Lab file on corporate tax planing

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LAB FILE
ON
“Corporate Tax Planning”
Submitted To: Submitted By:
Pg Department of Commerce Name : Sukhchain
Aggarwal
Class : B.A.F. 2nd
Roll No. : 9007

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DECLARATION
I hereby declare that the Lab file on “Corporate Tax Planning” is bonafide work done
by ‘Sukhchain Aggarwal’ a student of B.com (Accounting & Finance) 3rd and is submitted to
“Prof. Navdeep Kaur Sandhu” in partial fulfillment of the requirement for the degree.
This work has never been submitted to any Educational Institution as per good of my
knowledge.
Sukhchain Aggarwal
B.com (Accounting & Finance) 3rd
9007

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ACKNOWLEDGEMENT
With great pleasure we are presenting this report on the basis of the “Corporate Tax
Planning”.
We are highly grateful to “Prof. Bikramjit Singh Sandhu” & “Prof. Navdeep Kaur
Sandhu” for giving us the time, encouragement and guidance for the report. Their critical and
detailed comments and full support helped and benefited us in carrying out the report.
Thanking you,
Sukhchain Aggarwal

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CONTENTS
Serial No. Headings Page No.
1 Introduction 5
2 Corporate Tax Planning 6
3 Computation of Total Income 7
a. Income From House Property 8
b. Income From Business or Profession 8
c. Income From Capital Gains 9
d. Income From Other Sources 9
4 Methods of Tax Planning 10
5 Numerical of Assessment of Companies 37
6 Bibliography 40

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Introduction:
Corporate tax planning provides strategies that are significant in minimizing taxes. Some
valuable ways to save include sponsoring a retirement plan, writing off company assets, claiming
depreciation expense, taking deductions on business automobiles, office expenses, self
employment health insurance, and employer sponsored child care resources, and using a home
office for the company. A company owner needs to be aware of anything that might impact taxes
paid. Corporate tax planning provides some ways that a business owner can save on income
taxes both short-term and long-term. The shifting of income to a family member could raise their
income bracket and this should be considered. This is a business tax planning venture that should
benefit both parties and should be done ethically and reasonably. To shift a large amount of
income to a family member just to avoid paying taxes would be unethical unless there were a
legitimate reason such as payment for services. Corporate tax planning involves looking out for
employees by offering retirement, cafeteria and medical benefit plans. Corporate tax planning
sources suggests making sure that write-offs are legitimate business expenses. There is a degree
of burden that is felt from tax legislation by any and every owner. However, there are positive
ways that a corporation can comply with obligations and find ways to develop a strong company
otherwise. Business tax planning includes taking advantage of opportunities to provide relief
when possible. Charitable contributions are a great way for a company to save on taxes and help
those in the community.

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Corporate TaxPlanning:
"Taxes are dues that we pay for the privileges of membership in an organized society."
Tax is a compulsory payment made to the Government for services it provides us, though people
may not be completely satisfied or convinced with these services. Income tax is an instrument
used by the government to achieve its social and economic objectives. Simply put, tax is duty or
tariff that income earning individuals pay to the Government in exchange of certain benefits such
as law and order, healthcare, education and a lot more. With proper planning, your tax liability
can be reduced and optimized effectively, leaving you with a greater share of your income in
your hands than being paid out as tax. Income earned in the twelve months contained in the
period from 1st April to 31st March (Financial Year) is taken into account when calculating
income tax. Under the Income Tax Act this period is called the previous year.

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COMPUTATION OF TOTAL INCOME:
According to section 4 of the Income tax act 1961 tax is to be charged on total
income of an assessee relating to previous year in the assessment year. Total Income is defined
in section 5 and to be computed in the manner as lay down in section 14 of the act. Section 15
provides the basis for the computation of total income and which is based upon residential status
of assessee in relevant previous year.
Section 14 of Income Tax Act 1961 provides for the computation of company
income of an assessee which is divided under four heads of income. Each head of Income has its
own method of computation. These five heads are:
I. Income from ‘House Property’ ;
II. Income from ‘Business or Profession’ ;
III. Income from ‘Capital Gains’ ; and
IV. Income from ‘Other Sources’.
Income from all these heads shall be computed separately according to the
provisions given in this Act. Income computed under these heads shall be aggregated after
adjusting past and present losses and the total so arrived at is known as ‘Gross Total Income’.

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INCOME FROM HOUSE PROPERTY:
Income from House property is calculated by considering the Annual Value. The annual
value (for a let out property) will be maximum of the following:
 HRA Rent received
 Municipal Valuation
 Fair Rent (as determined by the I.T. department)
However if a house is not let out and not self-occupied, then annual value is assumed to have
accrued to the owner. In case of a self occupied house, annual value is to be taken as NIL. But if
there is more than one self occupied house then the annual value of the other house/s is taxable.
From this, Municipal Tax paid is deducted to arrive at the Net Annual Value. From this Net
Annual Value, the following are deducted:
 30% of Net value as repair cost - mandatory deduction.
 Interest paid or payable on a housing loan for the house.
INCOME FROM BUSINESS OR PROFESSION:
Income arising from profits and gains of any Business or Profession; income derived by a
Trade/ Professional/ similar Association by performing specific services for its members; any
benefit from business whether convertible into money or not, incentives for exporters; any
salary, interest, bonus, commission or remuneration received by Partner of a firm; any amount
received under a Key man Insurance Policy which also covers Bonus; income from managing
agency and speculative transactions; is taxable.

