Group 1

PRESENTATION ON TAX PLANNING WITH REFERRENCE TO SETTING UP A NEW

BUSINESS

PRESENTED BY:

GauriAnand (BM09079)

Neha Sharma (BM09124)

Pallavi Singh (BM09134) Pooja (BM09139)

Pooja Chaturvedi (BM09140) Pradeep Sharma (BM09142)

PRESENTED TO:Dr. Simmi Agarwal

TAX PLANNING IN RESPECT OF LOCATION POINT OF VIEW

There are certain locations, which are given special tax treatment. Some of them are:

1. Full exemption under section 10A for ten years in the case of a newly established industrial undertaking in free trade zone, etc

2. Full exemption under section 10AA for initial five years, 50% for subsequent 5 years and further deduction of 50% for a period of 5 years in the case of newly established units in special economic zones on or after 1-4-2005.

3. Full exemption under section 10B for 10 years in the case of a newly established 100% export-oriented undertaking.

4. Deduction under section 80-1AB in respect of profits and gains by an undertaking or an enterprise engaged in development of Special Economic Zone.

5. Deduction under section 80-ICB in the case of newly set up industrial undertaking in an industrially backward state or district.

6. Deduction under section 80-ICB in the case of newly set up industrial undertaking or substantial expansion of an existing undertaking in certain special category states.

TAX PLANNING AND NATURE OF BUSINESS

Industry in general is to be owned by an individual, or an HUF or a firm or a company or a co-operative society or a trust.

Incase of all these assesses who are carrying on business, the income will be computed as per provisions of section 28 to 44D.

These assesses will be eligible for certain exemptions/deductions which are specifically allowed on the basis of the nature of business carried by such assesses.

DEDUCTION UNDER BUSINESS OF EXPORT OF GOODS OR MERCHANDISE

A. Income of newly established industrial undertakings in Free

Trade Zones, etc. (Section 10A) Essential conditions to claim deduction:

It has begun or begins to manufacture or produce article or things or computer software during the previous year relevant to assessment year

a. 1981-82 or thereafter. In any free trade zone;

b. 1994-95 or thereafter, in any electronic hardware technology park, or as the case may be, software technology park; or

It should not be formed by the splitting up or reconstruction of a business already in existence.

It should also not be formed by the transfer of machinery or plant, previously used for any purpose, to a new business.

The sale proceeds of articls or things or computer software exported out of India should be received in, or brought into, India by the assessee in convertible foreign exchange, wihin a period of six months from the end of the previous year or, within such further period as the competent authority may allow in his behalf.

The exemption shall not be admissible unless the assessee furnishes in the prescribed form (Form No. 56F), alongwith the return of income, the report of a chartered accountant certifying that the deduction has been correctly claimed in accordance with the provisions of this section.

B. Special provisions in respect of newly established units in Special Economic Zones (Section 10AA)

Essential conditions to claim deduction

i. It has begun or begins to manufacture or produce articles or things or provide any service during the previous year relevant to any assessment year commencing on or after 1-4-2006 in any Special economic Zones.

ii. It should not be formed by the splitting up or reconstruction of a business already in existence.

iii. It should also be not formed by transfer of machinery or plant , previously used for any purpose , to a new business.

iv. The assessee should furnish in the prescribed form (form no. 56F), along with the return of income , the report of a chartered accountant certifying that the deductions has been correctly claimed in accordance with the provisions of this sections.

C. Special provisions in respect of newly established 100% Export Oriented

Understandings (section 10 B) Essential conditions to claim deductions:

(i) The undertaking should be an approved 100% export oriented undertaking . It must be approved as a 100% EOU by the Board appointed by the Central Govt. in this behalf.

(ii)It manufactures or produces any article or thing or computer software

The other conditions for claiming deduction under this section are same as are given under section 10A expect that the report of the report of an accountant shall be furnished in Form No. 56G instead of 56F.

