Corporate Tax Planning
Company Sec 2(17)Company is defined to mean following:An Indian
Company; or
Any body corporate incorporated under the laws of a foreign
country; or
Any institution , association or a body whether incorporated or
not , whether Indian or not which is declared by a general or
specific order as a company by CBDT; or
Any institution, association or a body whether incorporated or
not and whether Indian or non-Indian, which is declared by general
or special order of the central board of direct taxes to be a
company.
Types of Company Types of companiesIndian company Domestic
companyForeign companyIndustrial company (electricity, power,
shipping or mining)Company in which public are substantially
interested / widely held companies owned by Government/ RBI
Section 25 companies: A company without share capital declared
by CBDT as such Nidhi / Mutual Benefit Society Company owned by a
cooperative society
Listed companies
Investment company
Indian CompanyAn Indian Company means a company formed &
registered under the Companies Act,1956 Besides it includes the
following:A corporation established by or under a Central or State
or Provincial ActAny Institution ,association, or body which is
declared by the Board to be a Company u/s 2 (17).A company formed
& registered under any law in force in the State of J & K
.A company formed & registered under any law for the time being
in force in Union Territories of Dadra ,Nagar, Haveli, Goa, Diu. In
the afore said case ,a company will be treated as an Indian Company
only if its registered office is in India.
Domestic CompanyDomestic Company means an Indian Company which
in respect of its income liable to tax under the Act,has made
prescribed arrangement for the declaration & payment of
dividends within India in accordance with the sec 194.
Indian Company will automatically be considered as a domestic
Company.
In order to become domestic company it is essential that the
said other company may have made prescribe arrangement for
declaration & payments within India of dividends out of such
income.
Foreign Company means a company which is not a domestic
Company.Industrial CompanyIt means a Company which is mainly
engaged in the business of generation or distribution of
electricity or any other form of power or in the construction of
ships or in the manufacture or processing of goods or in mining.
Profits and Gains of Business or Profession Business includes
trade, commerce or manufacture or any adventure or concern in the
nature of trade, commerce or manufacture.Profession means
vocation,attainment of special knowledge.Business/profession should
be carried on by the assessee.
Allowable expensesSec 30- Rent,rates,taxes repairs,insurance for
building.Sec 31- Repairs & insurance of machinery, plant &
furniture.Sec 32 - DepreciationSec 36(1)- Insurance Premium on
stock ,building ,employeesSec 36(1)(ii) Bonus Commission to
employeesSec 36(1)(iii) Interest on borrowed capitalSec36(1)(iv)-
Employers contribution to PF ,Super Annuation FundSec 36(1) (iva)
Employers Contribution to notified pension Scheme Subject to 10% of
salary Sec 36(1)(vii)- Bad DebtsSec 36(1) (V)-Contribution towards
approved Gratuity Fund.Sec 36(1)(ix)-Family planning expenditure
,Capital expenditure one fifth of the expenditure is allowed as
deduction to the corporate assessee only. Allowable expenses Sec
37(2B)- Any expenditure incurred by an assessee on advertisment in
any souvenir,brochure,pamphlet published by political party is not
deductible,any other advertisment is deductible.Sec 37(1) General
DeductionExpenditure should not be in nature of capital
expenditure.It should not be personal expenditure of assessee.It
should have been incurred in the previous accounting year.It should
be in the respect of business carried on by the assessee.It should
have been expended wholly & exclusively for purpose of such
business.It should not have been incurred for any purpose which is
an offence or is prohibited by law. Amount expressly disallowed
under ActSec 40(a) Interest,royalty,fees for technical services
payable outside India or payable to non resident,TDS need to be
deducted & deposited before due date with Government,if not,
then no deduction. Sec 40 (a)(ia)-In case of resident assessee Case
1-Tax is deductible but not deducted ,no deduction in the current
previous year, If tax is deducted in any subsequent year the
expenditure will be deducted in the year in which TDS will be
deposited by the assessee with Government.Case II- Tax is
deductible & so deducted during the current financial year but
it is not deposited on or before the due date of submission of
return of income u/s 139(1),then no deduction in the previous year.
If tax is deposited with the Government after the due date of
submission of return of income ,the expenditure will be deductible
in that year in which tax will be deposited. Amount expressly
disallowed under ActSec 40(a)(ia) covers the following expenses
Sec 40 (a)(ic) Fringe Benefit Tax is not deductible.Sec 40(a)
(ii) Income tax is not deductible.Also interest u/s 234 A,234
B,234C is not allowed.Sec 40(a)(iia) Wealth Tax is also not
deductible.Sec 40 (a) (iii)-salary payable outside India without
Tax deduction is not deductible.Interest193/194 ACommission or
Brokerage194 HFees for Technical services194 JFees for Professional
Services194JPayment to contractor/subcontractors194 CRent194
IPayment of royalty to Resident194 J Amount expressly disallowed
under ActSec 40(a)(iv)- Any payment to Provident Fund or the other
fund established for the benefit of the employees of the assessee
is not deductible if the assessee has not made effective
arrangements to secure that tax shall be deducted at source from
any payments made from the fund which are chargeable to tax under
the head Salaries.Sec 40(a)(v)-Tax on perquisite paid by employer
not deductible.Sec 40 A(2) payments to relative is disallowed to
the extent such expenditure is considered to be excessive or
unresonable having regard to the fair market value of goods or
services or facilities.e.g x purchases goods from his brother.A,B,C
are three Directors of X Ltd .X Ltd employes Mrs A or Mrs B for her
tax advise. Sec 40A(3) Payments exceeding Rs 20,000 paid otherwise
than by account payee cheque or bank drafts.(not allowed by
cash,bearer cheque,crossed cheque,crossed demand draft),100% of
such payment will be disallowed.Exception to the above are
mentioned Rule 6DD Amount expressly disallowed under ActRule 6DD is
as followsPayment made to banking & other credit institution
such as Reserve Bank,commercial Bank. Payment to the Government
,such payment is required to be made for legal tender ,direct
taxes,custom duty,excise,railway freight,sales tax.Payment through
banking system e.g letter of credit,mail or telegraphic
transfer.Payment made to a person who resides in a village not
served by Bank. Related party TransactionX purchases goods from his
brother.A,B,C are three directors of X Ltd. X Ltd employs Mrs A is
paid by X Ltd for her tax advise.A & B are the two partners of
AB & Co. The firm purchases raw material from sister of B.X
holds 20% equity share capital in X Ltd. X Ltd hires truck owned by
the brother of X & pays rent. Y Ltd holds 20% equity shares in
X Ltd .A & B are directors of Y Ltd. X Ltd pays salary to Mrs
B. Amount expressly disallowed under ActSec 40 A(7) Gratuity is
deductible only is the following cases:Where gratuity is paid
during the previous year or where the gratuity has become payable
during the previous year (if no deduction was claimed on the basis
of provision earlier)Where any provision for gratuity (to meet
liability of gratuity in future) is made by way of any contribution
towards an approved gratuity fund.An employee retires during the
current year,Gratuity is paid to him during the current year.It is
deductible during the current year if no deduction was claimed
earlier.A company has 50 employees .To meet future liability to pay
them gratuity at the time of retirement,a gratuity fund is created
& employer makes contribution,it is deductible only if the fund
is approved. Sec 40A(9) If any contribution or payment is made
towards trust,company,not being recognised PF/gratuity ,then it is
not deductible.
Sec 43 B Disallowance of Unpaid liabilityThe following expenses
are deductible on payment basis-Any sum payable by way of tax ,duty
,cess or feeAny sum payable by an employer by way of contribution
to PF or superannuation fund Any sum payable as bonus or commission
to employees for services rendered.Any sum payable as interest on
any loan or borrowing from Public financial institution,state
Financial corporationInterest on any loan or advance taken from a
Scheduled Bank including a co-operative Bank.Any sum payable by an
employer in lieu of leave at the credit of his employee.Exception
If payment in respect of the aforesaid expenses is actually made on
or before the due date of submission of return of income & the
evidence of such payment is submitted along with the return of
income. Examples of Deductible ExpenditureInterest paid on delayed
payment of tax e.gpurchase tax,municipal tax,sales tax,service tax
,a delayed payment of provident fund
Examples of Non Deductible ExpenditureInterest paid under any
provision of Income Tax ,Wealth tax ,Fringe Benefit tax ,Advance
Tax or Self Assessment Tax,for late payment or short payment of
regular tax.Interest on loan taken to meet personal expenses.Where
a penalty is incurred for contravention of any specific statutory
provision.Banking Transaction Tax, Securities Transaction
Tax,Commodities Transaction Tax are deductible.
