Special Provision Related to FTZ

Special provision related to FTZSec 10 A provides a deduction of such profits and gains as are derived by an undertaking from the export of the articles or things or computer software for certain consecutive assessment years.

Form of organization:Deduction u/s 10A is available to an undertaking from export of articles etc. this section does not provide any particular form of organization for undertaking. Thus undertaking can be operated as sole proprietorship, partnership firm, company etc.

Essential conditions to be fulfilled

What to manufacture or produce? [Sec 10 A (2)(i)]The undertaking must manufacture or produce articles or things or computer software etc.

Location of undertakingany zones notified by central government of India as FTZs.

Export out of IndiaUndertaking must export out of India, the articles or things or computer software manufactured or produce.

Cont……Undertaking not to be formed

by the splitting up or the reconstruction [Sec 10A (2) (ii)]undertaking shall not be formed by the splitting up or the reconstruction of a business already in existence.

Undertaking not to be formed by transfer of old machinery [Sec 10A (2) (iii)]

Cont….Receipt in India/ Repatriation to

India of convertible foreign exchange [Sec 10A (3)]the sale proceeds of the articles or things or computer software etc exported out of India must be received in India and if not received in India, then must be bought into India, in convertible foreign exchange within 6 months from the end of relevant previous year. This period can be extended by competent authority.

Cont….Report of charted accountant [Sec 10

A (5) ]Assessee claiming this deduction must furnish, in the prescribed form No. 56F, along with the return of Income.

Amount of Deduction:Setup in FTZ or SEZ which begins operation on or after 01-04-01 but before 01-04-02100% of profit and gains from export is allowed as deduction for 10 consecutive years.

Cont….Undertakings which begin operations on or

after 01-04-02 but before 01-04-05 in any SEZ or FTZ-100% of profit and gains from export is allowed as deduction for 5 consecutive years.- 50% of profit and gains from export is allowed as deduction for next 2 consecutive years.-50% of profit and gains from export is allowed as deduction for next 3 consecutive years, if certain special conditions are fulfilled.

Cont…. Furnishing of the return on or before

due date [u/s 139 (1)]

Calculation of the profit from exports [Sec 10A (4)]Deduction =100% of [Profit of the * Exp Turn Over ]

u/s 10 A under taking Total Turn Over

ExampleSancha Ltd. Located in Kandla Free Trade Zone is eligible to claim deduction u/s 10A. The company started claiming this deduction from A.Y. 2005-06. the company provides following information:

Export sales = Rs 92,00,000

Domestic sales = Rs 20,00,000

Profit of the business of the undertaking

= Rs 24,00,000

Calculate deduction u/s 10 A.

Other Important provisions Carry forward and setoff certain Unabsorbed

expenses related to Tax holiday period [Sec 10A (6) (i)]-Depreciation-Expenditure on scientific research-Expenditure in relation to family planning

Carry forward and setoff of losses relating to Tax holiday period [Sec 10 A (6) (ii)]-Non speculation business loss-Loss under the head of ‘capital gain’

Duplication of deduction not allowed [Sec 10A (6) (iii)]undertaking claiming deduction u/s 10A shall not be allowed to claim any other deduction in relation to such profits.

Cont…. Transfer of Goods and

Serviceswhere any goods or services held for purposes of the eligible business are transferred to any other business of assessee or vice-versa. the consideration shall be recorded in the books of eligible business at market value of such goods or services.

Tax Provisions to Export oriented undertakingsSEC 10 B provides a deduction of such

profits and gains as are derived by a 100% export undertakings from the export of the articles or things or computer software for a period of certain consecutive years.

This section was introduced with effect from A.Y. 1989-90. prior to the introduction of this section, the deduction was available only to those undertakings which were situated in certain specified areas such as free trade zones etc.

Thus to give boost to export, govt. Of India introduced the scheme of 100% export oriented units and at the same time provided the 10 years Tax holiday u/s 10B to such undertakings. These EOUs have also been given many other incentives as follows:◦Custom duty free on Raw material and

other capital equipment.◦Refund of excise duty.◦Refund of central sales tax.◦Assured regular supply of power, water

etc.

Essential condition to be fulfilled for EOUs1. Form of organization: Deduction u/s 10 B is

available to all form of organization to a 100% EOU from export of articles.

