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Corporate tax planning

The document defines a company and outlines various types of companies under Indian law such as domestic, foreign, and industrial companies. It also discusses the meaning of business profits and gains, allowable expenses and deductions, amounts expressly disallowed, related party transactions, and sets off and carry forward of losses under the Income Tax Act.

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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 companies ◦ Indian company ◦ Domestic company ◦ Foreign company ◦ Industrial 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
Indian Company  An 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 Act  Any 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 Company  ―Domestic 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 Company  It 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 expenses Sec 30- Rent,rates,taxes repairs,insurance for building. Sec 31- Repairs & insurance of machinery, plant & furniture. Sec 32 - Depreciation Sec 36(1)- Insurance Premium on stock ,building ,employees Sec 36(1)(ii) –Bonus Commission to employees Sec 36(1)(iii) – Interest on borrowed capital Sec36(1)(iv)- Employers contribution to PF ,Super Annuation Fund Sec 36(1) (iva) –Employers Contribution to notified pension Scheme Subject to 10% of salary Sec 36(1)(vii)- Bad Debts Sec 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
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 Deduction  Expenditure 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 Act  Sec 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 Act  Sec 40(a)(ia) covers the following expenses Interest 193/194 A Commission or Brokerage 194 H Fees for Technical services 194 J Fees for Professional 194J Services Payment to 194 C contractor/subcontractors Rent 194 I Payment of royalty to 194 J  Sec 40 (a)(ic) –Fringe Benefit Resident 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.
Amount expressly disallowed under Act  Sec 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 Act  Rule 6DD is as follows  Payment 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 Transaction  X 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 Act  Sec 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 liability  The following expenses are deductible on payment basis-  Any sum payable by way of tax ,duty ,cess or fee  Any 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 corporation  Interest 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 Expenditure  Interest paid on delayed payment of tax e.g  purchase tax,  municipal tax,  sales tax,  service tax ,  a delayed payment of provident fund
Examples of Non Deductible Expenditure  Interest 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 Profession Profit and Loss account: Net profit as per P&L account xxxx Add: expenses disallowed xxxx Add: incomes related to business but not recorded xxxx V Less: incomes not taxable under this head xxxx Less: expenses related to business but not recorded xxxx V
Set off & Carry forward of losses  The process of setting off of losses & their carry forward may be covered in the following steps: Step 1 Inter-source adjustment under the same head of income Step 2 Inter head adjustment in the same assessment year. Step 2 is applied only if a loss cannot be set off under Step 1. Step 3 Carry forward of a loss .Step 3 is applied only if a loss cannot be set off under step 1 & 2.
Inter source Adjustment Sec 70  If 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 70 Following 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 70 One 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 70  If 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 70 X Y Z Speculativ Non- Speculati Non- Speculati Non- e speculativ ve speculati ve speculat e ve ive A 140000 160000 150000 B (-) 50000 (-) (-)60000 180000 C 200000 400000 2,10,00 0 D (-)80000 (-)90000 (- )2,20,00 0 90000 120000 (-)20000 310000 90,000 (-) 10000
Inter source Adjustment Sec 70  In 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 70 Capital A B C asset which is transfer red Short Term Long Term Short Term Long Term Short Term Long Term P 250000 460000 312000 Q (-) 90000 (-)490000 (-) 80000 R 400000 80000 556000 S (-) 380000 (-) 15000 (-) 590000 Total 160000 20000 (-)30000 65000 232000 (-) 34000
Inter source Adjustment Sec 70  Long 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 71 The 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 71 Following 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
Inter Head Adjustment Sec 71  Any 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: Current Year Next Year ( Rs) (Rs) Business Income (-) 1,00,000 8,00,000 Long Term Capital Gain 2,30,000 3,00,000  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.
