Question

Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency, with the elements of the financial plan working together in the most tax-efficient manner possible. Required: With appropriate illustrations and examples, briefly explain the following terms with respect to tax planning:

i. Tax holiday ii. Tax Exemptions iii. Tax Reliefs iv. Tax rebates/refund

Answer 1

i)Tax holiday:-

A tax holiday is a government motivating force program that offers an expense decrease or disposal to organizations. Tax holidays are frequently used to decrease deals charges by neighborhood governments, yet they are additionally ordinarily utilized by governments in creating nations to help invigorate remote investment.When a government body needs to empower the acquisition of specific things or support cooperation in specific exercises, it might give an assessment occasion, a transitory period during which the duty rate applied to specific items or services is diminished or expelled.

For example, numerous local governments have a sales tax holiday the end of the prior week school resumes in the tumble to decrease the cost trouble that parents carry when looking for their kids' school supplies or apparel. Sales tax holidays, similar to the school year kickoff one portrayed, are a typical kind of tax holidays managed by state governments. Specialists found that on sales tax holidays, family units increment the amounts of attire and shoes purchased by over 49% and 45%, individually, contrasted with what they for the most part purchase during that time span.

ii) Tax Exemptions:-

A tax exemption is the privilege to exclude all or some salary from taxation by federal or states governments. Most taxpayers are qualified for different exemptions to reduce their taxable salary, and certain people and associations are totally exempt from making good on taxes.

Example- The government ordinarily absolves associations from income tax completely when they serve the pubic good, relatabel to, religious or charitable associations. The administration eliminates the taxation burden of certain organizations it encourages them further advance open public welfare.

iii) Tax Reliefs:-

Tax relief is any administration program or strategy activity that is intended to decrease the measure of duties paid by people or organizations. It might be an all inclusive tax reduction or a focused on program that benefits a particular gathering of citizens or supports a specific objective of the government.Tax relief is expected to lessen the assessment obligation of people or organizations. Regularly, the Tax relief is intended to give help to a specific gathering of individuals or to support a reason.

Example- Thechild tax credit, for instance, benefits American guardians of minor kids. A child tax credit for buyers of vitality productive vehicles promotes the objective of more prominent U.S. vitality autonomy and cleaner air.

iv)Tax rebates/refund:-

A tax refund is a reimbursement to a taxpayer of any overabundance sum paid to the national government or a state government.Taxpayers will in general gander at a discount as a little something extra or a fortunate turn of events, however it truly speaks to an intrigue free credit that a citizen makes to the legislature. By and large, it is avoidable. Most taxation credits are non-refundable. That is, a taxpayer a citizen who owes nothing relinquishes the tax credit.. But there are exceptions.

Refundable tax credits include:

• The child tax credit, for tax years 2019 and 2020, this credit is a limit of $2,000, with up to $1,400 refundable.
• The earned income tax credit. This is an installment to direct and low-pay laborers.
• The American opportunity tax credit. This is accessible to citizens to balance qualified advanced education costs.