Tax planning and promotion of a company

in caseof setting up of new
business, onehasto takethe
following decisions:
1. Wherethenew undertaking
should belocated,
2. What should bemanufactured:
and
3. What should bethelegal form
of organisation.
Dr. Hanmanth N Mustari
PowerPoint by
Karnatak University

Many factors affect location of a new
business. The following incentives are
available under the act:
 Under section 10A in case of newly
established. industrial under taking in
Free Trade Zone (FTZ)
 Under section 10B in case newly
established hundred percent Export-
Oriented undertaking.
 Under section 80-IB in case of newly
set up industrial under taking in an
Industrial Backward State or District.

1. Section 10A.Special provision in respect of newly
established undertakings in Free Trade Zone, etc.
The benefit in respect of newly established Industrial Undertaking in FTZ,
EHTPSEZ isAvailableto all Assesseeon Export of Certain Articlesor things
or software. Subject to the following Conditions:
location Year
Free Trade Zone i.e Kandla Free trade
Zone,Santacruz Electronics Exports processing
zone, Falta Export processing Zone, Madrass
Export processing zone, Cochin Export Processing
Zoneand NoidaExport Processing Zone.
During the previous year relevant
to the assessment year 1981 or
any subsequent year.
Electronic Hardware Technology park or
software park:
During the previous year relevant
to the assessment year 1994-95 or
any subsequent year.
Special Economic Zone During the previous year relevant
to the assessment year 201-02 or
any subsequent year but before
April 1 2005Dr. Hanmanth N Mustari

Amount of deduction: if aforesaid conditionsaresatisfied, the
deduction under section 10A may becomputed asunder:
Export turnover
Profitsof thebusiness X ________________________
Total turnover of thebusinesscarried on by theundertakin g
Period of deduction:
The assessee can claim deduction for a period of 10
consecutive assessment years beginning with the
assessment year relevant to the previous years in which the
undertaking in which the undertaking begins to
manufacture or produce such articles or things or computer
software

Undersection 10Bin case newly established hundredUndersection 10Bin case newly established hundred
percent Export-Oriented undertakingpercent Export-Oriented undertaking
Deduction under section 10B isnot availablefrom the
assessment year 2012-13.

Deduction under Section 80-IB isavailableto different industrial
undertakingsasfollows:
1. Businessof an industrial undertaking
2. Operation of Ship
3. Hotels
4. Industrial Research
5. Production of mineral oil
6. Developing and building housing projects
7. Businessof processing, preservation and packing of fruitsor
vegetablesand storageand transportation of food grains:
8. Multiplex theatres
9. Operating and maitaining ahospital in rural area
10.Hospital located in certain area.

To claim deduction under section 80-IB, an industrial
undertaking must satisfy thefollowing conditions:
a) It should benew undertaking
b) It should not beformed by transfer of old plant and machinery.
c) It should manufactureor producearticlesother than non-priority
sector itemsgiven in theeleventh schedule.
d) Manufactureor production should bestarted within astipulated
timelimit (betweenApril 1 1991 and March 31 1995)
e) It should employ 10/20 workers
f) Deduction should beclaimed in thereturn of incomeand return of
incomeshould besubmitted on or beforetheduedateof
submission of return of income.
g) Amount of deduction:
An industrial undertaking can claim deduction at therate
of @100% for first fiveyearsand 30% for next 5 years

Operation of a Ship
o Owned by an Indian company
and wholly used for the
business
o Brought in use between
1.04.1991 to 31.03.1995
o Not used in Indian Territorial
water by a person resident in
India.
o Deduction @ 30% for first 10
years

Certain hotels( which are
functioning beforeApril 1,
2001) wherequalified for
deduction under section
80-IB for 10 years. 10
yearslimit isexpired with
assessment year 2010-11.
no deduction isavailable
for theAY 2011-12.

o Company registered in India
o Main object of the company scientific
and industrial research and development
o Approved by prescribed authority in
accordance with Rule 18 BBD.
o Deduction if approved before
01.04.1999 100% for initial 5 years
o Deduction if approved after 31.03.2000
to 31.03.2007 100% for initial 10 years

o Is located in North-Eastern Region and started
commercial production before 1.04.1997
o Is located in any part of India and started commercial
production after 1.04.1997
o Is engaged in refining of mineral oil and begins such
refining on or after 1.10.1998 but on or before
31.03.2012.
o Is engaged in commercial production of natural gas in
blocks licensed under New Exploration Licensing
Policy of Govt. of India and begins production on or
after 1.4.2009.
o Is engaged in commercial production of natural gas in
blocks licensed for Coal Bed Methane blocks and
begins commercial production on or after 1.04.2009.
o Deduction: 100% for first 7 years

o Size of plot of land minimum of one acre
o Commences construction after 1.10.1998 and completes
 On or before 31.03.2008, if housing project approved
before 01.04.2004
 Within 4 years, if housing project approved between
01.04.2004 to 31.03.2005
 Within 5 years, if housing project approved after
01.04.2005
oStipulation regarding size of plot or date of completion
not to apply for projects in slum area as notified by the
Board.