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
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
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 Depreciation  Brought Forward Business loss  Unabsorbed 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 Illustrated  During 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) Business Income Any other Income Income from the Any other business activity of owning & income (including maintaining race income from the horses activity of owning & maintaining any other animal horses) Case of X Income of the 80,000 90,000 12,000 Current Year Less:B/F Business (-) 70,000 (-) 95,000 loss pertaining to A.Y 2011-12 Total 10,000 (-) 5,000 12,000
Carry forward & Set off of loss from activity of owning & maintaining of race horses(Section 74A(3) Business Income Any other Income Income from the Any other business activity of owning & income (including maintaining race income from the horses activity of owning & maintaining any other animal horses) Case of Y Income of current 1,90,000 70,000 60,000 year Less: B/F Business (-) 2,10,000 (-) 55,000 loss pertaining to A.Y 2011-12 Total (-) 20,000 15,000 60,000
Carry 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 Income How many Should the Is it Loss against yrs loss to business be necessary which c/f be c/f continued to submit loss can be forward the return in set off time ? 1.House Income from 8 yrs NA No property HP 2.Speculation Speculation 4 yrs Not Yes loss profit Necessary 3.Non- speculation loss 3.1 Any income No time limit Not No Unabsorbed other than Necessary Depreciation Salary 3.2 Business Any Business 8 yrs Not Yes loss profit Necessary
Carry forward & Set off of loss Type of Income How many Should the Is it Loss against yrs loss to business be necessary which c/f be c/f continued to submit loss can be forward the return in set off time ? 4.Capital Loss 4.1 Short Any income 8 yrs Not Yes Term from Capital Necessary gain 4.2Long Long Term 8 Yrs Not Yes Term Loss Capital Gain Necessary 5.Loss from Income from 4 yrs Yes Yes race horses same activity
Carry 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 business  After 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: 1. Any Person buys or acquires any Securities/shares/units within a period of 3 months before the record date. 2. 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) 3. 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 10A  Undertaking 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: Location Year Free Trade Zone From the A.Y 81-82 or any subsequent year Electronic Hardware From the A.Y 94-95 or any subsequent Technology park or year software Technology Park Special Economic Before April 1,2005 Zone  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
Taxation of Export Undertaking Sec 10A  Free 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 10A  The CBDT has specified the following information Technology enabled products or services for this purpose only:  Back office Operations  Call Centers  Animation  Data Processing  Engineering & Design  Human Resource Services  Insurance Claim Processing  Payroll  Revenue Accounting.
Taxation of Export Undertaking Sec 10A  Should not be formed by Splitting /reconstruction of Business.  Should not be formed by Transfer of Old Machinery  Sale 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 10A  Amount 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:  Freight  Telecommunication Charges  Insurance 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 10A  Site 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 10A  Period 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
Taxation of Export Undertaking Sec 10A  Eighth ,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 India  Prescribed 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
Taxation of Export Undertaking Sec 10A  If 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 10A  Consequences 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 payer— Tax 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 10A  If 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 machine  It 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
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 machinery  There 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 33AB The assessee must satisfy the following conditions.  The assessee must be engaged in tea, coffee, rubber plantation  It 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 33AB  A sum equal to amounts deposited in special account or  40% 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,
Consequences in the case of closure of Business Sec 33AB When the amount can be When the amount can withdrawn & it is treated be withdrawn & it is not as taxable profit treated as income. 1.Closure of Business 1.Death of the taxpayer 2.Dissolution of firm 2.Partition of HUF 3.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 Transfer within 8 yrs Transfer after 8 transferred from the end of the years. previous year in which asset is transferred. Transfer to the Deduction will not be Deduction will not be Central Gov,a State withdrawn withdrawn Go,a local authority,a Statutory Corporation Transfer in a Deduction will not be Deduction will not be scheme of withdrawn withdrawn succession of a firm by company Transfer in any Deduction will be Deduction will not be
Site Restoration Fund Sec 33ABA  The 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 limit  The 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 33ABA  It 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 33ABA  Amount of Deduction:  A sum equal to amount deposited or  20% 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 33ABA  Consequences 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 35  Scientific 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
Expenditure on Scientific Research Sec 35  The 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 given Weighted Deduction An approved research association which 175% has ,as its object ,undertaking of scientific research related or unrelated to the business of assessee. An approved university,college,or other 175% institution for the use of scientific research related or unrelated to the business. An approved university,college,or other 125% institution for the use of research in social sciences or statistical research
Contribution to National Laboratory Sec 35 (2AA)  The following condition should be satisfied: 1. The payment is made to – a. National Laboratory or b. University or c. Indian Institute of Technology  The 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 Situation Tax Treatment Entire telecom license is transferred 1.When sale consideration is less than WDV minus sale consideration is allowed as WDV deduction under section 35ABB in the year of sale. 2.When sale consideration is more than WDV The 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 transferred 1.When sale consideration is less than WDV WDV minus sale consideration will be allowed as deduction over the unexpired period. 2.When sale consideration is more than WDV WDV 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 D Deduction 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 D The expenditure can not exceed the following: In case of corporate Assessee In case of non-corporate assessee 5% of cost of project or 5% of cost of project 5% of capital employed whichever is more One fifth of the qualifying expenditure is allowable as deduction in each of the five successive years beginning with the year in which business commences
Recovery 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- a. Has obtained a refund of such trading liability b. 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 44AA  “Specified 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 44AA  “Specified 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 44AA Category Taxpayer who come under Requirement of maintenance of this category books of accounts A Persons carrying on ―Specified Persons coming under this category Profession‖ if their gross are required to maintain such ―books receipts in the profession do not of account & other document‖ as exceed Rs 1,50,000 in any of may enable the AO to compute their the three years immediately taxable income. The Board has not preceding the previous year (or prescribed specified books of where the profession is newly account which should be maintained set up in the previous year,his for the persons falling under this gross total receipts in the category. profession for that year are not likely to exceed the said amount).