16  D Special provision in respect of export of certain articles or things [Section 10BA]

  1.General: Subject to the provisions of this section, a deduction of such profits and gain as are driven by undertaking from the export out of India of eligible article or things, shall be allowed from the total income of the assessee: However, where in computing the total income of the undertaking for any assessment year, deduction under section 10A or section 10B has been claimed, the undertaking shall not be entitled to the deduction under this section.

2. Assessees who are eligible for deduction: All assessees owing an undertaking which derives any profit and gains from the export out of India of eligible articles or things.

3. Essential conditions to claim deduction: The deductions shall be available to an undertaking, which fulfills the following conditions:

(a)It manufactures or produces the eligible articles or things without the use of imported raw materials.(b) It is not formed by splitting up, or the reconstruction, of a business already in existence.(c) It is formed by he transfer of any new business of machinery and plant previously used for any purpose.

  (d) 90 percent or more of its sales during the previous relevant to the assessment year are by way of exports of the eligible articles or things.

(e) It employs twenty or more workers during the previous year in the process of manufacture or production.

(f) The sale proceeds of the eligible articles or things exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange with in a period of six months from the end of previous year.

(g) The assessee should furnish in the prescribed form, along with the return of income. (h) The provision of subsection (8) and sub-section (10) of section 80 –IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80- IA.

Tax planning in respect of profits and gains from certain industrial undertakings set up in

Jammu & Kashmir [Section 80-IB]

The deduction under this section is inter alia available to an assessee whose Gross Total Income includes any profits and gains derived from the business of an industrial undertaking set up in Jammu & Kashmir.

A. Essential conditions for industrial undertaking [Section80-IB (2)]

(i) It is not formed by spilling up, or the reconstruction, of a business already in existence. However, this condition shall not apply to an industrial undertaking, which is formed as a result of the re-establishment, or revival of an undertaking, in circumstances specified u/s 33B.

(ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose. However, plant and machinery, already used for any purpose, can be transferred to the new industrial undertaking, provided value of such plant and machinery does not exceed 20% of the total value of plant and machinery of the new industrial undertaking.

(iii) It manufactures or produces any article or thing, other than any article or thing specified in the Eleventh Schedule.

(iv) The undertaking employs ten or more workers in a manufacturing process carried on with the aid of power or employ twenty or more workers in a manufacturing process carried on without the aid of power.

(v) The industrial undertaking begins to manufacture or produce articles or things in Jammu & Kashmir before 1-4-2012.

BUSINESSES PROVIDING INFRASTRUCTURE FACILITIES

Essential conditions for deduction under section 80 –I A(4)(i)1.The enterprise should carry on the business of- (a) developing, (b) operating and maintaining, or (c) developing, operating and maintaining, any infrastructure facility.

1.The enterprise is owned by an Indian company or a consortium of such companies or by an authority or a Board or a Corporation or any other body established or constituted under any Central or State Act.

1.The enterprise has entered into an agreement with Central/State Government or a local authority or any other statutory body for (a) developing, (b) operating and maintaining, or (c) developing, operating and maintaining, any infrastructure facility.

1.The enterprise has started or starts operating and maintaining the infrastructural facilities on or after 1-4-1995

Quantum and period of deductionFor 10 consecutive assessment years ------ 100%Out of 20 years beginning with the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility. For port, airport, inland waterways or inland port, out of 15 years instead of 20 years. Profits of housing or other activities as part of Highway Project Where housing or other activities are an integral part of the highway project and the profits of which are computed on such a manner as may be prescribed,• such profit shall not be liable to tax,

• if has been transferred to a special reserve account and

• the same is actually utilized for the highway project excluding housing and other activities before the expiry of three years •the amount remaining unutilized shall be chargeable to tax as income of the year in which such transfer to reserve account took place. 

TELECOMMUNICATION INDUSTRY Business income computed as per section 28 to 44DUnder Section 35Abb Capital expenditure services for acquiring any right to operate telecommunication either before the commencement of the business to operate telecommunication services or threreafter any time during any previous year and for which payment has actually been made to obtain a license remains in force.