2. What to manufacture: the undertakings must manufacture or produce articles or things or computer software.

3. Undertakings not to be formed by the splitting up/or the reconstruction.

4. Undertakings not to be formed by the old machinery.

5. Report by charted accountant: Assessee claiming this deduction must furnish, in the prescribed form No. 56F, along with the return of Income.

Cont….6. Receipt in India/ Repatriation to India of

convertible foreign exchange [Sec 10A (3)]the sale proceeds of the articles or things or computer software etc exported out of India must be received in India and if not received in India, then must be bought into India, in convertible foreign exchange within 6 months from the end of relevant previous year. This period can be extended by competent authority.

7. Amount of Deduction:100% of profit and gains from export is allowed as deduction for 10 consecutive years.

8. Calculation of the profit from exports [Sec 10A (4)]Deduction =100% of [Profit of the * Exp Turn Over ]

u/s 10 A under taking Total Turn Over

Other Important provisionsCarry forward and setoff certain

Unabsorbed expenses related to Tax holiday period [Sec 10B (6) (i)]-Depreciation-Expenditure on scientific research-Expenditure in relation to family planning

Carry forward and setoff of losses relating to Tax holiday period [Sec 10B(6) (ii)]-Non speculation business loss-Loss under the head of ‘capital gain’

Cont….Duplication of deduction not allowed [Sec 10B (6) (iii)]undertaking claiming deduction u/s 10B shall not be allowed to claim any other deduction in relation to such profits.

Transfer of undertaking in amalgamation or demerger [Sec 10B (7A)]No deduction shall be admissible under this section.

Cont…. Transfer of Goods and

Serviceswhere any goods or services held for purposes of the eligible business are transferred to any other business of assessee or vice-versa. the consideration shall be recorded in the books of eligible business at market value of such goods or services.

ExampleABC Ltd Located in is eligible to claim deduction u/s 10B. The company started claiming this deduction from A.Y. 2005-06. the company provides following information:Export sales = Rs 20,00,000Domestic sales= Rs 05,00,000Profit of the business of the undertaking = Rs 2,00,000Additional information:Out of total export sales of Rs 20,00,000, the co. has bought convertible foreign exchange of Rs 80,000 within stipulated time.

Provisions for the undertakings setup in Backward areasThis deduction is in respect of

profits and gains from industrial undertakings etc. in certain areas, where the gross total income of an assessee includes any profits and gains derived from any business in the specified backward areas.

Eligibility:1.Industrial undertakings: It should be established in the

notified backward area It is not formed by splitting up or the

reconstruction It is not formed by the transfer of the

old machinery or plant Industrial undertakings are setup in

north eastern region during 01-04-1991 to 31-03-2002.

Industrial undertakings setup in J&K during 1-4-1995 to 31-3-2007

Amount of deduction: 100% of the profits and gains of such business.

Period of deduction: the deduction is available for a period of 10 consecutive years.

Different provisions for types of industries in Backward areaShipping [80IB (6)]

This deduction is claimed if any ship is acquired provided following conditions are fulfilled:

It is owned by the Indian co. and is wholly used for the purposes of business carried on by it;

Hotel [80IB (7)]The business of hotel is owned is owned

by and carried on by a company registered in India with a paid up capital of not less than Rs 5 Lakhs.

Cont….Multiplex theatre [Sec 80IB (7A)]

Such multiplex theatre is constructed at any time during the period beginning on the 1st day of April, 2002 and ending on the 31st of march 2005.

50% profit is allowed for deduction.The deduction is available for 5 consecutive years.

• Convention centers [Sec 80IB (7B)]• Constructed during 1st April 2002 to 31st Mar 2005.• 50% is allowed as a deduction.• The deduction is available for 5 consecutive years.

Cont….Company engaged in scientific and

industrial research and development [Sec 80IB (8A)]◦Only companies are eligible to claim this

deductionUndertakings engaged in production

or refining of mineral oil or natural gas from blocks [Sec 80IB (9)]◦100% of profit is allowed for the period of

7 consecutive years.

Cont….Profits of an undertakings from

the business of operating and maintaining a hospital [Sec 80IB (11B)]

The hospital is constructed at any time during 01-Oct-2004 to 31-Mar-2008.