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INCOME FROM CAPITAL GAINS:
Under section 2(14) of the I.T. Act, 1961, Capital asset is defined as property of any kind
held by an assessee such as real estate, equity shares, bonds, jewellery, paintings, art etc. but
does not consist of items like stock-in-trade for businesses or for personal effects. Capital gains
arise by transfer of such capital assets.
Long term and short term capital assets are considered for tax purposes. Long term assets are
those assets which are held by a person for three years except in case of shares or mutual funds
which becomes long term just after one year of holding. Sale of long term assets give rise to long
term capital gains which is taxable as below:
 As per Section 10(38) of Income Tax Act, 1961 long term capital gains on
shares/securities/ mutual funds on which Securities Transaction Tax (STT) has been
deducted and paid, no tax is payable. Higher capital gains taxes will apply only on those
transactions where STT is not paid.
 For other shares & securities, person has an option to either index costs to inflation and
pay 20% of indexed gains, or pay 10% of non indexed gains.
 For all other long term capital gains, indexation benefit is available and tax rate is 20%
INCOME FROM OTHER SOURCES:
There are some specific incomes which are to be taxed under this category such as
income by way of dividends, horse races, winning of bull races, winning of lotteries, amount
received from key man insurance policy.
So as we can see the Indian Income Tax law is a subject which is filled with legal jargons
and complexities that keep on changing every new financial year and the importance of this law
in our routine life simply cannot be ignored. Whether it is filing of Income Returns on due dates
or whether it's a financial investment decision to be taken, every where the Income Tax
provisions play a major role in driving of the cost factor.

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METHODS OF CORPORATETAX PLANNING
1. TAX PLANNING IN RESPECT OF EMPLOYEE`s REMUNERATION:
2 Factors are considered in case ofremuneration planning :
1.One has to ensure that while calculating businessincome of the employer, remuneration paid
toemployee are fully deductable.
2.One has to see that remuneration received by theemployees is taxable in their hands at
concessional rates.
Deduction of remuneration in hand of employer:-
1.Remuneration to employees engaged in carrying on scientific research.
2.Insurance premium on health of employees.
3.Bonus& commission to employees.
4.Employers contribution towards PF & Gratuity fund.
5.Employees contribution to staff welfare scheme.
6.Family Planning expenditure.
7.Payment of salary, allowances, perquisites.
8.Salary payable outside India.
9.Payment of salaries to relatives.
10.Payment of salaries exceeding 20000 Rs.In cash or bearer cheque.

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2. DEDUCTION OF TAX AT SOURCE:
In certain specified cases of income, tax at source should be deducted by the person
responsible for making payment of such income. Income-tax Act provides that such tax must be
deducted from the amounts of both residents and non residents according to the rates prescribed
in Finance Act of that year.
Specified cases of income where tax is deductible at source are normally those cases
where the income can be calculated in advance, i.e. the assessee can know his income even
before the expire of that previous year. Generally, in these cases assessee’s income, may be
more or less, is known sections 192 to 206 deal with the deduction of tax at source.
The specified cases where tax is deducted at source are: salary, interest on securities,
interest other than interest on securities, dividends, winning from lotteries and crossword
puzzles, payment to contractors, insurance commission, and winning from horse races and also
on other chargeable under the Act, which are paid to non residents.
PROVSIONS FOR TDS:-
 Salary:-DDOs must calculate the tax payable by an employee for the year and start
deducting tax at average rate. The term salary includes wages, any annuity or pension,
gratuity, any fees, commission, perquisites or profits in lieu of or in addition to any
salary or wages. (These payments are covered under sec. 192 of the Income Tax Act
1961). The income from salaries is required to be computed on estimated basis at
the beginning of each financial year, taking into account salaries or remuneration paid
or allowed. Income Tax payable on the basis of such estimated salary income should
be deducted at the rate applicable to the corresponding slab of income every month in
equal instalments subject to adjustments depending upon tax saving investments
made by the deductee.When an employee is working with more than one employer
simultaneously or has changed employment from one employer to another during the

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relevant financial year, the employer will deduct tax on considering the aggregate
salary from all sources and tax deducted thereon, if any.
 Interest on securities/Dividends/Interest/Insurance commission:-The tax has to be
deducted @ 20% for domestic companies and 10% for others with some basic
exemption limits, in the case of interest if the amount of interest is up to Rs. 5000/-
during a financial year. however, in the case of interest paid by a banking company, Co-
operative society engaged in the business of banking and a public company engaged in
the financing or construction of residential houses in India, this limit is Rs. 10000/-.
 Winning from lottery, puzzle or games of any sort:-The DDO/deductor must deduct
tax @ 30% on any payment above Rs. 5000/-.(However from 1st July 2010,the
DDO/deductor must deduct tax @ 30% on any payment above Rs. 10000/-)(These
payments are covered under sec. 194B of the Income Tax Act 1961).
 Winning from horse races-The DDO/deduct or must deduct tax @ 30% on any
payment above Rs. 2500/-.(However from 1st July 2010,the DDO/deductor must deduct
tax @ 30% on any payment above Rs. 5000/-).(These payments are covered under sec.
194BB of the Income Tax Act 1961).
 Contracts (including work land labor contract) :-The tax has to be deducted @ 2%
on contract payments and 1% for subcontract and advertisement contract payments.
The tax is required to be deducted if a single payment exceeds Rs. 20000/- or if the
aggregate payments exceed Rs. 50000/- per annum.(However from 1st July 2010, Rate
of deduction is @ 2% on all contract payments including subcontract and advertisement
contract payments. The tax is required to be deducted if a single payment exceeds Rs.
30000/- or if the aggregate payments exceed Rs. 75000/- per annum).(These payments
are covered under sec. 194C of the Income Tax Act 1961)