Sale of Licensea.Where the entire license is transferred:1.If the sale proceeds and the deductions already allowed, are less than the cost of acquisition, such deficiency shall be allowed as deduction in the year in which the license is transferred.2.If the aggregate deductions exceed the cost, the amount of such excess or the aggregate of the deductions already allowed in the past, whichever is less, shall be taxable as business income of the year. b. Where a part of the license is transferred:1.Where a part of license is transferred for a sum less then the written down value of the total license, the balance amount not yet written off shall be allowed as deduction in the balance number of equal installments.2.If part of license is transferred for a sum exceeding the written down value of license, the sale proceeds minus the written down value of the full license shall be the profit from such sale.

Conditions for deduction available under Section 80 I ASection 80 I Aundertaking which is engaged in providing telecommunication services etc.1.The undertaking should have started or starts providing telecommunication service whether basic or cellular, including radio paging, domestic satellite services or network of trunking, broadband network and internet services.2.It will be allowed to all assessees.3.It should start providing telecommunication services at any time on or after 104-1995 but on or before 31-3-2005

Conditions referred in Section 80-I A(3)1.Such undertaking shall not be formed by splitting up, or the reconstruction, of a business already in existence. However, this condition shall not apply to an undertaking which is formed as a result of the re-establishment or revival of an undertaking, in circumstances specified in 33B.2.It should not be formed by the transfer to a new business of machinery or plant previously used for any purpose.

Quantum and period of deductionFor the first 5 consecutive assessment years ------ 100%Subsequent5 conseutive assessment years ---------- 30%Out of 15 years beginning with the year in which enterprise starts providing telecommunication services. 

TEA, COFEE AND RUBBER INDUSTRY

Essential conditions for Tea Development Account, coffee Development Account and Rubber Development Account Under Section 33AB and Rule 5 AC

1.engaged in the business of growing and manufacturing tea or coffee or rubber in India;2.within six months from the end of the previous year or before the due date of furnishing return of income whichever is earlier;3.deposited with National Bank for Agriculture and Rural Development (NABARD)any amount(s) in a special account maintained by the assessee with that bank in accordance with and for the purpose specified in a scheme approved in this behalf by the tea board, the coffee board or the rubber board; or4.deposited any amount in the Deposit Account opened by the assessee in accordance with and for the purpose specified in a scheme framed by the tea board, coffee board, or the rubber board with the previous approval of the Central Government;5.the assessee must get its accounts audited by a Charted Accountant and furnish the report of such audit in form no.3 AC, along with the return of income.  Quantum of Deduction:the amount(s) deposited in the schemes referred to above: or40% of the profits of such business computed under the head profits and gains of business or profession,Whichever is less.

Agricultural Income•In case of an assessee who is engaged in the business of growing and manufacturing tea, coffee or rubber, the profits which are partially agricultural and partially non-agricultural.•As agricultural income is exempt from tax and only non-agricultural income will be treated as taxable business income, such profits are disintegrated as per Rule of Income Tax Rules, 1962.•As per rule 8, the first step is to compute the income of growing as well as manufacturing tea under the head ‘profits or gains of business and profession’ after claiming the deduction available under that head.

Income of Subsidy by Tea Board Under Section 10(30)Any subsidy received from or through the Tea Board under any such scheme for replantation or replacement of tea bushes or for rejuvenation or consolidation of areas used for cultivation of tea as the Central Government may, by notification in the Official Gazette specify, shall be exempt.Subsidy received for same reason for rubber, coffee, cardomom or such other commodity in India through concerned board is exempt under section 10(31)

The Central Government has since notified the following schemes for this clause:•Replantation Subsidy Scheme of the Tea Board, as effective from 1-10-1968.•Amended Replantation subsidy of the Tea Board, as effective from the 1-1-1970.•Amended Replantation Subsidy scheme of the Tea Board, as effective from 1-1- 1972

COMMERCIAL PRODUCTION/REFINING OF MINERAL OIL

Under Section 42

Conditions:Conditions:•Business consisting of the prospecting for or extraction or production of mineral oils •The Central Government has entered into an agreement for the association or participation of the Central Government or any person authorized by the Central Government in such business. •Such agreement has been laid on the Table of each House of Parliament.