Maintenance of accounts by certain persons Sec 44AA Category Taxpayer who come under Requirement of maintenance of this category books of accounts B Persons carrying on ―specified Persons coming in this category are profession‖ if their gross required to maintain such books of receipts in the profession accounts as are prescribed by rule exceed Rs 1,50,000 in all the 6F three years immediately preceeding the 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)
Maintenance of accounts by certain persons Sec 44AA Category Taxpayer who come under Requirement of maintenance of this category books of accounts C Persons carrying on a ―non- Persons coming under this category specified profession‖. It also are not required to maintain any includes persons carrying on books of account. 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 immediately preceeding the previous year .
Maintenance of accounts by certain persons Sec 44AA Category Taxpayer who come under Requirement of maintenance of this category books of accounts D Persons carrying on a ―non- Persons falling under this category specified profession‖.It also are required to maintain such books includes persons carrying on of accounts & other documents as any business if their income may enable the AO to compute their from such profession or taxable income under IT Act. business exceeds Rs 1,20,000 or the total sales,turnover,gross receipts are in the excess of Rs 10,00,000 in any of three years immediately preceeding the previous year.
Specified Books of account Sec 44AA  The 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 accounting  A ledger  Carbon copies of bills exceeding Rs 25 issued by the person & carbon copies otherwise serially numbered receipts issued by the person.
Specified Books of account Sec44AA  Apart from this, person carrying on medical profession is required to keep the following additional books  A daily case register in Form No 3C showing date ,patient’s 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 No Different Tax Payers Audit Statement Due Date for Due Date Form No Particulars getting books for audited Submission of audit report In case of person who 3CA 3CD Sept 30th of Sept 30th of the carries on businesss or the A.Y A.Y profession & who is required by or under any law to get his accounts audited In case of a person who 3 CB 3CD Sept 30th of Sept 30th of carries on a business or the A.Y the A.Y profession but not being a person referred above.
Due Date for getting books audited/submission of audit Report & Form No  If 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 satisfied  If 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 satisfied  If 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 carriage Estimated income Heavy goods vehicle Rs 5000 for every month during which the goods carriage is owned by the taxpayer. Other than Heavy Goods Rs 4500 for every month Vehicle. during which the goods carriage is owned by the taxpayer.
Deduction from Gross Total Income  80G Donations to Charitable institutions & Funds  80GGA Donation for Scientific research or rural development.  80GGB Contribution to political parties  80 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 undertaking  80 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 government  Sum 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 fund
80GGB Contribution to political parties or electoral trust by companies  In 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 1 Provision of Infrastructure facility Case 2 Telecommunication Services Case 3 Industrial Parks Case 4 Power generation,transmission & distribution Case 5 Undertaking set up for reconstruction of a power unit
80 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 facility  It should be owned by an Indian Company  There should be an agreement with the central Government  It should start operation on or after April 1,1995  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.
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 versa  The 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 system  A highway project including housing or other activities being an integral part of the highway project  A water supply project, water treatment system, irrigation project, sanitation & sewerage system or solid waste management system  A 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 facility  Audit 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 Services  An undertaking providing above services has to satisfy the following condition:  It should be new undertaking  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 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 Services Amt of Deduction in case of Telecommunication Service Enterprise % of profit Deductible Period of deduction commencing from initial A.Y Owned by a 100 First 5 Years company or any other 30 Next 5 years person
80 IA Profits & Gains from Industrial Undertaking engaged in the Special Economic Zone or Industrial Park  An undertaking which develops & operates industrial park or SEZ must satisfy the following condition to avail benefit of Section 80IA  It 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/distribution The following condition should be satisfies:  It should be new undertaking  It 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 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 reconstruction of power units Following 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 income  If 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 Zone  The 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 1,2005  The 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 undertaking  Operation of Ship  Industrial Research  Production of Mineral oil  Developing & Building housing projects  The business of processing ,preservation & packaging of fruits or vegetables or integrated ,handling ,storage & transportation of food grain units  Convention Centre  Operating & 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 undertaking  It should not be formed by transfer of old plant & machinery  It 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 Officer  Consequences 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.Y  Mineral 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,Jalg oan,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 Company  Income 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 capacity  A 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 or  Any 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  Category Nature of employment following categories. A Employees employed in managerial capacity,drawing salary exceeding Rs 1600 per month. B It includes casual workmen employed through contract labour (not coming under A) C Other workmen if employed for less than 300 days during the previous year ( not coming under A & B) D Other 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.or  A foreign bank & having an offshare banking unit in a special economic zone or  A 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. Domestic Co 5% Foreign Co 2%  (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
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 JB  The extra tax which the company has to pay because of MAT ( Step 13 minus step 7) will be available for ―tax credit‖u/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 Profit  Net 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 Profit  Amounts carried to any reserves by whatever name called  Amounts set aside to provisions made for meeting liabilities other than ascertain liabilities.  Amounts by way of provision for losses of subsidiary companies  Amount of dividend paid or proposed.  Amount of expenditure relatable to any exempt income  Amount of depreciation  Amount of deferred tax & provisions thereof & amounts set aside as provision for value of diminution in value of any asset.
