ByThis article explores strategies businesses can use to minimize their tax liability through effective planning.
Understanding Minimum Tax, Unabsorbed Depreciation & Brought Forward Losses:
These concepts are crucial for tax planning, especially for companies with:
- Minimum Tax: A fixed minimum tax based on turnover, regardless of profit.
- Unabsorbed Depreciation: Depreciation expenses not fully utilized against taxable income.
- Brought Forward Losses: Business losses from previous years.
The Planning Process:
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Calculate Taxable Income: Start by calculating taxable income after deducting business income, unabsorbed depreciation, and brought forward losses.
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Compare Taxable Income with Minimum Tax:
- If taxable income is lower than minimum tax, you can claim Minimum Tax Credit.
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Minimum Tax Credit: This credit allows you to offset the difference between minimum tax and the actual tax liability calculated on taxable income.
Crucial Points:
- Minimum Tax Credit is based on previous year’s normal tax paid.
- Unused Minimum Tax Credit can be carried forward for 3 years.
- Strategic use of deductions and credits can reduce taxable income below the minimum tax threshold.
Benefits:
- Reduced current tax liability.
- Carry-forward of unused credit for future tax optimization.
Planning Considerations:
- Adjusting advance tax payments throughout the year can further optimize tax liability.
- Professional advice is recommended for complex situations.
Conclusion:
By understanding minimum tax, unabsorbed depreciation, and brought forward losses, businesses can implement strategic tax planning to minimize their current tax burden and optimize future tax liabilities.