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 Insurance commission-:Any person responsible for paying to a resident any
remuneration or reward whether by way of commission or otherwise, for procuring
insurance business is required to deduct tax @ 20% for companies and 10% for other
person if the amount credited or paid is more than Rs. 5000/- in a financial
year.(However from 1st July 2010, any person responsible for paying to a resident any
remuneration or reward whether by way of commission or otherwise, for procuring
insurance business is required to deduct tax @ 20% for companies and 10% for other
person if the amount credited or paid is more than Rs. 20000/- in a financial year).
 Payments to Non residents sportsmen or sport association.-The tax has to be
deducted @10% on making any payment.(These payments are covered under sec. 194E
of the Income Tax Act 1961).
 Commission on sale of lottery tickets and on brokerage-.The tax has to be
deducted @10% with some basic exemption.(These payments are covered under sec.
194G & 194H of the Income Tax Act 1961).
 Rent-Any amount paid as rent above Rs. 120000/- per year will attract TDS
provisions @ 10% for Individual & HUF and 20% for others. (TDS will be 2% for
the use of any machinery or plant or equipment).(However from 1st July 2010, any
amount paid as rent above Rs. 180000/- per year will attract TDS provisions @ 10% for
Individual & HUF and 20% for others).(These payments are covered under sec. 194I of
the Income Tax Act 1961).
 Fees for professional or technical services/royalty/Income on units of mutual
funds/compensation on acquisition of certain immovable assets-The tax has to be
deducted @10% with some basic exemption limits.(These payments are covered under
sec. 194J, 194K & 194LA of the Income Tax Act 1961).

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 Payment on Acquisition of certain immovable property-Any amount above Rs.
100000/- paid as compensation or enhanced compensation on account of compulsory
acquisition under any law in force, of any immovable property other than agricultural
land will attract TDS provisions @ 10%.
For other payments:-

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3. TAX PLANNING IN CASE OF AMALGAMATION:
Meaning of Amalgamation under the Income Tax Act [Sec 2(1B)]
"Amalgamation", in relation to companies, means the merger of one or more companies
withanother company or the merger of two or more companies to form one company
(thecompany or companies which so merge being referred to as the amalgamating company
or companies and the company with which they merge or which is formed as a result of
themerger, as the amalgamated company) in such a manner that –
a) All the property of the amalgamating company or companies immediately before the
amalgamation becomes the property of the amalgamated company by virtue of the
amalgamation;
b) All the liabilities of the amalgamating company or companies immediately before the
amalgamation become the liabilities of the amalgamated company by virtue of the
amalgamation;
c) Shareholders holding not less than three-fourths in value of the shares in the
amalgamating company or companies (other than shares already held therein immediately before
the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become
shareholders of the amalgamated company by virtue of the amalgamation.

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TAX BENEFITS: One of the benefits accruing to the amalgamating company as a result
of amalgamation is that there is no capital gains chargeable to tax, by virtue of the fact that the
provisions of the Sec. 45 will not be applicable to a transfer in a scheme of amalgamation of
capital assets by the amalgamating companies to the amalgamated company (Clause vi of Sec.
47). Further, the shareholder of the amalgamating company also does not suffer any charge of
capital gains on transfer of shares held by him in the amalgamating company, if the consideration
is satisfied by allotment of shares in the amalgamated company (Clause viii of Sec. 47). The
question will then arise as to what would happen to a shareholder who does not wish to become a
shareholder of the amalgamated company (in the 25% excluded category). Such a shareholder
will be compensated by payment in a form other than shares in the amalgamated company and
therefore will be liable to tax on the capital gain arising out of the transfer. A further aspect of
the transfer is provided in Sec.49, which is to the effect that for a capital asset, which becomes
the property of the amalgamated company in a scheme of amalgamation, the cost of acquisition
will be deemed to be the cost for which the previous owner acquired it.
4. TAX CONSIDERATION OF CAPITAL STRUCTURE:-A company's capital structure is
the method a company uses to finance its operations and growth utilizing various sources of
funding. Capital structure is a mix of a company's long-term debt, specific short-term debt,
common equity and preferred equity. Firms that rely heavily on debt for financing operations
pose greater investment risks. Factors that affect a company's capital structure include
business risk, taxation, financial flexibility, management style, growth rate and market
conditions.
A company goes through many considerations in choosing its capital structure, and one of
those considerations is the tax impact. The two options for capital are debt and equity. One of
them receives a tax break but increases the financial risk of a company while the other one
does not share those same qualities.