Benefits:Benefits:• In case of infructous or abortive exploration, the expenditure incurred is allowed as deduction in computation of the business profits of the assessee.•Expenditure incurred, whether before or after the beginning of commercial production, in respect of ‘any drilling activities or services’, or ‘any exploration activities or services’, or physical assets used in connection with any of the two is allowed as business deduction for computation of tax.•Adequate allowance for the depletion of mineral oil in the mining area, is to be allowed in the computation of the business income as per the agreement

Under section 80- I B

Deduction is allowed to industrial undertakings engaged in the production of mineral Deduction is allowed to industrial undertakings engaged in the production of mineral oil if:oil if:•Begins commercial production in any part of India.•Begins commercial production before 1-4-1997 or on or after 1-4-1997 ,where the undertaking is located in the North Eastern Region, and on or after 1-4-1997, where it is located in any other part of India.•An industrial undertaking engaged in the business of refining of mineral oil on or after 1-10-1998 shall also be eligible for deduction under this section. No deduction under this section shall be allowed in respect of such undertaking where No deduction under this section shall be allowed in respect of such undertaking where it begins refining of mineral oil on or after 1-4-2009, unless:it begins refining of mineral oil on or after 1-4-2009, unless:•It is wholly owned by a public sector company or any company in which a public sector company or companies hold at least 49%of the voting rights,•it is notified by the Central Government in this behalf on or before 31-5-2008, and•it begins refining not later than the 31-3-2012. Quantum and period of deductionDeduction at 100% of eligible profits for 7 assessment years commencing from the initial year.

BUSINESS OF GENERATION OR GENERATION AND DISTRIBUTION OF POWER

Option to claim depreciation on basis of straight-line method•Depreciation of assets acquired on or after 1-4-1997 shall be calculated at a percentage specified in the Income Tax Rules on the actual cost thereof to the assessee.•May at its option claim depreciation on basis of written down value method at the rate prescribed for each block of assets if exercised as under:1.In case of undertaking, which began to generate power prior to 1-04-1997, the option must be exercised before the due date of filing the return of income under 139(1) for the assessment year 1998-99.2.In case the undertaking begins to generate power after 31-3-1997, the option must be exercised before the due date of furnishing the return of income for the assessment year relevant to the previous year in which it begins to generate power.

Conditions for Deduction under Section 80-IA (4)(iv)

It is an undertaking which:

•is set up in any part of India for the generation or generation and distribution of power and operating (the period beginning on 1-4-1993 and ending on 31-3-2010),

•starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on 1-4-1999 and ending on 31-3-2010. The deduction in this case allowed only in relation to the profits derived from lying of such network of new lines for transmission or distribution,

•undertakes substantial renovation and modernizations of the existing transmission or distribution lines at any time during the period 1-4-2004 to 31-3-2010. “Substantial renovation and modernization” shall mean an increase of plant and machinery by atleast 50% of the book value of such plant and machinery as on 1-4-2004

•Splitting up, or the reconstruction, of a business already in existence, does not form it. Condition shall not be apply to an undertaking which is formed as a result of the establishment or revival of an undertaking, in circumstances specified in 33B. [Section 80-IA(3)(i)]

•It is not formed by the transfer to a new business of machineries plant previously used for any purpose. [Section 80-IA(4_(ii)]. However, plant and machinery, already used for any purpose, can be transferred to the new undertaking, provided value of such plant and machinery of new undertaking. ( the building in which the undertaking carries on the business should also be new is not essential).

Period of deduction [Section 80-IA920]The deduction will be available for any ten consecutive assessment years out of 15 years beginning with the year in which the undertaking generates power or commences transmission or distribution of power.

Quantum of deductionThe quantum of deduction shall be 100%of the profits for the consecutive 10 assessment years.

