial services sector and R&D-based industry. As the formal tax rate
is considered to play a greater role in respect of where profits are located, it can also
point to a stronger tendency to move income to low-tax countries within the relevant
sector. Figures from the OECD also point to tax bases within the different industries
as being more sensitive to corporate tax rates than other industries. Live Mint looked
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at differences between export-focused production and production for the recipient
country's own market, and found that the former is more sensitive to the recipient
How Is Tax On Domestic Company Differ From The Tax Applied On Foreign
Companies?
foreign but the control and management is wholly situated in India then also it is
A flat rate of 29% corporate tax is levied on the income earned upto 5 crore
by a domestic corporate.
earnings of the domestic company. This takes into account income earned by
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Table 2. Taxes on Domestic Company
Whereas in case of foreign company the taxation rules are not as simple for foreign
a lot on the taxation agreements made between India and other foreign countries.
For example, corporate tax on an US company in India will depend upon the taxation
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Table 3 .Taxes on Foreign Company
The slab rates do not apply in the case of domestic companies, local authorities and
firms. A tax of flat 30% is computed on the total income. A surcharge of 7% is levied
cess of 3% of tax plus surcharge is also charged from such entities. The Income Tax
Department is responsible for activities related to the taxation process. At the end of
the financial year, every tax payer has to declare his business income to the Income
individuals and entities earning income in India to file a return, irrespective of the tax
being deducted at source. This ITR (Income Tax Return Form) summarizes income
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earned in a particular financial year. The income can be from business, salary,
pension, income from housing property, or even income from capital gains.
Under section 80C, the Income Tax deductions are allowed for the following:
Because of easy policy on start ups by Indian government resulted in increase of GDP
& FDI
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Graph2. Increase in FDI because of Made in India initiative
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Every individual and corporation within the India is taxed on income earned. Taxes
every year, and failure to file or pay taxes can subject you or your company to
penalties including fines, interest and even possible jail time. For most companies
and businesses, paying taxes is a necessary evil and the aim is to reduce the amount
of taxes owed as much as possible. Thus, the impact of tax on investment and
business decisions usually comes down to how to reduce taxes as much as possible
on income earned.
The taxes you pay on your investments can reduce the amount of money you
actually make from a given investment. For example, if you invest in a stock and
make 15 percent on your money, you may be taxed on those gains. If you are taxed
on the investment at 10 percent, then you really only made 13.5 percent on your
money. In reality, most people pay more than 10 percent on their gains. The rate a
ordinary income or not. If the investment is taxed as ordinary income, the amount
you pay in taxes depends on your tax bracket. For example, you may be in the 10
Investments taxed as ordinary income include stocks you have held for less than one
year.
Certain other investments are taxed as capital gains taxes. The capital gains rate as of
2016 is 15 percent, but in 2017 the gains will revert to 15 percent, 28 percent, 31
percent, 36 percent, and 39.6 percent. If you buy a stock and hold that stock for at
least a year, then gains from the investment are taxed as capital gains. For real estate
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investments, a whole different set of rules apply. If, for example, you have lived in the
home for two of the past five years before you sell it, you may be exempt from taxes
on the first 250,000 of taxes (500,000 if you are a married couple). If you didn't live in
the home and it was just a rental property, you may be able to sell the property and
use the proceeds to buy another, deferring taxes entirely using something .
The different tax rates can have an impact on how you choose to
invest. For example, you may decide not to hold a stock because you do not want to
be subject to capital gains taxes, or you may on the other hand opt to avoid day
trading to avoid income from your trades being taxed as ordinary income. You may
also prefer to consider real estate investments, if you want a more tax-free way of
earning income. Other individuals may also try to take advantage of tax deferred
For example, you may opt to open an IRA, which allows you to invest tax
free, or a Roth IRA, which allows you to enjoy tax free gains, depending on whether
you believe your tax bracket is likely to rise or fall. The impact of taxes on your
investments generally depends on how much you have to invest and how
sophisticated an investor you are. You should consider speaking to a financial planner
or accountant or tax attorney, if you have a lot of money to invest and are concerned
Tax can also impact business decisions in a number of ways. Since businesses can
deduct expenses of running a business, the company may wish to make a purchase
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within a given year in order to get the tax benefit for that year. Businesses can also
take depreciation on certain property, so this can impact how and when new items
are purchased.
focuses on how the business is structured. There are several major ways in which
businesses can be structured, each of which have different tax impacts. A sole
proprietor is taxed as an individual, and the individual normally files a personal tax
return that includes business profits and losses. For partnerships and limited liability
companies (LLCs) the individual members of the organization can also claim business
S-corporations and C-corporations allow for different deductions and the business
generally files taxes separately and then pays a salary to the business owners
business can thus dramatically change your tax picture. To make this decision, you
should speak with a tax professional who can help determine which business
For most investors and small business people, taxes play a role in how business and
investment decisions are made, but ultimately the most important thing is to
determine which investments or business decisions will have the best affect on your
personal or businesses value. As you gain more money and become a more
becomes more important and getting help from a professional to reduce your tax
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liability is usually advisable. The impact of tax on investment and business decisions
usually comes down to how to reduce taxes as much as possible on income earned.
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Chapter 4
4.1 CONCLUSION
Tax can also impact business decisions in a number of ways. Since businesses can
deduct expenses of running a business, the company may wish to make a purchase
within a given year in order to get the tax benefit for that year. Businesses can also
take depreciation on certain property, so this can impact how and when new items
are purchased.
how the business is structured. There are several major ways in which businesses can
be structured, each of which have different tax impacts. A sole proprietor is taxed as
an individual, and the individual normally files a personal tax return that includes
business profits and losses. For partnerships and limited liability companies (LLCs)
the individual members of the organization can also claim business profits and losses
corporations and C-corporations allow for different deductions and the business
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generally files taxes separately and then pays a salary to the business owners
business can thus dramatically change your tax picture. To make this decision, you
should speak with a tax professional who can help determine which business
4.2 LIMITATIONS
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4.3 SUGGESTIONS
Corporate taxation is a key part of the taxation system that directly affects current and
future business decisions of the private sector. Corporate taxes impact capital and
labour costs and, hence, not just current production and hiring decisions, but also the
fine-tune investment and output fluctuations over the business cycle, and spur long-
term economic growth and national welfare. In the last few decades, the importance
by the enhanced international mobility of capital in search of a lower tax burden and
modest production costs to ensure competitiveness. Policy options, which reignite the
engine of economic growth in India, generating welfare and internal demand, offer the
Taxes for start-ups and small companies should be low so that more and more people
are interested in investion & starting up new business. This will not only increase
number of business but also the money flow& economy will develop. Taxes play an
Study on Taxation effect can be done more deeply in cases of large firms , where
taxes are much more than they are applicable as compared to small scale plus the
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multinational companies ,who need to work on the taxation rules of different
BIBILOGRAPHY
i www.moneycontrol.com
ii https://economictimes.indiatimes.com
iii https://www.cairn.info
iv https://www.livemint.com
v Scannella, E., 2012, Project Finance in the Energy Industry: New Debt-based
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