The hospital has at least 100 beds for patients.

100% deduction is allowed for the period of 5 consecutive years.

Other Important provisionsCarry forward and setoff certain

Unabsorbed expenses related to Tax holiday period [Sec 80IB (6) (i)]-Depreciation-Expenditure on scientific research-Expenditure in relation to family planning

Carry forward and setoff of losses relating to Tax holiday period [Sec 80IB (6) (ii)]-Non speculation business loss-Loss under the head of ‘capital gain’

Cont….Duplication of deduction not allowed [Sec 80IB (6) (iii)]undertaking claiming deduction u/s 80IB shall not be allowed to claim any other deduction in relation to such profits.

Transfer of undertaking in amalgamation or demerger [Sec 80IB (7A)]No deduction shall be admissible under this section.

Cont…. Transfer of Goods and

Serviceswhere any goods or services held for purposes of the eligible business are transferred to any other business of assessee or vice-versa. the consideration shall be recorded in the books of eligible business at market value of such goods or services.

Tax provisions relating to Infrastructure SectorsRationale & Purpose of deduction:

Infrastructure facilities are the backbone of any economy. The existence of these facilities is very essential for industrial growth and economic development of economy.

Section 80IA of the Income Tax Act, provides tax holiday for certain period to an industrial undertaking or enterprises carrying on the business of developing, maintaining & operating any infrastructure facility.

Cont….Eligible business:

-Carrying on the business of (a) developing;(b) operating & maintaining, or(c) developing, operating & maintaining, any infrastructure facility.-Providing telecommunication services - developing, operating or maintaining an Industrial park-Generation or/and distribution of power-Natural gas distribution.

Tax Deducted at Source TDS or best known Tax Deducted at Source is one of the modes of collecting Income-tax

from the assesses in India. This is governed under Indian Income Tax Act, 1961, by the Central Board for Direct

Taxes (CBDT) and is part of the Department of Revenue managed by Indian Revenue Service (IRS), Ministry of Finance, Govt. of India.

Deductor: Under the process of TDS, Deductor is a person/company who is liable to deduct the Tax at source, from the payment being made to the party. Deductor is also termed as Employer in cases where the payments are under Salaries.

Deductee: Deductee is the person, from whom the tax is being deducted or accrued for deduction. Depending on the nature of the deduction being made, deductees and respective submission forms are categorized to 3 types:

1. Salaries: In case of salaries, the deductee is termed as an Employee. All the information of deductions and payments in this category should be submitted in Form 24Q to the government.

2. Non-Salaries - Resident: In case of non-salaries and the payment is made to a resident in India, the deductee is termed as a Deductee or a Party. All the information of deductions and payments in this category should be submitted in Form 26Q to the government.

3. Non-Salaries – Nonresident: In case of non-salaries and the payment is made to a non-resident of India, the deductee is termed as a Deductee or a Party. All the information of deductions and payments in this category should be submitted in Form 27Q to the government

Provisions for TDS Salaries [Sec. 192]: u/s 192 (1) any person responsible for paying any

income chargeable under the head ‘salaries’ (Sec. 15) shall at the time of payment, deduct income-tax on the amount payable at the average rate of income tax computed on the basis of rates in force for the financial year.

Employment under more than one employer during relevant previous year. Relief u/s 89 (1): In case any arrears are paid to an employee working in any

government organization or company, co-operative society, local authority, university, institutions, association, and he is entitled to relief u/s 89 (1).

Income from other head: a salaried employee can furnish details of his other income to his employer and employer can deduct tax at source for such income also.

The employer can allow deduction under different sections according to the provisions in Income Tax Act.

Every person deducting tax at source must submit returns as prescribed under the rules by a prescribed date, which is 31st of May of the assessment year.

In case the employer fails to deduct tax at source or tax is not deducted according to provisions or after deducting tax it is not deposited it with the government, such person shall be personally liable for such amount of tax. [206 C (6)]

Cont….Surcharge and Education Cess is not to be considered for

TDS.Sec.193 deals with the deduction of tax at source from

income chargeable be way of “Interest on Security” . The person responsible for paying interest on securities is liable to deduct income tax at the time of paying the interest.