How to compute the Book Profit  Net 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 account  Income 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 Profit  Profit of sick industrial unit  The amount of deferred tax, if any such amount is credited to the profit & loss account.
MAT  Every 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)
Corporate tax planning

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Corporate tax planning

  • 1.
    Company Sec 2(17) Companyis 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.
  • 2.
    Types of Company Typesof companies ◦ Indian company ◦ Domestic company ◦ Foreign company ◦ Industrial 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
  • 3.
    Indian Company  An 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 Act  Any 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.
  • 4.
    Domestic Company  ―Domestic 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.
  • 5.
    Industrial Company  It 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.
  • 6.
    Profits and Gainsof 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.
  • 7.
    Allowable expenses Sec 30-Rent,rates,taxes repairs,insurance for building. Sec 31- Repairs & insurance of machinery, plant & furniture. Sec 32 - Depreciation Sec 36(1)- Insurance Premium on stock ,building ,employees Sec 36(1)(ii) –Bonus Commission to employees Sec 36(1)(iii) – Interest on borrowed capital Sec36(1)(iv)- Employers contribution to PF ,Super Annuation Fund Sec 36(1) (iva) –Employers Contribution to notified pension Scheme Subject to 10% of salary Sec 36(1)(vii)- Bad Debts Sec 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
  • 8.
    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 Deduction  Expenditure 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.
  • 9.
    Amount expressly disallowedunder Act  Sec 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.
  • 10.
    Amount expressly disallowedunder Act  Sec 40(a)(ia) covers the following expenses Interest 193/194 A Commission or Brokerage 194 H Fees for Technical services 194 J Fees for Professional 194J Services Payment to 194 C contractor/subcontractors Rent 194 I Payment of royalty to 194 J  Sec 40 (a)(ic) –Fringe Benefit Resident 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.
  • 11.
    Amount expressly disallowedunder Act  Sec 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
  • 12.
    Amount expressly disallowedunder Act  Rule 6DD is as follows  Payment 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.
  • 13.
    Related party Transaction  X 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.
  • 14.
    Amount expressly disallowedunder Act  Sec 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.
  • 15.
    Sec 43 BDisallowance of Unpaid liability  The following expenses are deductible on payment basis-  Any sum payable by way of tax ,duty ,cess or fee  Any 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 corporation  Interest 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.
  • 16.
    Examples of DeductibleExpenditure  Interest paid on delayed payment of tax e.g  purchase tax,  municipal tax,  sales tax,  service tax ,  a delayed payment of provident fund
  • 17.
    Examples of NonDeductible Expenditure  Interest 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.
  • 18.
    Profits and Gainsof Business or Profession Profit and Loss account: Net profit as per P&L account xxxx Add: expenses disallowed xxxx Add: incomes related to business but not recorded xxxx V Less: incomes not taxable under this head xxxx Less: expenses related to business but not recorded xxxx V
  • 19.
    Set off &Carry forward of losses  The process of setting off of losses & their carry forward may be covered in the following steps: Step 1 Inter-source adjustment under the same head of income Step 2 Inter head adjustment in the same assessment year. Step 2 is applied only if a loss cannot be set off under Step 1. Step 3 Carry forward of a loss .Step 3 is applied only if a loss cannot be set off under step 1 & 2.
  • 20.
    Inter source AdjustmentSec 70  If 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.
  • 21.
    Inter source AdjustmentSec 70 Following 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.
  • 22.
    Inter source AdjustmentSec 70 One 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.
  • 23.
    Inter source AdjustmentSec 70  If 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 .
  • 24.
    Inter source AdjustmentSec 70 X Y Z Speculativ Non- Speculati Non- Speculati Non- e speculativ ve speculati ve speculat e ve ive A 140000 160000 150000 B (-) 50000 (-) (-)60000 180000 C 200000 400000 2,10,00 0 D (-)80000 (-)90000 (- )2,20,00 0 90000 120000 (-)20000 310000 90,000 (-) 10000
  • 25.