BUSINESS OF OPERATION OF AIRCRAFT

No special provisions except when a resident assessee is doing global business, the income which accrues or arises outside India may be eligible for tax relief under section 90/91.

Under Section 44BBA notwithstanding anything to the contrary contained in section 28 to 43 A, income of a non-resident be computed at a flat rate of 5% of:•the amount paid or payable whether in India or out of India to the assessee or to any person on his behalf on account of carriage of passengers, live-stock, mail, or goods from anyplace in India, and•the amount received or deemed to be received in India, on account of carriage of such items from a place outside India

SHIPPING BUSINESS

Tax relief Under Section 90/91

Under Section 44BBA notwithstanding anything to the contrary contained in section 28 to 43 A, income of a non-resident be computed for sum equal to 7.5% of the amount paid or payable whether in or out of India to the assessee or to any person on his behalf, on account of carriage of passengers, livestock, mail, or goods shipped at any port outside India

Tax Planning in respect of Venture Capital Section 10(23FB)

Any income of a venture capital company or a venture capital fund set up to raise funds for investments in a venture capital undertaking shall be exempt.

Meaning of Venture Capital undertaking: It means such domestic company whose shares are not listed in a recognized stock exchange in India and which is engaged in the- Business of:

A. Nanotechnology

B. Information technology relating to hardware and software development

C. Seed research and development

D. Biotechnology

E. Research and development of new entities in the pharmaceutical sector

F. Production of biofuels

G. Dairy or poultry industry

Tax planning respect of business of collection and processing of bio degradable waste

This assesse is allowed a specified a soecial duration under section 80 JJA which is under:

Deduction in respect of profits and gains from business of collecting and processing of bio degradable waste(section 80 JJA)

Where the gross income of an assesse includes profits and gains derived from the business of collecting and processing or treating of bio degradable waste for;

i. generating power

ii. producing bio fertilizers, bio pesticides or other biological agents

iii. producing bio gas

iv. organic manure

Quantum of deduction: The whole of such profits or gains shall be allowed in such deduction for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which such business commences.

Tax planning in respect of income from Mutual Fund

• This income of assesee is exempt under section 10(23D) as per provision given below:

• Income of notified mutual funds(Section 10 (23D)) Subject to the provisions any income of the following mutual funds shall be exempt from tax:

i. a mutual fund registered under the SEBI Act, 1992 or regulations made thereunder;

ii. such other notified Mutual Fund set up by a public sector bank or a public financial institution or authorized by the RBI and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf.

Tax planning in respect of income from Housing Projects

The assessee who is engaged in the business of housing projects is eligible for deduction under section 80- IB(10)Deduction available to understanding engaged in developing and building housing projects( Section 80-IB(10) Conditions to be satisfied: i. allowed to all assessee ii. it is allowed on account of housing project which is approved by a local authority before 31-3-2007 iii. the project is on the size of the plot of land having an area of a minimum of one acre iv. the residential unit has a built up area not exceeding 1000 sq. ft., where such residential unit is situated within the cities of Delhi or Mumbai or within 25 Kms of the municipial limit of these cities and 1500 sq.ft. at any other place, v. the undertaking commences development and construction of the housing project on or after 1-10-1998 and the housing project is completed . Quantum of Deduction: Deduction shall be available 100% of the profits from such project.

Tax planning in respect of business of Civil Construction

The assessee, whose gross receipts from the business of civil construction does not exceed Rs. 40 lakhs, can presume his income to be 8% of such receipts and can escape the burden of maintaining any books of accounts and records of the expenses incurred to earn such income. Further if such assessee is a firm it can give 12% interest on capital and loan of the partners and also pay remuneration to its working partners .

Tax planning in respect of profits of retail business

The assessee who is engaged in the business of retail trade is also advised to show his income at 5% of gross turnover provided it does not exceed Rs. 40 lakhs unless his income is really lower than 5% of the gross turnover , he will have to maintain books of account and records of all expenses and get his accounts audited under section 44AB

Thank you!!!