Interest payable of some securities like government bonds, gold bonds, insurance schemes, NSC and other schemes on which interest income is exempted from income tax, TDS shall not be deducted for these securities.

Sec.194 deals with the deduction of Tax at source from dividends paid by an Indian company or a company which has made prescribed arrangement to declare and payment of dividends.

Cont…. If interest is paid on the Bank deposits, Tax at source shall not be

deducted upto Rs 10,000 interest in a year. Section 194B says that income tax will have to be deducted at

source from any income by way of winning from any lottery or crossword puzzle or card game and other game of any sort in case the amount exceeds Rs 5,000. (30%)

Section 194BB says that income tax will have to be deducted at source from any income by way of winning from any Horse Race an amount exceeding Rs 2,500 at the time of the payment.(30%)

Sec.194C says that any person responsible for paying any amount to a Contractor for carrying out the work is required to deduct 2% of the amount payable.

Sec.194D says that any person responsible for paying any amount to Agent or Broker by way of rewards (commissions) an amount exceeding Rs 5,000 is required to deduct Tax at source.

Advance Payment of Tax Tax is paid in advance when the liability of advance tax is Rs.10, 000 or

more. The provisions of advance tax are applicable on all types of persons irrespective of the residential status of the person. The advance tax is paid in the previous year itself.

Thus, the tax is paid in the year of earning of income, in other words the earning of income and payment of tax goes simultaneously. Thus, the tax is paid as income is earned. This scheme of advance payment of tax is also called pay as you earn scheme, i.e., pay tax as you earn income.

Taxpayers are required to pay tax during the year on the basis of their own computation of income. The advance tax is payable on total income of the year from all sources i.e. salary, business, profession etc. (including capital gain, interest, rental income or lottery/prize money).

In the case of an individual, advance tax needs to be deposited as below: 30% of advance tax payable on or before 15th September 60% of advance tax payable on or before 15th December 100% of advance tax payable on or before 15th March

Cont…. For Companies

By 15th June - 15% of Advance Tax

By 15th September- 45%of Advance Tax

By 15th December- 75% of Advance Tax

By 15th March- 100%of Advance Tax

By 31st March - Tax on Capital Gains or Casual Incomes arising after 15Th March, if any.

For Non-Companies

By 15th June - NIL

By 15th September- 30%of Advance Tax

By 15th December- 60% of Advance Tax

By 15th March- 100%of Advance Tax

By 31st March - Tax on Capital Gains or Casual Incomes arising after 15Th March, if any.

Income-Tax Authorities(a) the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963),

(b) Directors-General of Income-tax or Chief Commissioners of Income-tax,

(c) Directors of Income-tax or Commissioners of Income-tax or Commissioners of Income-tax (Appeals),

(cc) Additional Directors of Income-tax or Additional Commissioners of Income-tax or Additional Commissioners of Income-tax (Appeals),

(cca) Joint Directors of Income-tax or Joint Commissioners of Income-tax.

(d) Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy Commissioners of Income-tax (Appeals),

(e) Assistant Directors of Income-tax or Assistant Commissioners of Income-tax,

(f) Income-tax Officers,

(g) Tax Recovery Officers,

(h) Inspectors of Income-tax.

Powers of Income Tax Authorities

1) Power relating to Discovery, Production of evidence, etc: The Assessing Officer, The Joint Commissioner, the Chief Commissioner or the Commissioner has the powers as are provided in a court under the code of Civil Procedure, 1908, when trying to suit for the following matters:

(a) discovery and inspection;

(b) to enforce any person for attendance, and examining him on oath

(c) issuing commissions; and

(d) compelling the production of books of account and other document.

Cont…. 2) Power of Search and Seizure:

 Today it is not hidden from income tax authorities that people evade tax and keep unaccounted assets. When the prosecution fails to prevent tax evasion, the department has the to take actions like search and seizure. 