    Inter source AdjustmentSec 70  In 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/-.
  • 26.
    Inter source AdjustmentSec 70 Capital A B C asset which is transfer red Short Term Long Term Short Term Long Term Short Term Long Term P 250000 460000 312000 Q (-) 90000 (-)490000 (-) 80000 R 400000 80000 556000 S (-) 380000 (-) 15000 (-) 590000 Total 160000 20000 (-)30000 65000 232000 (-) 34000
  • 27.
    Inter source AdjustmentSec 70  Long 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.
  • 28.
    Inter Head AdjustmentSec 71 The 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.
  • 29.
    Inter Head AdjustmentSec 71 Following 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
  • 30.
    Inter Head AdjustmentSec 71  Any 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 .
  • 31.
    Set of &Carry forward of losses  If tax payer has the following income/loss: Current Year Next Year ( Rs) (Rs) Business Income (-) 1,00,000 8,00,000 Long Term Capital Gain 2,30,000 3,00,000  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.
  • 32.
    Carry forward oflosses  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
  • 33.
    Sec 71 BLoss 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.
  • 34.
    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
  • 35.
    Return of lossshould 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 Depreciation  Brought Forward Business loss  Unabsorbed Depreciation
  • 36.
    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.
  • 37.
    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).
  • 38.
    Carry forward &Set off of Capital Loss(Sec 74) Provisions Illustrated  During 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.
  • 39.
    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 .
  • 40.
    Carry forward &Set off of loss from activity of owning & maintaining of race horses(Section 74A(3) Business Income Any other Income Income from the Any other business activity of owning & income (including maintaining race income from the horses activity of owning & maintaining any other animal horses) Case of X Income of the 80,000 90,000 12,000 Current Year Less:B/F Business (-) 70,000 (-) 95,000 loss pertaining to A.Y 2011-12 Total 10,000 (-) 5,000 12,000
  • 41.
    Carry forward &Set off of loss from activity of owning & maintaining of race horses(Section 74A(3) Business Income Any other Income Income from the Any other business activity of owning & income (including maintaining race income from the horses activity of owning & maintaining any other animal horses) Case of Y Income of current 1,90,000 70,000 60,000 year Less: B/F Business (-) 2,10,000 (-) 55,000 loss pertaining to A.Y 2011-12 Total (-) 20,000 15,000 60,000
  • 42.
    Carry 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.
  • 43.
    Carry forward &Set off of loss Type of Income How many Should the Is it Loss against yrs loss to business be necessary which c/f be c/f continued to submit loss can be forward the return in set off time ? 1.House Income from 8 yrs NA No property HP 2.Speculation Speculation 4 yrs Not Yes loss profit Necessary 3.Non- speculation loss 3.1 Any income No time limit Not No Unabsorbed other than Necessary Depreciation Salary 3.2 Business Any Business 8 yrs Not Yes loss profit Necessary
  • 44.
    Carry forward &Set off of loss Type of Income How many Should the Is it Loss against yrs loss to business be necessary which c/f be c/f continued to submit loss can be forward the return in set off time ? 4.Capital Loss 4.1 Short Any income 8 yrs Not Yes Term from Capital Necessary gain 4.2Long Long Term 8 Yrs Not Yes Term Loss Capital Gain Necessary 5.Loss from Income from 4 yrs Yes Yes race horses same activity
  • 45.
    Carry 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 business  After 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.
  • 46.
    Loss on saleof 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: 1. Any Person buys or acquires any Securities/shares/units within a period of 3 months before the record date. 2. 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) 3. The dividend or income on such securities /shares/units received (or receivable) by such person is exempt from tax.
  • 47.
    Loss on saleof 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.
  • 48.
    Taxation of ExportUndertaking Sec 10A  Undertaking 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: Location Year Free Trade Zone From the A.Y 81-82 or any subsequent year Electronic Hardware From the A.Y 94-95 or any subsequent Technology park or year software Technology Park Special Economic Before April 1,2005 Zone  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
  • 49.
    Taxation of ExportUndertaking Sec 10A  Free 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.
  • 50.
    Taxation of ExportUndertaking Sec 10A  The CBDT has specified the following information Technology enabled products or services for this purpose only:  Back office Operations  Call Centers  Animation  Data Processing  Engineering & Design  Human Resource Services  Insurance Claim Processing  Payroll  Revenue Accounting.
  • 51.
    Taxation of ExportUndertaking Sec 10A  Should not be formed by Splitting /reconstruction of Business.  Should not be formed by Transfer of Old Machinery  Sale 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.