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Cost of Capital and its tax treatment for Debentures:-The cost of capital for loans and
debentures refers to interest payable to lender or debenture holder. An interest rate is the rate at
which interest is paid by borrowers for the use of money that they borrow from a lender.
Tax treatment of interest:-Interest on loans or debentures is 100% tax deductible while
calculating business income. The allow ability of interest can be on due basis or payment basis.
In following cases ,interest will be allowed as deduction only if it is either paid during the
previous year itself or if not paid it must be paid on or before due date of furnishing of return of
income
(1)interest on loan from any public financial institutions like IDBI,ICICI,SFC.
(2) Interest on any loan taken from a scheduled bank including a co-operative Bank.
Cost of Capital and its tax treatment for equity and preference shares:-Dividend signifies
cost of capital for owned capital. “dividend” includes—
(a) Any distribution by a company of accumulated profits, whether capitalized or not, if such
distribution entails the release by the company to its shareholders of all or any part of the assets
of the company;
(b) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit
certificates in any form, whether with or without interest, and any distribution to its preference
shareholders of shares by way of bonus, to the extent to which the company possesses
accumulated profits, whether capitalised or not;
(c) any distribution made to the shareholders of a company on its liquidation, to the extent to
which the distribution is attributable to the accumulated profits of the company immediately
before its liquidation, whether capitalized or not;

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(d) any distribution to its shareholders by a company on the reduction of its capital, to the extent
to which the company possesses accumulated profits which arose after the end of the previous
year ending next before the 1st day of April, 1933, whether such accumulated profits have been
capitalized or not;
(e) any payment by a company, not being a company in which the public are substantially
interested, of any sum (whether as representing a part of the assets of the company or otherwise)
[made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a
person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend
whether with or without a right to participate in profits) holding not less than ten per cent of the
voting power, or to any concern in which such shareholder is a member or a partner and in which
he has a substantial interest (hereafter in this clause referred to as the said concern)] or any
payment by any such company on behalf, or for the individual benefit, of any such shareholder,
to the extent to which the company in either case possesses accumulated profits;
Tax treatment of Dividend:-
(1)Dividend paid to shareholders is not deductible as business expenditure.It has to be paid out of
after tax profits.
(2)payment of dividend tax:-The Domestic Company shall, in addition to the income tax
chargeable in respect of its total income, be liable to pay additional income tax on any amount
declared, distributed or paid by such company by way of dividend (whether interim or
otherwise), whether out of current or accumulated profits.
Such dividend distribution tax shall be payable @ 15% plus surcharge @ 5% plus education cess
@ 2% plus SHES @ 1% of amount so declared, distributed or paid.
The amount referred to in Sec. 115-O, i.e. dividend to be distributed shall be reduced by

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The amount of dividend, if any, received by the domestic company during the financial year, if—
a. such dividend is received from its subsidiary;
b. the subsidiary has paid tax under this section on such dividend; and
c. the domestic company is not a subsidiary of any other company.
5. TAX PLANNING IN RESPECT OF BONUS SHARES:-
 When bonus share are issued to the equity shareholders, the value of the share is not
taxed as dividend distributed.
 Where Redeemable preference share are issued as bonus share on their redemptions,
the amount shall be taxed distributed.
 Where bonus are issued to preference shareholders, on their issue it is deemed to be
dividend and liable to tax.
 Expenses on issue of bonus shares allowed as deduction as per supreme court
judgment.
DEDUCTIONS AVAILABLE TO CORPORATE Under Sec(80C to 80LA )
 Company assesses are entitled to claim following deductions u/s 80 out of total income:
 Deduction u/s 80G for donations
 Deduction u/s 80GGA for certain payments
 Deduction u/s GGB for donation to political parties
 Profits from new infrastructure undertakings u/s 80IA
 Deduction to developers of Special Economic Zones (80IAB)
 Profits from new industrial undertaking u/s 80IB
 Deduction for setting up undertakings in special states U/s 80IC
Deduction in respect of profits & gains from business of hotels & convention centres in
specified area u/s 80ID
 Deduction in respect of profits & gains of certain undertakings in North-Eastern State US

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80IE
 Profits from processing of bio-degradable waste u/s 80JJA
 Deduction in respect of employment of new workers u/s 80JJAA
 Deduction for income of offshore funds u/s 80LA
(1) Deduction u/s 80G for donations
Section 80G grants partial deduction in respect of amounts given as charitable donation and it is
allowed to all asseessees.
the sums the following as donation during the previous year qualify under the section 80 (2):
(a) any sum paid by asseesse in the previous year as donation to:
(i) the National Defense Fund set up by Central Government
(ii)The Prime Minister's Drought Relief Fund
(iii)The Prime Minister's National Relief Fund
(iv)The Prime Minister's Armenia Earthquake Relief Fund
(v)The Africa India Fund
(vi)The National Children Fund
(vii)The Indra Gandhi Memorial Trust
(viii)The Rajiv Gandhi Foundation
(ix)The National Illness Assistance Fund
Conditions
No deduction to be allowed in case of the following donations u/s 80G:
donation to political parties - these donations qualify for deduction u/s 80GGB