• 3) Power to Call for Information: The Commissioner ,The Assessing Officer or the Joint Commissioner may for the purpose of this Act:

(a) can call any firm to provide him with a return of the addresses and names of partners of the firm and their shares;

(b) can ask any Hindu Undivided Family to provide him with return of the addresses and names of members of the family and the manager;

(c) can ask any person who is a trustee, guardian or an agent to deliver him with return of the names of persons for or of whom he is an agent, trustee or guardian and their addresses;

(d) can ask any person, dealer, agent or broker concerned in the management of stock or any commodity exchange to provide a statement of the addresses and names of all the persons to whom the Exchange or he has paid any sum related with the transfer of assets or the exchange has received any such sum with the particulars of all such payments and receipts;

Cont…. 4) Power of Survey:

An Income Tax authority can have a survey for the purpose of this Act.

The objectives of conducting Income Tax surveys are:

• To discover new assessee (s);

• To collect useful information for the purpose of assessment;

• To verify that the assessee who claims not to maintain any books of accounts is in-fact maintaining the books;

• To check whether the books are maintained, reflect the correct state of affairs.

5) Collection of Information: For the purpose of collection of information which may be useful for any purpose, the Income tax authority can enter any building or place within the limits of the area assigned to such authority, or any place or building occupied by any person in respect of whom he exercises jurisdiction. 

Cont…. 6.)Power to Inspect registers of companies.--The Deputy

Commissioner of Taxes, the Joint Commissioner of Taxes or any person authorized in writing in this behalf by either of them, may inspect and, if necessary, take copies, or cause copies to be taken, of any register of the members, debenture-holders or mortgagees of any company or any entry in such register.

7.) The authorized officer may requisition the services of any police officer or other officer of the Government to assist him for all or any of the purposes specified in sub-section (2); and it shall be the duty of every such officer to comply with such requisition.

8.) After completing the proceedings (under inspection/survey) , the Deputy Commissioner of Taxes shall, with the approval of the Commissioner, make an order requiring the person concerned to pay the aggregate of the amounts, if such person pays, or makes satisfactory arrangement for the payment of, such amounts or any part thereof, release the assets seized under section 117 or such part thereof as he may deem fit in the circumstances of the case.

9.) Where the person concerned fails to pay, or to make satisfactory arrangements for the payment of, any amount required to be paid in pursuance of the order, the Deputy Commissioner of Taxes may retain in his custody the assets seized under section 117 on any part thereof as are in his opinion sufficient for the realization of the said amount or, as the case may be, of such part thereof as has not been paid.

Penalties and Prosecution For the non-compliance of any provisions of the Act,

various sections have been introduced in the act to impose penalties on and prosecution of the assessee. In this regards the following must be understood: ◦ a) Penalty is punishment in monetary terms◦ b) Prosecution is punishment in terms of suit followed by jail

TO IMPOSE PENALTY IS NOT COMPULSORY BUT IT IS OPTIONAL: To impose penalty under the law is not the statutory obligation of the law but it is a discretionary power given under the law to be followed by assessing officer with some specific reason and not arbitrarily.

QUANTUM OF PENALTY: If the penalty is to be imposed then it should not be lower than the amount prescribed by the law. Further it should be noted that penalty is to be imposed which exists in the law as on the date of default.

Cont…. WHO CAN IMPOSE THE PENALTY:

Penalty can be levied by:(I) The Assessing officer(II) The CIT (Appeals)(III) The Commissioner of Income

Tax

PENALTIES

• Section No. Default Amount of penalty140A (3) Failure to pay any self assessment As assessing officer may tax or interest or both but not exceed amount of tax. Rs.10000 on each such failure.

271(1) (b) Failure to comply with the notice under section 142(1) or failure to get the accounts audited under section 142(2A)

271(1) (c) Concealment of income or furnishing Amount between 100% to 300% incorrect particulars of income of the amount of tax evaded. Or Rs.25000.

271A Failure to maintain, retain books of accounts and other documents under section 44AA

Cont…. 271B Failure to get accounts audited under section whichever is less.

271C Failure to do TDS Amount of tax not so deducted

271F Failure to file ROI Rs.5000

272A(1) Refusal to answer any question put to him Rs.10000 on each failure

or refusal to sign any statement made in

course of proceedings

Cont…. 271B Failure to get accounts audited under section 0.5% of the sales or

Rs.10000,

44AB whichever is less.

271C Failure to do TDS Amount of tax not so deducted

271F Failure to file ROI Rs.5000

272A(1) Refusal to answer any question put to him Rs.10000 on each failure or refusal to sign any statement made in

course of proceedings