  • 52.
    Taxation of ExportUndertaking Sec 10A  Amount 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:  Freight  Telecommunication Charges  Insurance 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.
  • 53.
    Taxation of ExportUndertaking Sec 10A  Site 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.
  • 54.
    Taxation of ExportUndertaking Sec 10A  Period 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
  • 55.
    Taxation of ExportUndertaking Sec 10A  Eighth ,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 India  Prescribed 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
  • 56.
    Taxation of ExportUndertaking Sec 10A  If 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.
  • 57.
    Taxation of ExportUndertaking Sec 10A  Consequences 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 payer— Tax 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.
  • 58.
    Taxation of ExportUndertaking Sec 10A  If 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.
  • 59.
    Units in SpecialEconomic 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 machine  It 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
  • 60.
    Units in SpecialEconomic 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.
  • 61.
    Units in SpecialEconomic 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).
  • 62.
    Hundred per centexport 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 machinery  There must be repatriation of sale proceeds into India.  Audit Report should be submitted in Form No 56G.  All other conditions mentioned above.
  • 63.
    Hundred per centexport 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
  • 64.
    Tea /Coffee/rubber DevelopmentAccount Sec 33AB The assessee must satisfy the following conditions.  The assessee must be engaged in tea, coffee, rubber plantation  It 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)
  • 65.
    Tea /Coffee/rubber DevelopmentAccount Sec 33AB  A sum equal to amounts deposited in special account or  40% 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,
  • 66.
    Consequences in thecase of closure of Business Sec 33AB When the amount can be When the amount can withdrawn & it is treated be withdrawn & it is not as taxable profit treated as income. 1.Closure of Business 1.Death of the taxpayer 2.Dissolution of firm 2.Partition of HUF 3.Liquidation of company.
  • 67.
    Consequences if thenew 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 Transfer within 8 yrs Transfer after 8 transferred from the end of the years. previous year in which asset is transferred. Transfer to the Deduction will not be Deduction will not be Central Gov,a State withdrawn withdrawn Go,a local authority,a Statutory Corporation Transfer in a Deduction will not be Deduction will not be scheme of withdrawn withdrawn succession of a firm by company Transfer in any Deduction will be Deduction will not be
  • 68.
    Site Restoration FundSec 33ABA  The 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 limit  The 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.
  • 69.
    Site Restoration FundSec 33ABA  It 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
  • 70.
    Site Restoration FundSec 33ABA  Amount of Deduction:  A sum equal to amount deposited or  20% 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.
  • 71.
    Site Restoration FundSec 33ABA  Consequences 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.
  • 72.
    Expenditure on ScientificResearch Sec 35  Scientific 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
  • 73.
    Expenditure on ScientificResearch Sec 35  The 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.)
  • 74.
    Expenditure on ScientificResearch 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 given Weighted Deduction An approved research association which 175% has ,as its object ,undertaking of scientific research related or unrelated to the business of assessee. An approved university,college,or other 175% institution for the use of scientific research related or unrelated to the business. An approved university,college,or other 125% institution for the use of research in social sciences or statistical research
  • 75.
    Contribution to NationalLaboratory Sec 35 (2AA)  The following condition should be satisfied: 1. The payment is made to – a. National Laboratory or b. University or c. Indian Institute of Technology  The 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%
  • 76.
    Amortization of Telecomlicence 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.
  • 77.
    Amortization of Telecomlicence 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.
  • 78.
    Amortization of Telecomlicence fees (Sec 35 ABB) Profit or Loss on Sale of telecom license: Different Situation Tax Treatment Entire telecom license is transferred 1.When sale consideration is less than WDV minus sale consideration is allowed as WDV deduction under section 35ABB in the year of sale. 2.When sale consideration is more than WDV The 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 transferred 1.When sale consideration is less than WDV WDV minus sale consideration will be allowed as deduction over the unexpired period. 2.When sale consideration is more than WDV WDV minus sale consideration will be allowed as deduction over the unexpired period.
  • 79.
    Amortization of Telecomlicence 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.
  • 80.
    Amortization of preliminaryExpenses Sec 35 D Deduction 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.
  • 81.
    Amortization of preliminaryExpenses Sec 35 D The expenditure can not exceed the following: In case of corporate Assessee In case of non-corporate assessee 5% of cost of project or 5% of cost of project 5% of capital employed whichever is more One fifth of the qualifying expenditure is allowable as deduction in each of the five successive years beginning with the year in which business commences
  • 82.
    Recovery against anyDeduction 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- a. Has obtained a refund of such trading liability b. 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.
  • 83.
    Maintenance of accountsby certain persons Sec 44AA  “Specified 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.