Profits and Gains of Business or ProfessionProfit and Loss
account:
Net profit as per P&L account xxxxAdd: expenses disallowed
xxxxAdd: incomes related to business but not recorded xxxx VLess:
incomes not taxable under this head xxxxLess: expenses related to
business but not recorded xxxx VSet off & Carry forward of
lossesThe process of setting off of losses & their carry
forward may be covered in the following steps:
Step 1Inter-source adjustment under the same head of incomeStep
2Inter head adjustment in the same assessment year. Step 2 is
applied only if a loss cannot be set off under Step 1.Step 3Carry
forward of a loss .Step 3 is applied only if a loss cannot be set
off under step 1 & 2.Inter source Adjustment Sec 70If the net
result for any assessment year ,in respect of any source under any
head of income, is a loss , the assessee is entitled to have the
amount of such loss set off against his income from any other
source under the same head of income for the same assessment
year.
Inter source Adjustment Sec 70Following are the exceptions to
the aforesaid rule.Loss in a speculation business can be set off
only against the profit in a speculation business.Long term capital
loss can be set off only against long term capital gain .Loss
incurred in the business of owning & maintaining race horses
cannot be set off against any income except income from such
business. By virtue of section 58, a loss cannot be set off against
winning from lotteries ,cross word puzzles, races including horse
races, card games & other games of any sort or from gambling or
betting of any form or nature.
Inter source Adjustment Sec 70One should note the following
points:Loss from house property can be set off against income from
any other house property.
Loss from a non-speculation business can be set off against
income from speculation or non-speculation business.
Short term capital loss can be set off against any capital gain
(Whether long term or short term)
Under the head Income from other Sources loss from activity (
other than the business of owning & maintaining race horses )
can be set off against any income but other than winning from
lotteries ,crossword puzzles.etc.
Inter source Adjustment Sec 70If income from a particular source
is exempt from tax e.g income exempt from tax under section 10,loss
from such source cannot be set off against income chargeable to
tax.
If there is income from one source & loss from another
source within same head of income , one has to set off the loss
against income .
Inter source Adjustment Sec
70XYZSpeculativeNon-speculativeSpeculative
Non-speculativeSpeculative
Non-speculative
A140000160000150000B(-) 50000(-)
180000(-)60000C2000004000002,10,000D(-)80000(-)90000(-)2,20,00090000120000(-)2000031000090,000(-)
10000Inter source Adjustment Sec 70In this case , loss from
speculative business can be set off only against income from
speculative business. However loss from non-speculative business
can be set off against income from any business speculative or
non-speculative. For instance ,in case of Y loss of RS 20000/- from
speculative business can not be set off against income of Rs
310000/- from non-speculative business. In case of Z , loss of RS
10000/- from non-speculative business should be set off against
speculative business income of Rs 90000/-.It may be noted that Z
does not have any option to set off (or not to set off) the loss of
RS 10000/- against income of Rs 90000/-.
Inter source Adjustment Sec 70Capital asset which is
transferredABCShort TermLong TermShort TermLong TermShort TermLong
TermP250000460000312000Q(-) 90000(-)490000(-)
80000R40000080000556000S(-) 380000(-) 15000(-)
590000Total16000020000(-)3000065000232000(-) 34000Inter source
Adjustment Sec 70Long term capital loss can be set off only against
long term capital gains. However short term capital loss can be set
off against long term as well as short term capital gains.In case
of B short term capital loss of Rs 30000/- should be set off
against long term capital gains of Rs 65000/-.In case of C However
,long term capital loss of Rs 34000/- can not be set off against
short term capital gains of Rs 232000/-.It may be noted that B does
not have any option to set off (or not to set off ) short term
capital loss against long term capital gains.
Inter Head Adjustment Sec 71The provisions of sec 71 are given
below.
Where the net result of computation made for any assessment year
in respect of any head of income is a loss, the same can be set off
against the income from other heads.
Inter Head Adjustment Sec 71Following are the exception to
heads:Loss in speculation business can not be set off against any
other income. Loss under the head capital gains can not be set off
against income under other heads of income.Loss from the business
of owning & maintaining race horses can not be set off against
any other income.A loss can not be set off against winning from
lotteries, crossword puzzle, races, card games & other games of
any sort or from gambling or betting of any form or nature.Loss
from business or profession (including unabsorbed depreciation) can
not be set off against income under the head salaries.Before
adjusting loss under section 71,one has to set off the loss under
section 70.Inter Head Adjustment Sec 71Any loss can be set off
against income under other heads of income for the same year .House
property loss can be set off against speculative profit.
No order of priority is given in the Act. One should try to
first set off those losses which cannot be carried forward to next
year.
A loss has to first adjusted against available income under
other heads of income .No option is available to set off a loss or
not to set off a loss .Set of & Carry forward of losses
If tax payer has the following income/loss:
In this case ,after adjusting business loss of Rs 1,00,000/- on
the remaining balance income Rs 1,30,000/- he will have to pay tax
during the current year.
Where income from a particular source is exempt from tax e.g
income exempt under section 10,loss from such source can not be set
off against income chargeable to tax. For the purpose of section
71,loss of profit must be loss of taxable profits.
Current Year(Rs)Next Year(Rs)Business Income(-)
1,00,0008,00,000Long Term Capital Gain2,30,0003,00,000 Carry
forward of losses
If a loss can not be set off either under the same head or under
the different heads because of absence or inadequacy of the income
of the same year ,it may be carried forward & set off against
the income of subsequent year.Under the Act, the following losses
can be carried forward :Loss under the head Income from House
Property (Sec 71B)Loss under the head Profits & Gains of
Business or Profession(i.e loss from Speculative or non-speculative
business) (Sec 72,73)Loss under the head Capital Gains (i.e Short
term or long term capital loss) (Sec 74)Loss from the activity of
owning & maintaining race horses other remaining losses can not
be carried forward.(Sec 74A) Sec 71 B Loss from House Property
When the net result of computation for any assessment year under
the head Income from House Property is a loss & such loss can
not be or is not fully set off against income under the other heads
u/s 71 ,such loss can be carried forward for set off against income
from House Property in the subsequent assessment years.Such loss
can be carried forward for 8 assessment years.Carry forward &
set off of business loss (Sec 72) Such loss can be set off only
against Business Income: It is not necessary that business loss of
year one should be set off against income from the same business in
year two. Loss of Business A of year one can be set off against
profit of business A or some other business in year two.A loss can
be set off against profits of any business in the subsequent
year.Loss can be carried forward for eight Assessment
year.Unabsorbed depreciation carried forward u/s 32 (2) will be set
off only after setting off of the brought forward losses under this
section.Loss can be carried forward & set off even if the
business in respect of which it was incurred & computed has
been discountinued.Return of loss should be filed under section
139(3):
A loss can not be carried forward unless it is determined in
pursuance of a return filed within the time allowed under section
139(3) .If an assessee fails to file his return of loss on or
before the due date of furnishing return of income ,then following
losses can not be carried forward:Loss of speculative or
non-speculative business(not being unabsorbed depreciation).Short
term or long term capital loss.Loss (not being unabsorbed
depreciation) from the activity of owning & maintaining race
horses.In case where the profits are insufficient to absorb brought
forward losses, current depreciation, current business loss the
same should be deducted in following order.Current
DepreciationBrought Forward Business lossUnabsorbed
Depreciation
Carry forward & Set off of Speculation loss (Sec 73)
Loss from a speculative business can be set off only against
income from a speculative business
Speculative transaction means a transaction in which a contract
for the purchase or sale of any commodity including stocks &
shares is periodically settled, otherwise than by actual delivery
or transfer of commodity or scrips.
Loss in a speculation business can be carried forward to the
subsequent year & set off only against the profits of a
speculation business carried on in that year.
Such loss can be carried forward for 4 assessment years.
Carry forward & Set off of Capital Loss(Sec 74)
Long Term capital loss can be set off only against long term
capital gains .
