Under section 37, in the year of loss, losses under any head other than two losses – loss in speculation business and loss under the head “Capital gains” –can be set-off against other head(s) except against speculation business income and capital gain. But one speculation business loss can be set off against other speculation business income only and one capital loss can be set off against other capital gain only. Under other provisions of sections 38-42, set-off of losses can be done in future six successive income years only against the concerned head of income and applicable only for following incomes: speculation business income (u/s 39), other business income (u/s 38), Capital gains (u/s 40), and agricultural income (u/s 41). But in case of capital loss, carry-forward can be done after deduction of Taka 5,000 [u/s 40(3)]. Loss will be calculated for carry-forward after deducting any cash subsidy from the Government [second proviso to section 37]. Loss due to depreciation can be carried forward for unlimited period [u/s 42]. In case of loss, how to maximize the setting-off of the loss in the year concerned should be given special attention and in case of unset-off losses, special tax planning regarding accounting method can help to set off those losses before the expiry of the time limits.
Minimization of the tax rate(s): As noted earlier, marginal tax rate is the relevant tax rate for any business decision. Sommerfeld et al. (1980: 28/4) have mentioned, “the marginal tax rate is to business affairs what the law of gravity is to physics. Just as water seeks its lowest level (due to the laws of gravity), so also taxable income seeks its lowest marginal tax rate. The tax planning objective is achieved, of course, when the marginal tax rate is minimized.” See Appendix-V for the statutory tax rates for business entities and some other reduced tax rates for some industrial sectors and some specific types of income.
Draft Version Please don’t quote.
Maximization of credits/rebates/relief: Final emphasis for tax planning is to be given to maximize tax credits, tax rebates and tax reliefs. Again these are subject to conditions, limits and special applicability. Appendix-VI shows the areas where one can get these benefits.
Alternative View of Tax Planning Opportunities:
An alternative way of viewing tax-planning opportunities is to observe that income tax is constrained by time, entity, and accounting method. Since income tax rates “start over” with each new tax year and because very few taxpayers have a constant level of taxable income in each year, there tend to be high-tax years and low-tax years. The ‘tax value’ of a deduction is directly dependent on the marginal tax bracket of the party reporting it. Obviously, therefore, taxpayers tend to recognize losses and other deductions in high-tax years and to defer the recognition of taxable income to low-tax years. To the extent that a taxpayer can control tax timing, s/he should do so only after giving full considerations to the time value of money. Sometimes the financial cost of deferral is greater than the tax benefit (Sommerfeld et al., 1980: 28/5).
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