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Donations in kind donation given are for the be benefit of any particular religion, class, creed,
community
(2)Deduction in respect of any payment made to certain institution(sec 80GGA)
The deduction shall be available to every such assessee, who during the previous year has made
any payment:
(a) to an approved research association which has as its object the undertaking of scientific
research and such bodies as are approved for the purpose
(b) any sum paid by the asseesse in the previous year to an research association which has as its
object the undertaking of research in social sciences or to a university, college or other institution
to be used for research in social sciences
(c) to an association which has as its object the undertaking of any programme of rural
development to be used for carrying out any program
mime of rural development approved for the purpose
(d) to an institution or association has as its object to training of persons for implementing
programmed of rural development and such body is approved for teh purpose
(e) any sum paid by the assessed to a public sector company or institution approved by National
Committee
(f)any sum paid by the assessed in the previous year to a rural development fund to be set up and
notified by Central Government for the purpose
(g)National Poverty Education Fund
Amount of deduction: 100% of amount paid to the above institution

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(3)Deduction in respect of contribution given by company to political parties(sec 80GGB)
In case a company is donating or contribution any amount to any political party or electrocal
Trust a deduction @ 100% of such donation is allowed.
(4)Deductions u/s 80IA for Infrastructure Projects
Recognizing the need of establishing and developing infrastructure facilities the govt. has
provided tax incentives for undertakings engaged in the business of infrastructure development
section 80IA of the income tax act provides tax holiday for a certain period to an industrial
undertakings carrying on the business of developing, maintaining and operating any
infrastructure facilities
Details of Deduction u/s 80IA
Category I: Undertaking engaged in providing infrastructure facility
Eligible business :80IA(4)(i)
(a) developing
(b) operating and maintaining
(c) developing, operating and maintain any infrastructure facility.
Rate of deduction
Deduction shall be allowed@ 100%of profits and gains from such eligible business
Period of deduction
(a) In case of a port, airport, inland waterway: The deduction us available for any 10
consecutive assessment years of 20 years beginning from the year in which thaw undertaking
develops any such infrastructure facility

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(b) in case of other infrastructure facilities: the deduction is available for any 10 consecutive
assessment years out of 15 years beginning from the year in which the undertakings develops
any such infrastructure facility
Transfer of business
in case the undertaking which is claiming this deduction transfers its business on or after 1-4-99
to another enterprise for operating and maintain infrastructure facility, the deduction will be
avialable to such transferee company for the unexpired period, assuming, as if no transfer has
taken place.
Category II: Telecommunication Services
Eligible business: 80IA(4)(ii)
an undertaking engaged in providing :
(a) Telecommunication services wheather basic or cellular
(b) radio Paging
(c) Domestic satellite services
(d)Networking of trunking
(e) Broadband network
(f) Internet services
Rate of deductions & period of deductions:
(a) 100% of profits and gains from such business for first 5 consecutive assessment years
commencing it any time out of first 15 years starting from the date of commencement of
operation

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(b) 30% or profits and gains for next 5 consecutive assessment years out of first 15 years starting
from the date of commencement of operations.
Form of organization: The deduction is available to all Industrial undertakings/enterprises
whether in corporate sector or in non corporate sectori.i. sole proprietor firm etc.
Specific conditions:
(a) commencement of operations: the eligible undertaking has started providing services on or
after 1-4-95 but on or before 31-3-05.
(b)the deductions are only avail if there is ni any splitting or reconstruction of existing business.
Category III: Industrial park or Special Economic Zone
Eligible business: 80IA(4)(iii)
(a) developing
(b) operating and maintain
(c) Developing, operating an industrial park or special economic zone notified by cental Govt.
with scheme framed & notified.
Form of organization: The deduction is available to all Industrial undertakings/enterprises
wheather in corporate sector or in non corporate sectori.i. sole proprietor firm etc.
Specific conditions commencement of operations:
(i) For Industrial Park during 1-4-06 to 31-3-2011
(ii)For Special Economic Zone during 1-4-97 to 31-3-2005
Rate of deductions: An eligible undertaking can claim deduction of 100%of profits & gains

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from such business.
Period of deductions: The deduction is available for any 10 consecutive assessment years out of
15 years beginnings from the year in which undertakings starts operations.
Category IV: Power Sector
Eligible business: 80IA(4)(iv)
(a)Generation of power
(b) Generation & distribution of power
(c) Transmission by laying a network of new transmission
(d) undertakes substantial renovation and modernization of existing transmission
Form of organization: The deduction is available to all Industrail undertakings/enterprices
wheather in corporate sector or in non corporate sectori.i. sole proprietor firm etc.
commencement of operations
undertaking has stared generating paler on or after 1-4-93 but on or before 31-3-2012
undertaking starts transmission or distribution by laying a network of new transmission of
distribution line on or after 1-4-99 but on or before 31-3-2012
undertaking starts substantial renovation and modernization of existing transmission or
distribution on or after 1-4-04 but on or before 31-3-2012.