Short Term capital loss can be set off against short term or
long term capital gains.
Such loss can be carried forward for eight assessment year
immediately succeeding the assessment year in which loss was first
computed.
Such loss can not be carried forward unless return is filed
within the time limit of section 139(1).
Carry forward & Set off of Capital Loss(Sec 74) Provisions
IllustratedDuring the previous year 2011-12,X Ltd has generated
short term capital gains of Rs 80,000/- .It has brought forward
capital loss short term Rs 10,000/-& Long Term Rs 15,000/-In
this case, while short term capital loss of Rs 10,000/- can be set
off against short term capital gains of Rs 80,000/-.Long term
capital loss of Rs 15,000/- can not be adjusted against short term
capital gains.
During the previous year 2011-12,X has long term capital gains
of Rs 1,16,000/-.He has brought forward loss long term Rs 40,000/-
& short term Rs 8,000/-.In this case,long term as well as short
term loss can be set off against long term gains.
Carry forward & Set off of loss from activity of owning
& maintaining of race horses(Section 74A(3)
Losses incurred by owner of race horses in the activity of
owning & maintaining race horses can be set off only against
income ,if any, from the activity of owning & maintaining race
horses in the same assessment year.
Such unabsorbed loss can be carried forward to a subsequent year
& set off only against income from the activity of owning &
maintaining race horses.Such loss can be carried forward for four
assessment years .
Carry forward & Set off of loss from activity of owning
& maintaining of race horses(Section 74A(3)
BusinessIncomeAny other IncomeIncome from the activity of owning
& maintaining race horsesAny other business income (including
income from the activity of owning & maintaining any other
animal horses)Case of XIncome of the Current
Year80,00090,00012,000Less:B/F Business loss pertaining to
A.Y2011-12(-) 70,000(-) 95,000Total10,000(-) 5,00012,000Carry
forward & Set off of loss from activity of owning &
maintaining of race horses(Section 74A(3)
BusinessIncomeAny other IncomeIncome from the activity of owning
& maintaining race horsesAny other business income (including
income from the activity of owning & maintaining any other
animal horses)Case of YIncome of current
year1,90,00070,00060,000Less: B/F Business loss pertaining to
A.Y2011-12(-) 2,10,000(-) 55,000Total(-) 20,00015,00060,000Carry
forward & Set off of loss from activity of owning &
maintaining of race horses(Section 74A(3)
In the case of Y, the brought forward loss from the activity of
owning & maintaining race horses (to the extent it could not be
set off against income from such activity i.e Rs 20000/- can not be
set off against income from other business .It can be carried
forward up to the A.Y 2015-16.However in case of X, the brought
forward loss from other business to the extent it is not set off Rs
5000/-can be set off against income from the activity of owning
& maintaining race horses.
Carry forward & Set off of loss
Type of LossIncome against which c/f loss can be set offHow many
yrs loss to be c/fShould the business be continued forwardIs it
necessary to submit the return in time ?1.House propertyIncome from
HP8 yrsNANo2.Speculation lossSpeculation profit4 yrsNot
NecessaryYes3.Non-speculation loss3.1 Unabsorbed DepreciationAny
income other than SalaryNo time limitNot NecessaryNo3.2 Business
lossAny Businessprofit8 yrsNot NecessaryYesCarry forward & Set
off of loss
Type of LossIncome against which c/f loss can be set offHow many
yrs loss to be c/fShould the business be continued forwardIs it
necessary to submit the return in time ?4.CapitalLoss4.1
ShortTermAny income from Capital gain8 yrsNot NecessaryYes4.2Long
Term LossLong Term Capital Gain8 YrsNot NecessaryYes5.Loss fromrace
horsesIncome from same activity4 yrsYesYesCarry forward & Set
off of loss in case of Discontinued Business
The Business or profession is discontinued.Loss of such business
pertaining to that period could not be set off .Such business is
not a speculation businessAfter discontinuance of such business
,there is a receipt which is deemed business income u/s 41.Then
such loss can be carried forward even after 8 years & can be
set off even if the return of loss is not submitted in time.
Loss on sale of shares ,securities or units [Sec 94(7)]
Record Date means such a date as may be fixed by company/mutual
fund/UTI for the purpose of entitlement of the holder of the
securities /shares/units to receive the dividend (or
income).Section 94(7) is applicable if the following conditions are
satisfied:Any Person buys or acquires any Securities/shares/units
within a period of 3 months before the record date.Such a person
sells or transfers such securities/shares/units within a period of
3 months (9 months in the case of units ,after the record date)The
dividend or income on such securities /shares/units received (or
receivable) by such person is exempt from tax.
Loss on sale of shares ,securities or units [Sec 94(7)]
If the above conditions are satisfied then provisions of sec
94(7) are applicable as follows:Find out the amount of loss from a
transaction which satisfies the above condition.Find out the amount
of dividend receivable on the record date which is exempt from
tax.If (a) is less than or equal to (b) ,then loss can not be
adjusted .Conversely ,if (a) is more than (b) ,then (a) minus (b)
can be set off against income under the head capital gains.
Taxation of Export Undertaking Sec 10AUndertaking established in
Free Trade Zone :Conditions to be satisfied:Must begin manufacture
or production in Free Trade Zone It has begin to manufacture
/produce article or things or computer software during the
following years:
In the case of units which begins to manufacture or produce an
article or thing or computer software on or after April1,2005 in
SEZ, deduction will not be available under sec 10A.Such units can
claim deduction u/s 10AA.
LocationYearFree Trade ZoneFrom the A.Y 81-82 or any subsequent
yearElectronic Hardware Technology park or software Technology
ParkFrom the A.Y 94-95 or any subsequent yearSpecial Economic
ZoneBefore April 1,2005Taxation of Export Undertaking Sec 10AFree
Trade Zones are Kandla, Santacruez, Falta, Madras, Cochin,
Noida.Electronic software /hardware Technology Park: It means any
park set up in accordance with the scheme notified by the
GOI.Computer Software means Any computer programme recorded on any
disc, tape, perforated media or other information storage
device.Any customized electronic data or any product or service of
similar nature as may be notified by the Board. Which is
transmitted or exported from India to any place outside India by
any means.
Taxation of Export Undertaking Sec 10AThe CBDT has specified the
following information Technology enabled products or services for
this purpose only: Back office OperationsCall Centers Animation
Data Processing Engineering & Design Human Resource Services
Insurance Claim Processing PayrollRevenue Accounting.
Taxation of Export Undertaking Sec 10AShould not be formed by
Splitting /reconstruction of Business.Should not be formed by
Transfer of Old MachinerySale proceeds of articles or things or
computer software exported out of India must be received in India
by the assessee in convertible foreign exchange during the previous
year or within a period of six months from the end of relevant
previous year.Assessee should furnish audit report in Form No 56F
along with the return of income.Deduction u/s 10A is not available
if return of income is not submitted on or before due date of
submission of return of income u/s 139(1) or in the return of
income deduction u/s 10A is not claimed.
Taxation of Export Undertaking Sec 10AAmount of Deduction:
Profits of the business * Export Turnover of undertaking Total
Turnover of the Business carried on by the assessee.Export Turnover
: It means consideration in respect of export by the undertaking of
articles or things or computer software received in India by the
assessee in convertible foreign exchange within the prescribed
period but does not include the following:FreightTelecommunication
ChargesInsurance attributable to the delivery of the articles or
things or Computer software outside India.Expenses if any, incurred
in foreign exchange in providing the technical service outside
India.
Taxation of Export Undertaking Sec 10ASite Development : On site
development of computer software (including services for
development of software outside India shall be deemed to be export
of computer software outside India.Loss of other undertakings:
Profit for the business of undertaking shall be calculated without
adjusting losses & unabsorbed depreciation of other
undertaking. e.g if assessee has four units (all are qualified for
deduction u/s 10A ).Three units have returned a profit during the
course of assessment year ,while one unit has returned a loss. The
assessee is entitled to a deduction in respect of the profits of
the three eligible units while the loss sustained by the fourth
unit can be set off against the normal business income.Brought
Forward losses: Deduction under sec 10A will be available in
respect of profit of an eligible undertaking without setting off of
brought forward losses.