o Built up area of commercial establishment not
exceed 3% or 5000sq ft whichever is less
o Maximum limit of built up area of a unit within
city of Delhi and Mumbai or within 25 Kms
thereof 1000 sq ft (1500 sq ft for any other
place)
o Not more than one residential unit in the
housing project is allotted to any person not
being an individual (w.e.f. 01.04.2010)
o if any unit is allotted to an individual, no other
unit in such housing project, shall be allotted to
the individual, spouse or minor children of
such individual or to HUF in which he is the
karta or to any person representing such
individual, spouse, minor children or HUF in
which he is the karta (w.e.f. 01.04.2010)

oDeduction 100% of the profits.
oProvisions of section would not apply to
a contractor
80-IB, Business of processing,80-IB, Business of processing,
preservation and packing of fruits orpreservation and packing of fruits or
vegetables and storage andvegetables and storage and
transportation of food grains.transportation of food grains.
o Begins operation on or after 01.04.2001
o Deduction 100% for first 5 years and 25% (30% in
case of Company)for next 5 years
o Provisions not to apply to an undertaking
engaged in the business of processing,
preservation and packaging of meat or meat
products or poultry or marine or dairy
products, if it begins operation before
01.04.2009

o Such hospital is constructed during 01.10.2004 to
31.03.2008
o Minimum 100 beds for patients
o Construction is as per regulation of local authorities.
o Accountant’s report 10CCBC r/w Rule 18DD certifying
amount of deduction .
o Deduction 100 % for initial 5 years
80-IB Operation and maintaining hospital located in
certain area.
o The hospital is constructed and starts functioning between
01.04.2008 to 31.03.2013
o At least 100 beds for patients
o Construction is as per the regulations or the bye-laws of the
local authority Dr. Hanmanth N Mustari

o Accountant’s report 10CCBD r/w Rule 18DDA certifying
amount of deduction
o Excluded area to include Greater Mumbai, Delhi, Kolkata,
Chennai, Hyderabad, Bangalore, Ahemdabad, Districts of
Faridabad, Gurgaon, Gautam Budh Nagar, Ghaziabad,
Gandhinagar and City of Secunderabad
o Deduction 100% for initial 5 years
II Nature of new Business
Many incentives are available under the act which are directly co-
related to the nature of the business. Some of the incentives are
as follows:

The deduction under section 80-IA is
available only to the following
undertakings:
1. Provision of Infrastructure
facility
2. Telecommunication services
3. Industrial parks
4. Power generation and
transmission and
distribution.
5. A cross country natural gas
distribution net work

An undertaking providing infrastructure facility must satisfy the
following conditions:
1. It should provide Infrastructure facility means means road, toll
road, a bridge, rail system, highway projects, water supply projects,
water treatment system, irrigation project, sanitation and sewerage
system or solid waste management system, port, airport, inland
waterway, inland port or navigational channel in sea.
2. It should provide be owned by an Indian company
3. There should be an agreement with the central government
4. It should start operation on or after April 1, 1995
5. Deduction should be claimed in the return of income
• Deduction
100% deduction for 10 Consecutive Years out of 15 Years
(20 years in case of Development etc of specified
Infrastructure Facilities)

An industrial undertaking which provides Telecommunication
services must satisfy the following conditions
1.It should be new undertaking
2.It should not be formed by transfer of old plant and machinary
3.The activity must commence on on or after 31 March 1995
Deduction
In case of Telecommunication Services 100% for first 5
years and 30% for further 5 years

Conditions:
1. Undertaking must be engaged in developmentand
maintenance in industrial park and Special economic zone
notified by the central Government.
2. The industrial park must start operating during April 1
2006 and March 31, 2011 and it should be notified by the
central Government
Deduction
If above conditions are satisfied 100% profits for 10 years
commencing from initial assessment year

o Begins to generate or distribute power between 01.04.1993 to
31.03.2011
o Begins to transmit or distribute power between 01.04.1999 to
31.03.2011 by laying network of new distribution lines.
o Begins to undertake substantial renovation and modernization
between 01.04.2004 to 31.03.2011
Deduction
If above conditions are satisfied 100% profits for 10 years
commencing from initial assessment year
 Deduction under clause v to an Undertaking operating a cross
country natural gas distribution has been withdrawn with effect
from 1/4/2010.