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(b)No spilt up or reconstruction of existing business: The undertaking has not been formed by
splitting up or reconstruction of a business already in existence.
Rate of deduction : An eligible undertaking can claim deduction of 100% of profits and gains
derived from such business.
Period of deduction: the deduction is available for any 10 consecutive assessment years out of 15
years beginning from the year in which the undertaking starts opertions.
Category V: Section 80IA (4)(v) undertaking set upfor recontruction pf power generating
plant:
Eligible business: Reconstruction of power generating plant
Form of organsation: Indian company, it implies that such undertaking must be owned by an
Indian Co.In other words, foreign companies and other non corporate assessees cannot claim this
deduction.
Rate of deduction: Eligible undertakings to generate or transmit can claim a deduction of 100%
of profits and gains from such business.
Period of deduction: The deduction is available for any 10 consectives assessment years out of
15 years beginnings from the yaer in which the undertaking starts operations.
(2) formation of Indian company: Such Indian company must be formed before 30-11-2005 with
majority equity participation by public sector companies for the purpose of enforcing the security
interest of lenders to the company owing the power generating plant.
Approval from centarl Government: Such India company is notified before 31-12-2005 by the
central government for the purposes of this clause

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Commencement of operations: Such undertaking beings to generate power before 31-3-2011.
Category V: Section 80IA (4)(vi):Undertaking laying and operating a cross country natural
gas distribution network:
With the introduction of new deduction u/s 35AD, deduction available eariler u/s 80 IA (4)(vi)to
the business of laying and operating a cross country national gas distribution network has been
discontinued.
Deduction to developers of Special Economic Zones (sec 80 IAB)
With the effect from assessment year 2006-07 this new deduction has been intriduced.
Previously this deduction could be claimed only u/s 80 IA but now it is allowed u/s 80 IAB:
Eligibility:
This deduction shall be allowed only if following conditions are fullfilled:
(a) This deduction is available only to those undertakings who are engaged in the business of
developing special economic zones
(b)The special economic zone is notified on or after 1-4-2005 under specialeconomic zone
act,2005.
(c) The undertaking must have some income from special economic zone which is taxable under
the head profits ang gains of Business or profession.
(d)The accounts of undertaking must be audited.
(e)It must fullfill any other condition which may be noified.
Rate of deduction: This deduction is allowed @100%of profits from special economic zones as
are included in the GTI of such undertakings.
Period of deduction: The undertaking can claim this deduction for a total period of 10 previos

28
years out of 15 previous yeras beginnings with the year in which such special economic zones is
notified at the convience of the assessee.
deduction in case of transfer of special economic zone:where an undertaking being a develops
a special economic zone on or after 1-04-05.transfer the operation and maintance of such special
economic zone to another developer the deduction uner this section shall be allowed te transferee
developers.
(5) Deduction for setting up new business u/s 80 IB
Eligibilty
1. Industrial Undertaking
An industrail undertaing which fullfill the following condition shall be eligible for this
deduction:
(a)It is not formed by splitting up or reconstruction of it business slready in existence
(b) It is not formed by the transfer to a new business of machiner or plant used for any purpose in
Indis.
(c) It is producing or manufacuring an aricle not inclided in 11th schedule .
2. Ship
This deduction can be claimed if any ship is acquired provided following conditions are
fullfilled:
(i) it is not prior to the date of its acquisition by Indian comapny, ownedor used in Indian
territorial watera by a person resident in India
(ii) It is bought into use by Indian company 1-4-91 to 31-3-95.

29
3.Hotel
An hotel which fullfill the following condition shall be eligible for this deduction:
(a)It is not formed by splitting up or recontruction of it business slready in existence
(b)The business of hotel is owned by and carried by a company registered in India with a paid up
capital of not less than ra. 5 lakhs.
(c) A hotel must be located in
hilly areas in rural areas during 1-4-1990 to 31-3-1994 or during1-4-1997 to 31-3-2001
any place other than kolkata ,chennai,delhi and Mumbai and it starts fuctioning during 1-4-1997
to 31-3-2001
4. Muliplex theatre
Contruction Period: Multiplex theatre is contructed at any time during the period beginning on
the 1st day of april 2002 and ending on 31st march 2005.
No spilt up:The business of the muliplex theatre is not formed by the splitting up or
recontruction of a business already in existence.
No transfer of previously used assets: The business of multiplex threatre is not formed by the
trnasfer to new business of any buildings or any machinery previously used for any purpose.
Audit report: The assessee furnishes along with the return of income report of an audit in such
form and containning such particulars as may be prescribed and duly signed and verified by
charted accountant.
No deduction for multiplexed in metroes: The deduction shall not be available to a multiplex
theatre located at a palce within the municipal jurisdiction of kolkata, chennai, delhi, mumbai.
Amount of deduction: Fifty percent of the profits and gains derived from the business of
building owning and operating a multiplex theatre.

30
Period of deduction: The deduction is available for a period of 5 consective years beginning
from intial assessment year.
5.Convention centres
Contruction Period:Multiplex theatre is contructed at any time during the period beginning on
the 1st day of april 2002 and ending on 31st march 2005.
No spilt up:The business of the muliplex theatre is not formed by the splitting up or
recontruction of a business already in existence.
No transfer of previously used assets: The business of multiplex threatre is not formed by the
trnasfer to new business of any buildings or any machinery previously used for any purpose.
Audit report: The assessee furnishes along with the return of income report of an audit in such
form and containning such particulars as may be prescribed and duly signed and verified by
charted accountant.
No deduction for multiplexex in metroes: The deduction shall not be available to a multiplex
theatre located at a palce within the municipal jurisdiction of kolkata,chennai,delhi,mumbai.
Amount of deduction: Fifty percent of the profits and gains derived from the business of
building owning and operating a multiplex theatre.
Period of deduction: The deduction is available for a period of 5 consective years beginning
from intial assessment year.
6.companies engaged in scientific and industrial research and development:
Assessee eligible: A company registered in India
Ojective of the company: The company has the main object of scientific and Industrial research
and development