Taxation of Export Undertaking Sec 10APeriod of Deduction: For
an undertaking which was initially located in Free Trade Zone or
export Processing Zone & is subsequently located in a SEZ by
the reason of conversion of such Zones into a special economic Zone
,the deduction shall be available for 10 years from the previous
year in which the undertaking begins to manufacture or produce such
articles or things or computer software in such free trade zone or
export processing zone.Amount of Deduction Special Provisions :The
deduction under section 10A in case of undertaking which begins to
manufacture or produce articles or things or computer software
during April 1,2002 & March 31,2005 in any SEZ shall be as
follows: It is available for first 10 A.Y First 5 years- 100% of
profits & gains derived from the export of such articles or
things or computer software is deductible for a period of 5
consecutive assessment year.Sixth & Seventh assessment year
-50% of such profits & gains is deductible for further 2
assessment years.
Taxation of Export Undertaking Sec 10AEighth ,ninth & tenth
Year For next 3 yrs, a further deduction would be available to the
extent of 50% of profits provided an equivalent amount is debited
to profit & loss account of the previous year & credited to
SEZ Re-investment allowance Reserve Account .subject to the
following condition to be satisfied :The special Reserve Account
should be utilized for the purpose of acquiring new Plant &
machinery.The new plant & machinery should be first put to use
before the expiry of 3 years from the end of the year in which the
Special Reserve Account was created.Until the acquisition of new
plant & machinery the Special Reserve Account can be utilized
for the business purpose of the undertaking but it can not be
utilized for distribution of dividends/profits or for remittance
outside India as profits or for creating an asset outside
IndiaPrescribed particulars should be submitted in respect of new
plant & machinery along with the return of income for the
previous year in which such plant & machinery was first put to
use.
Taxation of Export Undertaking Sec 10AIf the special Reserve
Account is misutilised then the deduction should be taken back in
the year in which the Special Reserve Account is misutilised. If
the special Reserve Account is not utilized for acquiring new plant
& machinery within three years as stated above then the
deduction should be taken back in the year immediately following
the period of three years.
Taxation of Export Undertaking Sec 10AConsequences of
amalgamation /demerger : If a company which is entitled for
deduction under sec 10A is amalgamated /demerged with another
company , the amalgamated company can avail the benefit under sec
10A for unexpired period of a tax holiday..This facility is
available only when the transferor transferee company is Indian
company.The A.O has power to recomputed profit in the following two
situation:Transfer between two business/units owned by the tax
payerTax payer carries on two or more business .At least one of
them is qualifies for deduction u/s 10A/10B or vice versa.From the
business which is eligible for deduction u/s 10A/10B, some goods
are transferred to any other business carried on by the taxpayer
which is not eligible for deduction under sec10A/10B or vice
versa.The consideration for such transfer, which is recorded in the
books of account, is not equal to the market value of such goods on
the date of transfer.
Taxation of Export Undertaking Sec 10AIf the aforesaid
conditions are satisfied, the A.O will recompute the profits of the
business qualified for deduction u/s 10A/10B as if the transfer in
either case had been made at the market value of the goods on date
of transfer.
Units in Special Economic Zone (Section 10AA) The assessee is an
entrepreneur as defined in sec 2 (j) of SEZ Act, 2005. He is a
person who has been granted a letter of approval by the Development
Commissioner to set up a unit in SEZ.The unit in SEZ begins to
manufacture or produce article or things or provide services during
the financial year 2005-06 or any subsequent year. Manufacture for
this purpose means to produce, make, fabricate, assemble or process
or bring into existence by hand or machineIt is not formed by the
splitting up or reconstruction of a business already in
existence.It is not formed by the transfer to new business, of old
plant & machinery.The assessee has income from export of
articles or things or from services from such unit. The assessee
has exported goods or provided services out of India from SEZ by
land, sea, air or by any other mode.Books of account of the
taxpayer should be audited .The tax payer should submit audit
report along with the return of income.
Units in Special Economic Zone (Section 10AA)Deduction u/s 10AA
is not available unless it is claimed in return of income.Amount of
Deduction:Profits of the business * Export Turnover of undertaking
Total Turnover of the Business carried on by the assessee.Deduction
for First Five Assessment years:100% of the profit & gains
derived from export of articles or things or from services is
deductible for a period of 5 consecutive assessment years.Deduction
for Sixth Assessment Year to Tenth Assessment Year:50% of profit
& gains derived from export of articles or things or from
services is deductible for next 5 years.
Units in Special Economic Zone (Section 10AA)Deduction for
Eleventh A.Y to Fifteenth A.Y: For the next 5 years ,a further
deduction would be available to the extent of 50% of the profit
provided an equivalent amount is debited to the profit & loss
account of the previous year & credited to Special Economic
Zone Re-investment Allowance Reserve Account (Above mentioned
conditions should be satisfied).
Hundred per cent export oriented Undertaking (10B)
It must be an approved Hundred per cent export oriented
Undertaking.It must manufacture or produce any article or thing or
computer software. (Any computer programmes recorded on any disc,
tape, perforated media. ,Any electronic data or any product or
service of similar nature exported from India)It should not be
formed by splitting/Reconstruction of Business.It should not be
formed by transfer of old machineryThere must be repatriation of
sale proceeds into India.Audit Report should be submitted in Form
No 56G.All other conditions mentioned above.
Hundred per cent export oriented Undertaking (10B)
Subsequent conversion into export oriented undertaking: There is
an undertaking set up in Domestic Tarrif Area. It derives profit
from export of articles or things or computer software manufactured
or produced by it. It is subsequently converted into export
oriented undertaking .It shall be eligible for deduction u/s 10B,
on getting approval as 100% EOU. The deduction shall be available
only for the remaining period of ten consecutive A.Y
Tea /Coffee/rubber Development Account Sec 33ABThe assessee must
satisfy the following conditions.The assessee must be engaged in
tea, coffee, rubber plantationIt must make a deposit in Special
Account i.e deposit with National Bank for Agriculture & Rural
Development or any amount in accordance with a scheme approved by
the Tea Board or Coffee Board or Rubber Board.The deposit should be
deposited within 6 months from the end of the previous year or
before due date of furnishing the return of income whichever is
earlier.The accounts of assessee should be audited.(Audit report in
Form No 3AC)
Tea /Coffee/rubber Development Account Sec 33ABA sum equal to
amounts deposited in special account or40% of profit of such
business computed under the head profits & gains of business or
profession before making any deduction under section 33AB &
before adjusting brought forward business loss under section 72.
Whichever is less.Amount can be withdrawn for the purpose of
Scheme: The amount standing to the credit of Special Account may be
withdrawn only for the purpose specified in approved Scheme. If the
amount released from the special account is not utilized in the
same previous year for the purpose for which it is released, the
amount not so utilized will be treated as taxable profits of that
year & taxed accordingly.
Consequences in the case of closure of Business Sec 33ABWhen the
amount can be withdrawn & it is treated as taxable profitWhen
the amount can be withdrawn & it is not treated as
income.1.Closureof Business1.Death of the taxpayer2.Dissolution of
firm2.Partition of HUF3.Liquidation of company.Consequences if the
new asset is transferred within 8 years.The deduction allowed under
this section shall be withdrawn if the asset acquired out of the
money withdrawn from the special account is sold or otherwise
transferred.
To whom it is transferredTransfer within 8 yrs from the end of
the previous year in which asset is transferred.Transfer after 8
years.Transfer to the
CentralGov,aStateGo,alocalauthority,aStatutory CorporationDeduction
will not be withdrawnDeduction will not be withdrawnTransfer in a
scheme of succession of a firm by companyDeduction will not be
withdrawn
Deduction will not be withdrawn
Transfer in any other caseDeduction will be withdrawnDeduction
will not be withdrawn
Site Restoration Fund Sec 33ABAThe Assessee must satisfy the
following condition to claim deduction u/s 33ABA.The assessee must
be engaged in production of petroleum /natural gas in India.The
assessee has an agreement with the Central Government It must make
a deposit in Special account.The deposit should be made within
specified time limitThe accounts of the assessee should be
audited.The taxpayer is engaged in the business of the prospecting
for or extraction or production of ,petroleum or natural gas or
both in India .The Central Government has entered into an agreement
with the taxpayer for such business.Site Restoration Fund Sec
33ABAIt must deposit with SBI any amount in an account (herein
after referred to as Special account) maintained by the assessee
with that bank . (a scheme approved by GOI in the Ministry of
Petroleum & natural Gas).Deposit any amount in an account
(referred to as site restoration account) opened by the assessee in
accordance with scheme framed by GOI.The aforesaid amount shall be
deposited before the end of the previous year.Books of account of
the tax payer should be audited Form No 3AD
Site Restoration Fund Sec 33ABAAmount of Deduction:A sum equal
to amount deposited or20% of the profit of such business computed
under head Profits & Gains of Business or profession before
making any deduction u/s 33ABA & before adjusting brought
forward business loss u/s 72.whichever is less.