  • 84.
    Maintenance of accountsby certain persons Sec 44AA  “Specified 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.
  • 85.
    Maintenance of accountsby certain persons Sec 44AA Category Taxpayer who come under Requirement of maintenance of this category books of accounts A Persons carrying on ―Specified Persons coming under this category Profession‖ if their gross are required to maintain such ―books receipts in the profession do not of account & other document‖ as exceed Rs 1,50,000 in any of may enable the AO to compute their the three years immediately taxable income. The Board has not preceding the previous year (or prescribed specified books of where the profession is newly account which should be maintained set up in the previous year,his for the persons falling under this gross total receipts in the category. profession for that year are not likely to exceed the said amount).
  • 86.
    Maintenance of accountsby certain persons Sec 44AA Category Taxpayer who come under Requirement of maintenance of this category books of accounts B Persons carrying on ―specified Persons coming in this category are profession‖ if their gross required to maintain such books of receipts in the profession accounts as are prescribed by rule exceed Rs 1,50,000 in all the 6F three years immediately preceeding the 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)
  • 87.
    Maintenance of accountsby certain persons Sec 44AA Category Taxpayer who come under Requirement of maintenance of this category books of accounts C Persons carrying on a ―non- Persons coming under this category specified profession‖. It also are not required to maintain any includes persons carrying on books of account. 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 immediately preceeding the previous year .
  • 88.
    Maintenance of accountsby certain persons Sec 44AA Category Taxpayer who come under Requirement of maintenance of this category books of accounts D Persons carrying on a ―non- Persons falling under this category specified profession‖.It also are required to maintain such books includes persons carrying on of accounts & other documents as any business if their income may enable the AO to compute their from such profession or taxable income under IT Act. business exceeds Rs 1,20,000 or the total sales,turnover,gross receipts are in the excess of Rs 10,00,000 in any of three years immediately preceeding the previous year.
  • 89.
    Specified Books ofaccount Sec 44AA  The 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 accounting  A ledger  Carbon copies of bills exceeding Rs 25 issued by the person & carbon copies otherwise serially numbered receipts issued by the person.
  • 90.
    Specified Books ofaccount Sec44AA  Apart from this, person carrying on medical profession is required to keep the following additional books  A daily case register in Form No 3C showing date ,patient’s 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
  • 91.
    Audit of certainpersons (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.
  • 92.
    Due Date forgetting books audited/submission of audit Report & Form No Different Tax Payers Audit Statement Due Date for Due Date Form No Particulars getting books for audited Submission of audit report In case of person who 3CA 3CD Sept 30th of Sept 30th of the carries on businesss or the A.Y A.Y profession & who is required by or under any law to get his accounts audited In case of a person who 3 CB 3CD Sept 30th of Sept 30th of carries on a business or the A.Y the A.Y profession but not being a person referred above.
  • 93.
    Due Date forgetting books audited/submission of audit Report & Form No  If 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.
  • 94.
    Computation of incomeon 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.
  • 95.
    Computation of incomeon estimated basis in the case of taxpayers engaged in certain business (Sec 44 AD) Consequences if the above conditions are satisfied  If 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)
  • 96.
    Computation of incomeon estimated basis in the case of taxpayers engaged in certain business (Sec 44 AD) Consequences if the above conditions are satisfied  If 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)
  • 97.
    Computation of incomeon 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.
  • 98.
    Computation of incomeon 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 carriage Estimated income Heavy goods vehicle Rs 5000 for every month during which the goods carriage is owned by the taxpayer. Other than Heavy Goods Rs 4500 for every month Vehicle. during which the goods carriage is owned by the taxpayer.
  • 99.
    Deduction from GrossTotal Income  80G Donations to Charitable institutions & Funds  80GGA Donation for Scientific research or rural development.  80GGB Contribution to political parties  80 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 undertaking  80 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
  • 100.
    80 GGA Donationfor 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 government  Sum 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 fund
  • 101.
    80GGB Contribution topolitical parties or electoral trust by companies  In 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.
  • 102.
    80GGB: deduction inrespect 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.
  • 103.
    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 1 Provision of Infrastructure facility Case 2 Telecommunication Services Case 3 Industrial Parks Case 4 Power generation,transmission & distribution Case 5 Undertaking set up for reconstruction of a power unit
  • 104.
    80 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 facility  It should be owned by an Indian Company  There should be an agreement with the central Government  It should start operation on or after April 1,1995  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.
  • 105.
    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 versa  The 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.
  • 106.
    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 system  A highway project including housing or other activities being an integral part of the highway project  A water supply project, water treatment system, irrigation project, sanitation & sewerage system or solid waste management system  A port ,airport, inland waterway or inland port
  • 107.