31
Approval of company: The company is for the time being approved by prescribed authority at
any time after 31-3-2000 but before 1-4-2007.
Period of deduction: The deduction is available for a period of 10 consecutive assessment years
beginning from intial assessment year.
7. Undertaking engaged in production or refining of mineral oil or natural gas from blocks
allotted under NELP-VIII
Amount of deduction :100%of profit
Period of deduction: the deduction in available for a period of 7 consecutive assessment years
including the intial assessment year.
8.Undertaking developing building approved housing projects
Commencements of operations: Such undertaking has commenced development construction
of housing project on or after the 1st day of october1998
Approval of Project: The housing project is approved by local authority before 31-3-08
Size of plot: The project is on the size of a plot of land which has a minimum area of one acre.
this condition shall no applicable to a housing project carried out accordance with scheme
framed by central government.
(7) Deduction setting up industries in backward states u/s 80IC
This deduction is allowed from profits of certain undertaking or enterprise in certain specific
category states.
1. Eligibility and rate of deduction [80IC(2)]

32
A. This section apply to undertaking or enterprise which has began or begins to manufacture
or produce any article or thing, not being or thing specified in the thirteen schedule, or
which manufactures or produces any article or thing.
B. Which begun or begins to manufacture or produce any article or thing, specified in the
fourteenth schedule or commences any operation specified in that schedule , or which
manufactures or produces any article or thing specified in the fourteenth schedule or
undertakes substantial expansion.
Deduction u/s 80IC
Period States Rate Period of deduction
Company others
23-12-2012 Sikkim 100% 100% first 10 assessment years
To 31-3-07
7-1-2003 Himachal Pradesh 100% 100% first 05 assessment years
To 31-3-12 and Uttranchal 30% 20% next 05 assessment
years
24-12-97 to North eastern 100% 100% First 10 assessment years
31-3-2007 States .
2.Conditions for claiming of this deduction [section 81IC(4)]
(i) It is not formed by splitting, or reconstruct of business already in existence.
(ii) it is not formed by transfer of machinery or plant and machinery to new previously
used for any purpose.
(iii)The provisions regarding use of second hand plant and machinery shall be applicable
in same manner as are applicable u/s 801A (3);
(iv)In computing the total income of the asseesse, no deduction shall be allowed under
any other section contained in chapter VI or in section 10A or section 10B, in relation to
the profits and gains of the undertaking or enterprise.[Section 801c (5)]
(v)No deduction shall be allowed to any undertaking or enterprise under this section
where the four period of deduction inclusive of the period of deduction under this section,

33
or under the second provision sub-section (4) or section 801B or under section 10C, as
the case may be, exceeds ten assessment years.[section 801C(6)];
(8) Deduction in respect of profit and gains from business of hotels in specified
area/world heritage site and convention centres in specified area. (Sec 80 ID)
This deduction has been inserted by the finance Act, 2007 (w.e.f. Assessment year 2008-
2009).the object of the deduction is (i) to provide adequate number of hotels to fulfill the
accommodation requirement of the tourists for the common wealth games to be held in
India (New Delhi in 2010),
(ii) To increase the number of convention centres in Delhi and its surrounding specified
areas.
1. Eligible undertakings [80 ID (2)]
(i) Undertaking engaged in the business of hotels in the specified area
(ii) Undertaking engaged in the business of owning and operating and convention
centre in the specified area.
(iii) Undertaking engaged in the business of hotel located in the specified district
having a World heritage site.
2. Specific conditions to be fulfilled :
(a) Construction/Commencement of Hotels/Convention centres
(b) No split up or reconstruction of existing Business
(c) Restriction use of old Hotel-Building and convention Building
(d) Restriction on use of old plant and machinery
(e) Audit of Accounts and submission of Audit report
(f) Duplication of deduction is not permissible
(g) Applicability of certain conditions mentioned under section 80 1A:80ID(5)
4.Rate of deduction or quantum of deduction :100% of the profit and gains ofr such
business of operating and maintaining a hotel or za convention centre.
5.Period of deduction:The deduction is available for a period of 5 consecutive
assessmentyears beginning the intial Assessment year.

34
(9). Special provisions in respect of certain undertakings in north Eastern state :8
0-IE:
This deduction has been inserted by the finance Act,2007 (w.e.f.Assesment year 2008-
09 The object of this deduction is to promote socio-economic development of north-
eastern states like Manipur ,Sikkim etc.
1.Eligible undertaking :[80 IE(2)]: ( i) undertaking manufacturing or producing any
eligible article of thing.
2.Location of undertaking [80 IE (2)] and [80 IE (7)]: Such undertaking must be
located in North Eastern state. “North-Eastern-States” means the state of Arunachal
Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura.
3. Form of undertaking: The deduction is available to all undertaking irrespective of
any specific form of business organization.
4. Specific condition to be fulfilled
(10) Deduction in respect of profits and gains from business of collecting and
processing of bio-degradable waste: [Section 80 JJA]
(1) Eligible business : Collection and processing or treating of biodegradable waste for
generating power or producing bio-fertilisers, bio-pesticides or making pellets or
briquettes for full or organic manure.
(2) Form of organization : The deduction is available to all industrial
undertaking/Enterprises whether in corportate sector or Non-corporate sector i.e. sole
proprietor, partnership firm etc.
(3) Rate of deduction or quantum of deduction : 100% of profits and gains from such
business as included in gross total income.
(4) Period of deduction : The deduction is available for a period of five years beginning
with assessment year relevant to the previous year in which such business commences.