Amount can be withdrawn for the purpose of the Scheme A
depositor shall be entitled to withdraw from the amt standing to
the credit of the account only such amt as is necessary to meet any
expenditure to be incurred by him on the expiry or the termination
of the agreement or relinquishment of part of the contract
area,towards removal of all equipments & installation. Site
Restoration Fund Sec 33ABAConsequences of non-utilisation If the
amount released or withdrawn in a year is not utilised in the same
previous year for the purpose for which it is released ,the amt not
so utilised will be treated as taxable profits of that year &
taxed accordingly.Consequences in the case of closure of the
business:where any amt is withdrawn from Site Restoration Account
on the closure of the business ,then such income is chargeable to
tax.Consequences if the new asset is transferred within 8
years.Expenditure on Scientific Research Sec 35Scientific Research
means any activities for the extension of knowledge in the fields
of natural or applied sciences including agriculture,animal
husbandary or fisheries. With a view to accelerating scientific
research ,sec 35 provides tax incentives. Revenue Expenditure
incurred by an assessee who himself carries on Scientific Research
Sec 35 (1) Where assesse himself carries on scientific research
& incurs the revenue expenditure during the previous year
,deduction is allowed for such research . Capital expenditure
incurred by an assessee who himself carries on scientific research
Sec 35(2) Conditions to be satisfied (i) expenditure has been
incurred during the year.(ii) that it is of capital nature (iii)
that is it is on Scientific research
Expenditure on Scientific Research Sec 35The following are some
of the examples of capital expenses deductible u/s 35 Expenditure
on the purchase of plants & equipments for laboratory & on
purchase of construction of a building for conducting research.
Expenditure on the purchase of air-conditioners for
laboratory.Expenses on purchase of cars & buses which are used
to transport employees engaged in the scientific research.The
expenditure should be allowed fully.(Expenditure on Land is not
deductible.)Expenditure on Scientific Research Sec 35 Sec
35(1)(ii)(iii)-where the assessee makes contribution to the
following institution for this purpose ,a weighted deduction is
allowed as follows.
To whom contribution can be givenWeighted DeductionAn approved
research association which has ,as its object ,undertaking of
scientific research relatedor unrelated to the business of
assessee.175%An approveduniversity,college,orother institution for
the use of scientific research related or unrelated to the
business.175%An approveduniversity,college,orother institution for
the use of research in social sciences or statistical
research125%Contribution to National Laboratory Sec 35 (2AA)The
following condition should be satisfied:The payment is made to
National Laboratory orUniversity orIndian Institute of
TechnologyThe above payment is made under specific direction that
it should be used by the aforesaid person for undertaking a
scientific research programme approved by the prescribed authority.
If the aforesaid condition are satisfied the taxpayer is eligible
for weighted deduction which is equal to 200%
Amortization of Telecom licence fees (Sec 35 ABB) Deduction
under section 35ABB is available if following conditions are
satisfied.The expenditure is capital in nature.It is incurred for
acquiring any right to operate telecommunication services.The
expenditure is incurred either before the commencement of business
or thereafter at any time during any previous year.The payment for
which has actually been made.
Amortization of Telecom licence fees (Sec 35 ABB)Amount of
deduction: The payment will be allowed as deduction in equal
installments over the period starting from the year in which such
payment has been made & ending in the year in which the license
comes to an end. It may be noted that the deduction starts from the
year in which actual payment of expenditure is made irrespective of
the previous year in which the liability for the expenditure is
incurred according to the method of accounting regularly employed
by the assessee.
Amortization of Telecom licence fees (Sec 35 ABB)Profit or Loss
on Sale of telecom license:
Different SituationTax TreatmentEntire telecom license is
transferred1.When sale consideration is less than WDVWDV minus sale
consideration is allowed as deduction under section 35ABB in the
year of sale.2.When sale consideration is more than WDVThe excess
of sale consideration over WDV is taxable business income in the
year of sale(Subject to rule)When a part of telecom license is
transferred1.When sale consideration is less than WDVWDV minus sale
consideration will be allowed as deduction over the unexpired
period.2.When sale consideration is more than WDVWDV minus sale
consideration will be allowed as deduction over the unexpired
period.Amortization of Telecom licence fees (Sec 35
ABB)Depreciation u/s 32 is not available:Where a deduction for any
previous year is claimed & allowed under section 35ABB,then no
deduction of the same expenditure shall be allowed under section 32
for the same previous year or any subsequent previous year.
Amortization of preliminary Expenses Sec 35 DDeduction is
available in case of Indian Company or resident non-corporate
assessee. Examples are:Legal charges for drafting any agreement
between the assessee & any other person relating to the setting
up of the business of the assessee.Legal charges for drafting the
memorandum & articles of association if the tax payer is a
company.Printing expenses of memorandum & articles of
association of company.Registration fees of the company.Expenses in
connection with the public issue of share or debentures of company
,underwriting commission,brokerage & charges for drafting
,printing,typing,advertisment of prospectus.Amortization of
preliminary Expenses Sec 35 DThe expenditure can not exceed the
following:
One fifth of the qualifying expenditure is allowable as
deduction in each of the five successive years beginning with the
year in which business commencesIn case of corporate AssesseeIn
case of non-corporate assessee5% of cost of project or5% of cost of
project5% of capital employed whichever is moreRecovery against any
Deduction u/s 41(1) If in any of the earlier years a deduction was
allowed to the tax payer in the respect of loss,expenditure
&During the current previous year the tax payer-Has obtained a
refund of such trading liability Has obtained some benefit in
respect of such trading liability by way of remission or cessation
thereof.If both conditions are satisfied ,the amt obtained by such
person shall be deemed to be profits & gains from business or
profession. Maintenance of accounts by certain persons Sec
44AASpecified Profession For the purpose of Sec 44AA & rule 6F
legal,medical,engineering ,architectural,accountancy,technical
consultancy,or interior decoration ,film artist,company
secretary,are specified Profession.Non-Specified Profession A
non-specified profession other than a specified profession
mentioned above.Maintenance of accounts by certain persons Sec
44AASpecified Profession For the purpose of Sec 44AA & rule 6F
legal,medical,engineering ,architectural,accountancy,technical
consultancy,or interior decoration ,film artist,company
secretary,are specified Profession.Non-Specified Profession A
non-specified profession other than a specified profession
mentioned above.Maintenance of accounts by certain persons Sec
44AACategoryTaxpayer who come under this categoryRequirement of
maintenance of books of accountsAPersons carrying on Specified
Profession if their gross receipts in the profession do not exceed
Rs 1,50,000 in any of the three years immediately preceding the
previous year (or where the profession is newly set up in the
previousyear,hisgross total receipts in the profession for that
year are not likely to exceed the said amount).Persons coming under
this category are required to maintain such books of account &
other document as may enable the AO to compute their taxable
income. The Board has not prescribed specified books of account
which should be maintained for the persons falling under this
category.Maintenance of accounts by certain persons Sec
44AACategoryTaxpayer who come under this categoryRequirement of
maintenance of books of accountsBPersons carrying on specified
profession if their gross receipts in the profession exceed Rs
1,50,000 in all the three years immediatelypreceedingthe previous
year(or where the profession has been newly set up in the previous
year ,his gross total receipt in the profession for that year are
likely to exceed the said amount)Persons coming in this category
are required to maintain such books of accounts as are prescribed
by rule 6FMaintenance of accounts by certain persons Sec
44AACategoryTaxpayer who come under this categoryRequirement of
maintenance of books of accountsCPersons carrying on a
non-specified profession. It also includes persons carrying on any
business if their income from such profession or business does not
exceed Rs 1,20,000 & total sales/turnover or gross receipt
thereof are not in excess of Rs 10,00,000 in all the three years
immediatelypreceedingthe previous year .Persons coming under this
category are not required to maintain any books of
account.Maintenance of accounts by certain persons Sec
44AACategoryTaxpayer who come under this categoryRequirement of
maintenance of books of accountsDPersons carrying on a
non-specifiedprofession.Italso includes persons carrying on any
business if their income from such profession or business exceeds
Rs 1,20,000 or the totalsales,turnover,grossreceipts are in the
excess of Rs 10,00,000 in any of three years
immediatelypreceedingthe previous year.Persons falling under this
category are required to maintain such books of accounts &
other documents as may enable the AO to compute their taxable
income under IT Act.Specified Books of account Sec 44AAThe Board
has specified certain books of account under rule 6F for the
professional falling under Category B. The prescribed books are as
follows.A cash book (record of all cash receipts & payments,
kept & maintained from day to day & giving the cash balance
in hand of each day or at the end of a specified period not
exceeding a month)A journal, if the accounts are maintained
according to the merchantile system of accountingA ledgerCarbon
copies of bills exceeding Rs 25 issued by the person & carbon
copies otherwise serially numbered receipts issued by the
person.
