Corporate Tax Planning DEC 2026

Description

Corporate Tax Planning

Dec 2026 Examination

 

 

Q1 Innovative Tech Solutions Pvt. Ltd., an Indian domestic company, has reported a net profit of Rs.60,00,000 for FY 2023-24 as per its annual accounts, but due to substantial deductions and incentives under the Income Tax Act, its taxable income under normal provisions is only Rs.15,00,000. The management is concerned that applying only regular tax provisions unfairly reduces the company’s tax liability despite high book profits. The CFO must ensure compliance with tax law and maintain the company’s social reputation for paying its fair share. The board requires a tax computation strategy that addresses these issues. How should the CFO apply the Minimum Alternate Tax (MAT) provisions under Section 115JB to ensure the company meets both statutory and ethical obligations? Illustrate the steps for calculating MAT and explain how applying this model achieves transparency and prevents tax avoidance. (10 Marks)

Ans 1.

Introduction

A large gap between book profit and taxable income is exactly the situation Minimum Alternate Tax was designed to address, ensuring a profitable company cannot reduce its tax outgo to a negligible amount purely through deductions and incentives available under normal provisions. Applying Section 115JB carefully lets the CFO compute tax on book profit as a statutory floor, so Innovative Tech Solutions pays a

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Q2 (A) An employee receives (a) salary arrears of Rs.3,60,000 in FY 2024-25 relating to FY 2021-22, and (b) basic salary and fully taxable allowances of Rs.15,00,000 in FY 2024-25. His total salary income for FY 2021-22 was Rs.8,40,000 (excluding the arrears). The income tax slabs (ignoring cess) for both years are as follows: Standard deduction for both years: Rs.50,000. Compute (a) tax payable for FY 2024-25 on salary income (including arrears), (b) tax that would have been payable for FY 2021-22 had the arrears been taxed in those years, and (c) relief allowable under section 89 for AY 2025-26, showing all calculation steps as per the old regime. Ignore all other incomes and deductions. (5 Marks)

Ans 2(A).

Introduction

Salary arrears received in a later year but relating to an earlier year can push the employee into a higher effective tax bracket purely because of the timing of payment, even though the income genuinely belonged to the earlier, lower-income year. Section 89 relief exists precisely to neutralize this timing disadvantage, and computing it requires comparing tax liability across both years with and without the arrears included.

Concept and Application

Arrears Create a Genuine Tax Timing Disadvantage

Progressive tax slabs mean that bunching years of income into one receipt year pushes a larger portion into higher brackets than if taxed in the years it was actually earned. An employee receiving arrears has no control over timing, so taxing the full amount at the receipt year’s marginal rate would unfairly penalize a delay that was never their choice.

The Four-Step Logic Behind

 

 

Q2 (B) Mr. Satish, an individual investor, experienced the following in FY 2024-25: a short-term capital loss of Rs.1 lakh from stock sales, a long-term capital gain of Rs.70,000 from property sale, and business income of Rs.2 lakh. He also has a remaining long-term capital loss of Rs.50,000 from the previous year. He is uncertain about the order and scope of set-off and carry forward for his losses. Assess and justify the optimal order of set-off and carry forward of Mr. Satish’s losses, referencing statutory priorities for intra-head and inter-head adjustments. Critically evaluate why capital loss set-offs are ring-fenced, and recommend the most strategic approach for minimizing his overall tax liability. (5 Marks)

Ans 2(B).

Introduction

Mr. Satish’s mix of short-term capital loss, long-term capital gain, business income, and a brought forward long-term capital loss raises exactly the kind of set-off ordering question the Income Tax Act addresses through specific, ring-fenced rules. Applying the statutory sequence correctly determines not only how much tax he owes this year but also how much loss remains available to shelter his future capital