What is tax mitigation?

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.