Profit & Tax Planning

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Profit & Tax planning

Profit planning is the process of anticipating profits,

deciding profit targets. Cost-volume profit analysis

examines the relationship of cost and profits to thevolume of business to maximize profits.

Definition: According to Heiser 

³The most significant single factor in profit planning

of the average business is the relationship between

the volume of business costs and profits´

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Factor affecting profit of small

enterprise

Volume of fluctuations: Higher the volume of sale, greater 

will be the profit.

Change in fixed cost: it change the break even point butnot the marginal profit.

Change in Variable cost: it changes both the break even

 point and the marginal profit.

Change in Selling price: it changes the break even point

and the marginal profit.

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Techniques of profit planning

Break-even analysis

Ratio AnalysisBudgetary Control

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Break-even analysis

It is known as cost-volume-profit analysis. It

determines relationship between costs, prices,

sales volume, and profits. If volume isincreased the cost per unit will came down

and profit per unit will increase.

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Ratio Analysis

Ratio indicating profitability which are

calculated on the basis of profit & loss A/C

and balance sheet. Which show operating

efficiency , productivity or effective use of 

resources.

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Budgetary Control

The word budget is derived from a French term

¶Bougette· which refers to a leather pouch in which

funds are appropriate for meeting anticipatedexpenses.

Budget is an estimate of future needs arranged

to an orderly basis, covering some or allactivities of an enterprise for definite period of 

time,

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Tax planning

Taxation system in a country aims at raising of

resources, reducing inequalities in different

income categories at the time facilitating thepromotion of the interest of industrial sector of

the country.

Small scale units deserve to be givenpreferential treatment while framing taxation

policy.

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Status of the tax- payee

The status of the entrepreneur play an

important role in the tax planning. The status

refers to the legal and residential status.

A. Legal Status:

1. Individual2. Hindu undivided family

3. Company-Proprietorship

(a) manufacturing

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(b) Service

(c) Trading(d) Consultancy

4. Partnership firm

5. Association of personsB. Residential status

Resident

Resident but not ordinary resident

Non- resident Indians.

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The rate of taxes, exemption anddeduction vary as per the legal andresidential status of the entrepreneur.

Therefore, entrepreneur should decideand mention their status while taxplanning.

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Thanks