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Before setting a business organization we should analyze tax provisions and incentives applicable to that. This unit focuses on tax planning tools for setting up of business organization. SETTING UP AND COMMENCEMENT OF BUSINESS Setting up a business within the scope of the Income Tax Act is a particular point to be considered for the purpose of tax planning strategy. It is different from the commencement of business. The company may be incurring certain expenditure of revenue nature during the intervening period after setting up and before the commencement of business (production). It is provided in the tax laws that the general expenses prior to the date of setting up are inadmissible but those incurred from the date of setting up and before the commencement of the business may be allowed as deduction for tax purposes provided they are of revenue nature and are incurred wholly and exclusively for the purpose of business. The first aspect of setting up of new business entity is deciding the form of organisation/ownership pattern. The selection of particular form of organization depends not only on the magnitude of financial requirements and owner’s liability, but also on the tax considerations. In the case of a company, the law interferes with the corporate planning process from the moment it comes into existence. At times, tax laws affect even the periods prior to the existence of a company and it can also extend up to the point of time when the company ceases to exist. ...
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