35
(11) Deduction in respect of wages paid for additional company jobs [Section 80
JJAA]
(1). Eligible business : Industrial undertaking engaged in the manufacture or production
of article or thing.
(2). Form of organization : The deduction is allowed to Indian company only. It
implies that foreign companies and other non-corporate assesses cannot claim this
deduction.
(3). Conditions to be satisfied :
(a) No spilit uo or reconstruction or amalgamation
(b) Employment of specified number of new regular workman
(c) Submission of audit report
(d) Rate of deduction or quantum of deduction
(12) Deduction in respect of certain incomes of offshore banking units and
international financial services centre: [section 80 LA]
(1) Assessee entitled[section 80 LA (1)]
(a) A scheduled or any bank incorporated by or under the laws of a country outside
india, and having an offshore banking unit in a special economic zone; or
(b) A unit of an international financial service centre
(2) Eligible income : [section 80 LA(2)]:
(a) Income from off shore banking unit in a special economic zone; or
(b) Income from the business referred to in section 6(1) of the banking regulation
act,1949 with an undertaking located in a special economic zone or any undertaking
which develops, develops and operates and operates or develops, operates and
maintains a special economic zone or

36
(c) Income from any unit of the international financial services centre from its business
for which it has been approved for setting up in such a centre in a special economic
zone.
(3). Conditions to be satisfied:
(a) Submission of audit report
(b) Permission from appropriate authority
(4). Amount of deduction and period of deduction:
(a) 100% of such profits : for five consecutive assessment years relevant to the previous
year in which the permission for such business is obtained from appropriate authority
(b) 50% of such profits : for next five consecutive assessment years.

37
Question: Given bellow is the P&L a/c of Modern Co. Ltd.
Rs.
To Opening Stock 5,50,000
To Purchase 55,60,000
To Railway, Freight, Octroi etc. 6,00,000
To Salaries 4,50,000
To Director’s Fees 6,000
To Audit Fees 5,000
To Legal Expenses 50,000
To Repair to Building & Machinery 14,000
To Welfare Expenses 10,000
To General Charges 25,000
To Interest paid 2,50,000
To Reserve for B/D 5,000
To Transfer to General Reserve 1,00,000
To Depreciation 10,000
To Managing Agent’s Remuneration 30,000
To Provision for Tax 6,00,000
To Debenture Sinking Fund 25,000
To Proposed Dividend 6,00,000
To Balance Carried to Balance sheet 1,66,000
Computes Company’s total income after taking into account the following information:-
1. Rs. 5000 on account of a liability forgone by a creditor, to whom that sum was due by way of
commission charged by the company in the revenue account of the proceeding year, have been
carried to a special reserve.

38
2. General charges include:
i. Rs. 1,000 Insurance of staff quarters.
ii. Rs. 3,000 Repairs of staff quarters.
iii. Rs. 3,000 Muncipal taxes of staff quarters.
iv. Rs. 5,000 Donations.
3. Welfare expenses include Rs. 7,000 for installing water cooler for workers.
4. Legal expenses include Rs. 3,500 paid for the prosecution of managing agent for smuggling to
Pakistan.
5. Repair to building includes Rs. 10,000 being cost of addition to business premises.
6. Depreciation is Rs. 20,000.

39
Solution:
Computation of Total Income of Modern Co. Ltd. Rs. Rs.
Net profit carried to the Balance Sheet 1,66,000
Add: Expenses debited but were disallowed
Reserve for B/D 5,000
Depreciation 10,000
Debenture Sinking Fund 25,000
Provision for Tax 6,00,000
General Reserve 1,00,000
Proposed Dividend 6,00,000
Repair to Building being capital expenditure 10,000
Legal Expenses regarding prosecution of managing agent
for smuggling activities 3,500
Welfare expenses on water cooler machine being capital expenditure 7,000
Donations 5,000
Liability foregone by a creditor charged in the revenue
account for the preceding year 5,000 13,70,500
15,36,500
Less: Allowable depreciation including dep. On water-cooler 20,000
machine and extension to building
Business Income being G.T.I. 15,16,500
Deduction u/s 80G
Donation given Rs. 5,000
Q.A. = 5,000 (within limit) @ 50% 2,500
Total Income 15,14,000

40
BIBLIOGRAPHY:
 WORKSHOP ON CORPORATE TAX PLANNING
 “Corporate Tax Planning and Management”, “Narang D.B.”, “Puri Rajeev” &
“Gaur V.P.”, “KALYANI PUBLISHERS”, “2012-2013”.
 http://en.wikipedia.org/wiki/Salaries_Provisions
 http://www.simpletaxindia.net/2009/01/leave-salary-encashment-exemption.html
 http://www.allbusiness.com/accounting-reporting/corporate-taxes-
tax/11431.html#ixzz2CR5t3g98

Lab file on corporate tax planing

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