Specified Books of account Sec44AAApart from this, person
carrying on medical profession is required to keep the following
additional booksA daily case register in Form No 3C showing date
,patients name,nature of professional services rendered ,fees
received& date of receipt.An inventory under broad head ,as on
the first & last days of previous year,of stock of drugs
,medicines & other consumable accessories used for the purpose
of his profession
Audit of certain persons (Sec 44AB)
The following persons are required to get their accounts
compulsorily audited by a Chartered Accountant.A person carrying on
the business if total sales, turnover or gross receipt in business
for the previous year relevant to the assessment year exceed or
exceeds Rs 60 lakhs. A person carrying on profession if gross
receipts in profession for the previous year relevant to the
assessment year exceed Rs 15 lakhs.
Due Date for getting books audited/submission of audit Report
& Form NoDifferent Tax PayersAudit Form NoStatement
ParticularsDue Date for getting books auditedDue Date for
Submission of audit reportIn case of person who carries
onbusinesssor profession & who is required by or under any law
to get his accounts audited3CA3CDSept 30thof the A.YSept 30thof the
A.YIn case of a person who carries on a business or profession but
not being a person referred above.3 CB3CDSept 30thof the A.YSept
30thof the A.YDue Date for getting books audited/submission of
audit Report & Form NoIf any person fails to get his accounts
audited or to furnish a report of such audit as required under the
aforesaid provision, AO may impose penalty .The penalty can be a
sum equal to one half percentage of total sales, turnover or gross
receipts subject to maximum of Rs 1 lakhs. If income is exempt
under section 10 to 13A,then audit under section 44AB is not
required.If however income is chargeable to tax ,audit under
section 44AB is applicable.(when turnover is above Rs 40 lakhs or
gross receipts is above Rs 10 lakhs) even if in a particular year
no tax is payable.
Computation of income on estimated basis in the case of
taxpayers engaged in certain business (Sec 44 AD)Conditions:The
assessee should be an eligible assessee .Eligible assessee for this
purpose is a resident individual,a resident HUF or resident
partnership firm The assessee has not claimed any deduction under
section 10A,10AA,10B,10BA,80HH,80RRB.The assessee should be engaged
in any business (whether it is retail trading or wholesale trading
or civil construction ) except the business of plying,hiring ,or
leasing goods carriages referred to in section 44AE.Total turnover
/gross receipt in the P.Y should not exceed Rs 60 lakhs.
Computation of income on estimated basis in the case of
taxpayers engaged in certain business (Sec 44 AD)Consequences if
the above conditions are satisfiedIf the above conditions are
satisfied ,income from eligible business is estimated at 8% of the
gross receipt or total turnover. All deductions under section 30 to
38,including depreciation & unabsorbed depreciation, are deemed
to have been already allowed & no further deduction is allowed
under these section. In case of firm ,the normal deduction in
respect of salary & interest to partners under section 40(b)
shall be allowed.Also it will be assumed that disallowance if any
under section 40,40A,43B has been considered.An assessee opting for
the above scheme shall be exempted from the payment of advance tax
related to such business.An assessee opting for the above scheme
shall be exempted from maintenance of books of account related to
such business as required under section 44AA.An individual/HUF
opting for the above scheme can submit his return of income in ITR
-4S (which is simplified return form Sugam)
Computation of income on estimated basis in the case of
taxpayers engaged in certain business (Sec 44 AD)Consequences if
the above conditions are satisfiedIf the above conditions are
satisfied ,income from eligible business is estimated at 8% of the
gross receipt or total turnover. All deductions under section 30 to
38,including depreciation & unabsorbed depreciation, are deemed
to have been already allowed & no further deduction is allowed
under these section. In case of firm ,the normal deduction in
respect of salary & interest to partners under section 40(b)
shall be allowed.Also it will be assumed that disallowance if any
under section 40,40A,43B has been considered.An assessee opting for
the above scheme shall be exempted from the payment of advance tax
related to such business.An assessee opting for the above scheme
shall be exempted from maintenance of books of account related to
such business as required under section 44AA.An individual/HUF
opting for the above scheme can submit his return of income in ITR
-4S (which is simplified return form Sugam)
Computation of income on estimated basis in the case of
taxpayers engaged in business of plying,leasing or hiring trucks
(Sec 44 AE)The tax payer may be an
Individual,HUF,AOP,BOI,firm,company,co-operative society or any
other person.Taxpayer is engaged in the business of plying,
hiring,or leasing goods carriage.Taxpayer owes not more than 10
goods carriages at any time during the previous year.All other
condition are the same as per Sec 44AD.Computation of income on
estimated basis in the case of taxpayers engaged in business of
plying,leasing or hiring trucks (Sec 44 AE)Income to be calculated
on estimated Basis:
Types of goods carriageEstimated incomeHeavy goods vehicleRs
5000 for every month during which the goods carriage is owned by
the taxpayer.Other than Heavy Goods Vehicle.Rs 4500 for every month
during which the goods carriage is owned by the taxpayer. Deduction
from Gross Total Income 80G Donations to Charitable institutions
& Funds80GGA Donation for Scientific research or rural
development.80GGB Contribution to political parties80 IA Profits
& Gains from Industrial undertaking engaged in infrastructure
activity 80 IAB Profits & Gains from Industrial undertaking
engaged in Special Economic Zone. 80 IB Profits & Gains from
Industrial undertaking other than infrastructure development
undertaking80 IC Profits & gains from undertaking in certain
States.80 ID Profits of hotels & Convention Centers.80 JJA
Profits & Gains Business of collecting & Processing
biodegradable waste.80JJAA Employment of New Workmen 80 LA Income
of offshore Banking Units
80 GGA Donation for Scientific research or rural development. An
Assessee (other than an assessee whose gross total income includes
income chargeable under the head Profits & gains of business or
profession ) is entitled to deduction . Sum paid to a scientific
research association, or to a university, college, or other
institution as approved.Including social science or statistical
research.Sum paid for training persons for rural development
programme.Sums paid to National Fund for rural development set up
and notified by central governmentSum paid to a public sector
company,local authority or an approved association or institution
for carrying out any eligible project or scheme ,referred to in sec
35 AC Sums paid to the notified National urban poverty eradication
fund80GGB Contribution to political parties or electoral trust by
companiesIn computing the total income of an Indian Company,any sum
contributed by it to any political party or electoral trust is
deductible.Expenditure by way of advertisment to a magazine owned
by a political party is deductible u/s 80GGB.
80GGB: deduction in respect of contributions given by companies
to political parties or electoral trust In respect of contribution
to political parties.
W.e.f. A.Y. 2012-13, contribution to Electoral Trust also
eligible for deduction.
Indian companies = 100% of sum contributed
Political parties should be registered with the Election
commission of India.
80 IA Profits & Gains from Industrial Undertaking engaged in
the infrastructure Development.Deduction under sec 80 IA is
available only to the following business carried on by the
undertaking.