An assesee must satisfy the following
conditions
o The assesee must be engaged in tea,
coffee or rubber plantation.
o It must make a deposit in Special
Account( National Bank for
Agriculture and Rural Development )
o The deposit should be made within
specified time limit (within 6 months
from the end of previous years or
before the due date of furnishing the
return of income.
o The account of the assessee should be
audited

Amount of Deduction
◦ A sum equal to amounts
deposited in special account
◦ 40 percent of the profit of
such business computed
under the head profits and
gain of business or
profession before making
any deduction under section
33AB and before adjusting
brought forward business
loss under section 72.
◦ Whichever is less

An assesee must satisfy the following conditions to claim thed
deductions:
o The assesee must be engaged in production of petroleum and
natural gas
o He must make a deposit in Special Account ( in State Bank of
India) before the end of previous year
o The assessee has an agreement with the central government
o The account of the assessee should be audited
Amount of Deduction
◦ A sum equal to amounts deposited in special account
◦ 20 percent of the profit of such business computed under
the head profits and gain of business or profession before
making any deduction under section 33ABA and before
adjusting brought forward business loss under section 72.
◦ Whichever is less

The deduction under section 35ABB is available if the following
conditions are satisfied
o The expenditure is capital in nature
o It is incurred for acquiring any right to operate
telecommunication services.
o The expenditure is incurred either before the
commencement of business or thereafter at any time
during the previous year.
o The payment for which has actually been made.
Amount of Deduction
◦ 100 percent payment will allowed in equal installments,
starting from the year and ending in the year in which the
license comes to an end.

Any profit or loss on sale of telecom licence is taken into
consideration while computing business income, the relevant
rules are as follows:
Different situations Tax treatment
1 entire telecom licence is
transferred
WDV minus sale consideration is allowed as
deduction under section 35 ABB in the year
of sale
When the sale consideration is
less than WDV or more than WDV
The excess sale consideration over WDV is
taxable as business income in the year of
sale.
2. When part of telecom licence is
transferred
WDV minus sale consideration will be
allowed as deduction over the un-expired
period.
When sale consideration is less
than or more than WDV
The excess sale consideration over WDV is
taxable as business income in the year of
sale.

Consequences of amalgamation/ demerger;
If a telecom licence is transferred by the amalgamating company to the
amalgamated company ( being an Indian company), or by demerged company
to resulting company ( being an Indian company ) then deduction will not be
availableunder section 35ABB.
The deduction under section 44AE ( with effect from 2011-12 ) is
available if the following conditions are satisfied
oThis deduction is available only in case of specified business,
means, warehousing facility for storage of agriculture produce,
cold chain facility, petroleum oil pipe line distribution,
production of fertilizers in India, Keeping and production of
honey and beeswax etc.
oThe Specified business should be new business
o books of account of the assessee should be audited

Amount of Deduction
◦ 100 percent of capital
expenditure incurred
wholly and exclusively
for the purpose of
specified business
( except expenditure
incurred on the
acquisition of land and
building )

In Indian company or a resident non-corporate assessee can claim
deduction under section 35 D in respect of preliminary expenses. Such
expenditure may be in connection with extension of undertaking or in
connection with setting up of new unit.
Qualify Expenditure
The work should be carried on
by the assessee it self or by
concern
The work should be carried on by
the assessee it self or by concern
The expenditure of preparation of feasible
report, preparation of project report,
conducting market survey relating to the
business of the assessee.
•Legal charges for drafting any agreement
between the assessee and any other person
relating to the setting up of business.
•Legal charges and printing expeness for
drafting the memorandum and articles of
association
•Expenses issues of shares and debentures,
underwriting commission etc.

Section 80JJAA hasbeen inserted to encourageemployment.
Thefollowing conditionsshould besatisfied
o The taxpayer is an Indian Company
o Income includes industrial undertakings engaged in infrastructure or
production of article or things
o It is not formed by splitting up or reconstruction of existing
undertaking
o The assessee has to furnish form 10DA
o Deduction 80JJAA is not available unless it is claimed in the return of
the income.
Amount of Deduction
◦ Amount of deduction is equal to 30 percent of additional wages paid
to the new regular workmen employed by the assessee in the previous
year.

Tax planning and promotion of a company

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Tax planning and promotion of a company

Similar to Tax planning and promotion of a company (20)

Recently uploaded

Recently uploaded (20)

Tax planning and promotion of a company