An important motive for business is to reduce tax burden by carefully arranging their economic activities. One such practice that gives them tax relief is called tax mitigation.
Tax mitigation is a situation where the taxpayer uses a fiscal incentive available to him in the tax legislation and thus availing a tax benefit. Here the tax payer fulfills conditions and economic consequences that the particular tax legislation instructs.
Fiscal incentive may be a tax exemption or deduction or concession offered by the government to businesses.
An example for tax mitigation is the setting up of a business undertaking by a firm in a designated area such as a Special Economic Zone (SEZ). In the SEZ, there is no income tax for the first five years.
In such a case, the taxpayer is taking advantage of a fiscal incentive in the form of an income tax exemption offered to him in the SEZ provisions of the Income-tax Act. For setting up the business in the SEZ areas and exporting from there the firm earns a tax concession. Tax mitigation is, thus, allowed under the tax laws.
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