Case 1Provisionof InfrastructurefacilityCase 2Telecommunication
ServicesCase 3Industrial ParksCase
4Powergeneration,transmission& distributionCase 5Undertaking
set up for reconstruction of a power unit80 IA Profits & Gains
from Industrial Undertaking engaged in the infrastructure
Development.An undertaking providing infrastructure facility must
satisfy the following conditions-It should provide infrastructure
facilityIt should be owned by an Indian CompanyThere should be an
agreement with the central Government It should start operation on
or after April 1,1995Deduction should be claimed in the return of
income & return of income should be submitted on or before the
due date of submission of return of income.
80 IA Profits & Gains from Industrial Undertaking engaged in
the infrastructure Development.Power of AO to recompute the profit
in following condition:The taxpayer carries on two or more business
,at least one of them is qualified for deduction under section 80
IA/80IB.From the Business which is eligible for deduction under
section 80IA/80IB ,some goods are transferred to any other business
carried on by the taxpayer Which is not eligible for deduction
under section 80 IA/80IB or vice versaThe consideration for such
transfer ,which is recorded in the books of account ,is not equal
to market value of such goods on the date of transfer.When the
aforesaid conditions are satisfied ,AO will recomputed profits of
the business qualified for deduction under section 80IA/80IB as if
the transfer in either case had been made at the market value of
the goods on the date of transfer.
80 IA Profits & Gains from Industrial Undertaking engaged in
the infrastructure Development.Consequences of Merger/Amalgamation:
If company which is entitled for deduction under section 80 IA is
amalgamated/demerged with another company ,the resulting company
can avail benefit under section 80 IA for the unexpired period of
tax liability provided the transferor & transfree company is
Indian Company.Infrastructure facility means:A road including toll
road ,bridge or a rail systemA highway project including housing or
other activities being an integral part of the highway projectA
water supply project, water treatment system, irrigation project,
sanitation & sewerage system or solid waste management systemA
port ,airport, inland waterway or inland port
80 IA Profits & Gains from Industrial Undertaking engaged in
the infrastructure Development.Amount of Deduction: 100 % of the
profit is deductible for the first 10 years commencing from the
initial A.Y. In case of highway projects, only that part of profit
which is transferred to a special reserve account is eligible
profit.The enterprise has an option to choose initial A.Y . It can
be any year within a period of 15 years (20 years in case of
highway project/road/water treatment etc.) from the year in the
enterprise begins operating/maintaining infrastructure facility.
However the benefit of deduction is available only for 10
consecutive years from the A.Y in which the enterprise begins
operating/maintaining the infrastructure facilityAudit Report: The
deduction under section 80 IA is available only if the accounts of
the undertaking have been audited by a Chartered Accountant &
Audit Report in Form No 10 CCB is furnished along with the return
of income.
80 IA Profits & Gains from Industrial Undertaking engaged in
the Telecommunication ServicesAn undertaking providing above
services has to satisfy the following condition:It should be new
undertakingIt should not be formed by transfer of old plant &
machineryDeduction should be claimed in the return of income &
return of income should be submitted on or before the due date of
submission of return of income.It should start providing services
after March 31,1995 but before March 31,2005.Domestic Satellite for
this purpose means a satellite owned & operated by an Indian
company for providing telecommunication service.
80 IA Profits & Gains from Industrial Undertaking engaged in
the Telecommunication ServicesAmt of Deduction in case of
Telecommunication Service
Enterprise% of profit DeductiblePeriod of deduction commencing
from initial A.YOwned by a company or any other person100First 5
Years30Next 5 years80 IA Profits & Gains from Industrial
Undertaking engaged in the Special Economic Zone or Industrial
ParkAn undertaking which develops & operates industrial park or
SEZ must satisfy the following condition to avail benefit of
Section 80IAIt develops ,operates &maintains & operate an
industrial park or a SEZ The industrial park must start operating
during April 1,1997 & March 31,2011 or the SEZ must start
operating during April 1,1997 & March 31,2005.Deduction should
be claimed in the return of income & return of income should be
submitted on or before the due date of submission of return of
income. If all the aforesaid conditions are satisfied then 100% of
the profit is deductible for 10 years commencing from initial
assessment years.
80 IA Profits & Gains from Industrial Undertaking engaged in
the power generation/distributionThe following condition should be
satisfies:It should be new undertakingIt is set up in any part of
India for generation /distribution of power.It should not be formed
by transfer of old plant & machinery. Deduction should be
claimed in the return of income & return of income should be
submitted on or before the due date of submission of return of
incomeIf all the aforesaid conditions are satisfied then 100% of
the profit is deductible for 10 years commencing from initial
assessment years.
80 IA Profits & Gains from Industrial Undertaking engaged in
the reconstruction of power unitsFollowing conditions should be
satisfies.It should be owned by an Indian company & set up for
reconstruction or revival of power generating plant.It should be
formed before November 30,2005 with the majority equity
participation by public sector companies.Such undertaking begins to
generate or transmit or distribute power before March 31,2011.
Deduction should be claimed in the return of income & return of
income should be submitted on or before the due date of submission
of return of incomeIf all the aforesaid conditions are satisfied
then 100% of the profit is deductible for 10 years commencing from
initial assessment years.
80 IAB Profits & Gains from Industrial Undertaking or
enterprise engaged in development of Special Economic Zone The
following condition should be satisfied The taxpayer is a developer
of Special economic ZoneThe Gross Total Income of the tax payer
includes profits & gains derived by an undertaking from any
business of developing a Special economic Zone.Such Special
economic Zone is notified on or after April 1,2005The books of
account of the taxpayer are audited.Deduction should be claimed in
the return of income & return of income should be submitted on
or before the due date of submission of return of income.Amount of
Deduction: Tax payer can claim 100% deduction for 10 consecutive
assessment years.The deduction may be claimed ,at the option of the
taxpayer, for any 10 consecutive assessment years out of 15 years
beginning from the year in which the SEZ has been notified by the
Central Government.
80 IB Deduction in respect of profits & Gains from certain
industrial undertaking other than infrastructure development
Deduction under section 80IB is available to different
industrial undertakings as follows:Business of an industrial
undertakingOperation of ShipIndustrial ResearchProduction of
Mineral oilDeveloping & Building housing projectsThe business
of processing ,preservation & packaging of fruits or vegetables
or integrated ,handling ,storage & transportation of food grain
unitsConvention CentreOperating & maintaining a hospital in
rural area.Hospitals located in certain areas.
80 IB Deduction in respect of profits & Gains from certain
industrial undertaking other than infrastructure development
It should be a new undertakingIt should not be formed by
transfer of old plant & machineryIt should manufacture or
produce articles other than non-priority sector items Manufacture
or production should be started within a stipulated time limit.It
should employ 10/20 workers.Deduction should be claimed in the
return of income & return of income should be submitted on or
before the due date of submission of return of income.Recomputation
of profit by Assessing OfficerConsequences of Merger
/Amalgamation
80 IB Deduction in respect of profits & Gains from certain
industrial undertaking other than infrastructure development
Amount Of Deduction:Operation of Ship 30% of profit is
deductible for the first 10 years.Industrial Research If the
company is approved by the prescribed authority at any time before
April 1,1999 100% of profit for 5 years beginning with the initial
A.Y. If the company is approved by the prescribed authority after
March 31,2000 but before April 1,2007 100% of profit from such
business for 10 years beginning with the initial A.YMineral
Oils:100% of profit is deductible for the first 7 years commencing
with the year in which the undertaking commences commercial
production of mineral oil or refining of mineral oil.In case of
business of processing, preservation & packaging of fruits or
vegetables 100% deductible for 5 years & 30% for next 5
years.
80 IB Deduction in respect of profits & Gains from certain
industrial undertaking other than infrastructure development
Hospitals located in certain areas ,100% profits of business
shall be deductible for a period of 5 A.Y.Developing & building
Housing Project:100 % of profit derived from such project is
deductible.
Deduction in respect of profits & gains of certain
undertakings in certain special category of States. Section
80IC
An industrial undertaking must satisfy the following
conditions:Should not have been formed by splitting up or
reconstruction of a business already in existence .Not formed by
transfer of old plant & machinery Industrial undertaking should
be set up in Sikkim,Himachal Pradesh,Northen Eastern
State.Industrial undertaking should manufacture /produce specified
goods/articles.The books of account should be audited & audit
report in Form No 10CCB should be submitted.