    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 facility  Audit 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.
  • 108.
    80 IA Profits& Gains from Industrial Undertaking engaged in the Telecommunication Services  An undertaking providing above services has to satisfy the following condition:  It should be new undertaking  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 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.
  • 109.
    80 IA Profits& Gains from Industrial Undertaking engaged in the Telecommunication Services Amt of Deduction in case of Telecommunication Service Enterprise % of profit Deductible Period of deduction commencing from initial A.Y Owned by a 100 First 5 Years company or any other 30 Next 5 years person
  • 110.
    80 IA Profits& Gains from Industrial Undertaking engaged in the Special Economic Zone or Industrial Park  An undertaking which develops & operates industrial park or SEZ must satisfy the following condition to avail benefit of Section 80IA  It 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.
  • 111.
    80 IA Profits& Gains from Industrial Undertaking engaged in the power generation/distribution The following condition should be satisfies:  It should be new undertaking  It 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 income  If all the aforesaid conditions are satisfied then 100% of the profit is deductible for 10 years commencing from initial assessment years.
  • 112.
    80 IA Profits& Gains from Industrial Undertaking engaged in the reconstruction of power units Following 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 income  If all the aforesaid conditions are satisfied then 100% of the profit is deductible for 10 years commencing from initial assessment years.
  • 113.
    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 Zone  The 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 1,2005  The 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.
  • 114.
    80 IB Deductionin 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 undertaking  Operation of Ship  Industrial Research  Production of Mineral oil  Developing & Building housing projects  The business of processing ,preservation & packaging of fruits or vegetables or integrated ,handling ,storage & transportation of food grain units  Convention Centre  Operating & maintaining a hospital in rural area.  Hospitals located in certain areas.
  • 115.
    80 IB Deductionin respect of profits & Gains from certain industrial undertaking other than infrastructure development  It should be a new undertaking  It should not be formed by transfer of old plant & machinery  It 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 Officer  Consequences of Merger /Amalgamation
  • 116.
    80 IB Deductionin 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.Y  Mineral 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.
  • 117.
    80 IB Deductionin 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.
  • 118.
    Deduction in respectof 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.
  • 119.
    Deduction in respectof 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.
  • 120.
    Deduction in respectcase 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,Jalg oan,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.
  • 121.
    Deduction in respectcase 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.
  • 122.
    profits & gainsfrom 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.
  • 123.
    Deduction in respectof employment of new workmen Sec 80JJAA  Following condition should be satisfied.  The tax payer is an Indian Company  Income 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.
  • 124.
    Deduction in respectof 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 capacity  A person who is employed in supervisory capacity & draw wages exceeding Rs 1600 per month.
  • 125.
    Deduction in respectof employment of new workmen Sec 80JJAA  Regular workman ― does not include the following  A casual workmen  A workman employed for contract labour or  Any 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.
  • 126.
    Deduction in respectof 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.
  • 127.
    Deduction in respectof employment of new workmen Sec 80JJAA Employees are categorised under  Category Nature of employment following categories. A Employees employed in managerial capacity,drawing salary exceeding Rs 1600 per month. B It includes casual workmen employed through contract labour (not coming under A) C Other workmen if employed for less than 300 days during the previous year ( not coming under A & B) D Other workmen (not coming under A & B) if employed for 300 days or more than 300 days during the previous year.
  • 128.
    Deduction in respectof 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.or  A foreign bank & having an offshare banking unit in a special economic zone or  A 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.
  • 129.
    Deduction in respectof 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.
  • 130.
    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.
  • 131.
    Tax Liability ofcompany 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. Domestic Co 5% Foreign Co 2%  (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
  • 132.
    Tax Liability ofcompany 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.
  • 133.
    Minimum Alternate TaxSec 115 JB  The extra tax which the company has to pay because of MAT ( Step 13 minus step 7) will be available for ―tax credit‖u/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.
  • 134.
    How to computethe Book Profit  Net 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.
  • 135.
    How to computethe Book Profit  Amounts carried to any reserves by whatever name called  Amounts set aside to provisions made for meeting liabilities other than ascertain liabilities.  Amounts by way of provision for losses of subsidiary companies  Amount of dividend paid or proposed.  Amount of expenditure relatable to any exempt income  Amount of depreciation  Amount of deferred tax & provisions thereof & amounts set aside as provision for value of diminution in value of any asset.
  • 136.
    How to computethe Book Profit  Net 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 account  Income 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.
  • 137.
    How to computethe Book Profit  Profit of sick industrial unit  The amount of deferred tax, if any such amount is credited to the profit & loss account.
  • 138.
    MAT  Every 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)