Deduction in respect of profits & gains of certain
undertakings in certain special category of States. Section
80IC
Amount of Deduction:Sikkim -- 100% of profits & gains of the
industrial undertaking for 10 years commencing from initial
assessment years.H.P/Uttaranchal--- 100% of profits & gains of
the Industrial undertaking for the first 5 years & 25% for the
next five years.North Eastern State--- 100% of profits & gains
of the industrial undertaking for 10 years commencing from initial
assessment years.
Deduction in respect case of hotels & Convention Centre Sec
80ID
The tax payer engaged in the business of hotel located in a
specified area
(Delhi,Faridabad,Gurgaon,Ghaziabad,Agra,Jalgoan,etc)Alternatively,the
tax payer is engaged in the business of building ,owning &
operating a convention centre located in specified area.Convention
Centre means a completely centrally air-conditioned building of a
minimum 25000 sq.ft equiped with modern public address system,LCD
projector to be used for holding conferences & seminars.
Deduction in respect case of hotels & Convention Centre Sec
80ID
Should not have been formed by splitting up or reconstruction of
a business already in existence .Not formed by transfer of old
plant & machinery 100% of profits & gains derived from the
aforesaid business is deductible for five consecutive assessment
years.Audit report in Form No 10CCBBA should be submitted on or
before the due date of submission of return of income.
profits & gains from the business of collecting &
processing of Bio-degradable waste Sec 80JJA
This section is applicable where the gross total income of an
assessee includes any profit & gains derived from the business
of collecting ,processing or treating of biodegradable waste for
generating power or producing bio-fertilizer,or other biological
agents or for producing bio-gas.The whole of the profits &
gains of the above activities shall be deductible for a period of
five consecutive assessment year relevant to the previous year in
which such business commences.
Deduction in respect of employment of new workmen Sec 80JJAA
Following condition should be satisfied.The tax payer is an
Indian CompanyIncome of tax payer includes any profits & gains
derived from any industrial undertaking engaged in the manufacture
or production of article or thing.The industrial undertaking is not
formed by splitting up or reconstruction of an existing undertaking
or amalgamation with another industrial undertaking.The assessee
furnishes along with the return of income the report of a Chartered
Accountant in Form No 10DA.Deduction should be claimed in the
return of income.
Deduction in respect of employment of new workmen Sec 80JJAA
Amount of Deduction: The amount of deduction is equal to 30% of
additional wages paid to new regular workmen employed by the
assessee in the previous year.The deduction is available for three
assessment years including the assessment year relevant for
previous year in which such employment is provided.For the
aforesaid purpose workmen means any person employed in any industry
to do any manual,unskilled,skilled,technical, clerical or
supervisory work but does not include the following A person who is
in the Air-force,Military or Navy or in Police Service.A person who
is employed in Managerial or administrative capacityA person who is
employed in supervisory capacity & draw wages exceeding Rs 1600
per month.
Deduction in respect of employment of new workmen Sec 80JJAA
Regular workman does not include the following A casual workmen
A workman employed for contract labour orAny other workman employed
for a period of less than 300 days during the previous year.30% of
the additional wages paid to new regular workmen . Such deduction
is available for a period of 3 years from the year of provision of
employment.
Deduction in respect of employment of new workmen Sec 80JJAA
Meaning of Additional Wages:In case of new Undertaking :It means
wages paid to new regular workmen in excess of 100 workmen employed
during the year.In the case of existing undertaking: It means wages
paid to new regular workmen in excess of 100 workmen employed
during the year.Additional wages shall be nil if the increase in
number of regular workmen employed during the year is less than 10%
of existing number of workmen employed in the undertaking as on
last day of the preceding year.
Deduction in respect of employment of new workmen Sec 80JJAA
Employees are categorised under following categories.
CategoryNature of employmentAEmployees employed in
managerialcapacity,drawingsalary exceeding Rs 1600 per month.BIt
includes casual workmen employed through contractlabour(not coming
under A)COther workmen if employed for less than 300 days during
the previous year ( not coming under A & B)DOther workmen (not
coming under A & B) if employed for 300 days or more than 300
days during the previous year.
Deduction in respect of certain income of Offshore Banking Units
& International Financial Services Centre ( Section 80LA)
The following condition should be satisfied The assessee is a
scheduled bank & having an offshare banking unit in a special
economic zone.orA foreign bank & having an offshare banking
unit in a special economic zone orA unit of International Financial
Services Centre.The report from Chartered Accountant in Form No
10CCF certifying that the deduction has been correctly claimed in
accordance with the provision A copy of permission obtained under
Banking Regulation Act should be submitted along with the return of
income.
Deduction in respect of certain income of Offshore Banking Units
& International Financial Services Centre ( Section 80LA)
If the above conditions are satisfied ,then 100% of the
aforesaid income is deductible for 5 consecutive assessment years
beginning with the assessment year relevant to the previous year.
For next 5 years,50% of such income would be deductible.
Computation of income & Tax Liability of company First
ascertain income under the different heads of income
Current & brought forward losses should be adjusted
according to the provision of section 70 to 80.Total of income so
computed under the different heads is Gross Total Income.
From the gross total income so computed ,the following
deductions are permissible under Sec 80 C to 80U.Tax Liability of
company under the Normal Provision (1)Find out the total income
under normal provision.(2)Find out the income tax at the rate of
30% (40% in case of foreign co.)(3) Add Surcharge at the rate given
below if net income exceeds Rs 1 crore.
(4) Find out (2) + (3)(5) Add education cess at the rate of 2%
& SHEC @ 1%(6) Deduct tax rebate or tax credit u/s
86,90,90A,91(7) Find out (4) + (5) (6).Domestic Co5%Foreign Co2%Tax
Liability of company under Minimum Alternate Tax(8) find out book
profit(9)Find out 18.5% of book Profit(10) Add Surcharge at the
rate given below if net income exceeds Rs 1 crore.Domestic Co
5%Foreign Co 2%(11) Find out (9) + (10)(12) Add EC @2% & SHEC
1%(13) Find out (11) + (12)Tax Liability of a company is (7) or
(13) whichever is more .MAT applicable to SEZ units from A.Y
2012-13 onwards.
Minimum Alternate Tax Sec 115 JBThe extra tax which the company
has to pay because of MAT ( Step 13 minus step 7) will be available
for tax creditu/s 115 JAA. Tax credit can be set off against future
tax liability of the company .It is available only in that year in
which tax computed at Step 7 is more than tax computed at step
13.
How to compute the Book ProfitNet profit as shown in Profit
& Loss A/C prepared in accordance with the provisions of Part
II & III of VI Schedule to Companies Act ) is to be increased
by the following amounts if debited to profit & Loss
account.Income tax paid or payable & the provisions thereof.
Interest under IT Act, dividend tax under sec 115-O .No adjustment
is required in respect of the following taxes Securities
Transaction Tax,Banking cash transaction tax, commodities
transaction tax,wealth tax,gift tax, fringe benefit tax,indirect
taxes,penalties/fine under IT act.
How to compute the Book ProfitAmounts carried to any reserves by
whatever name calledAmounts set aside to provisions made for
meeting liabilities other than ascertain liabilities.Amounts by way
of provision for losses of subsidiary companiesAmount of dividend
paid or proposed.Amount of expenditure relatable to any exempt
income Amount of depreciationAmount of deferred tax &
provisions thereof & amounts set aside as provision for value
of diminution in value of any asset.
How to compute the Book ProfitNet Profit as shown in the P &
L is to be reduced by the following.Amount withdrawn from reserves
or provisions if any such amount is credited to the profit &
loss accountIncome exempt from tax Depreciation (other than
revaluation of asset)Amount withdrawn from revaluation reserve
credited to profit & loss account to the extent it does not
exceed the amount of depreciation on account of revaluation of
asset.Amount of loss(before depreciation)brought forward or
unabsorbed depreciation whichever is less as per books of
accounts.
How to compute the Book ProfitProfit of sick industrial unitThe
amount of deferred tax, if any such amount is credited to the
profit & loss account.
MATEvery company to which section 115JB applies shall furnish a
report (Form No 29 B) from Chartered Accountant certifying that the
book profit has been computed in accordance with the provisions of
section 115JB.The report should be submitted along with the return
of income.
MAT can be carried forward for 10 assessment year.Tax credit is
allowed even if the tax paid was late. ( see Question No 1)
