Professional Documents
Culture Documents
Tax planning is relevant from location point of view. There are certain locations which are
given special tax treatment. Some of these are as under:
Section 10 of Income Tax Act has given a long list of incomes which are totally exempt from
tax and so these incomes are not included in the gross total income of the assesse. In other
words, such incomes are totally Tax-Free.
While calculating Total Income in any previous year of any person, any income coming under
Sec. 10(1) to Sec. 10(23) shall be exempted.
1.
Free Trade Zone (FTZ) [Section 10A] Special Provision in respect of Newly
1. Conditions to be satisfied
In order to get deduction, an undertaking must satisfy the following conditions:
Condition 1: It must begin manufacture or production in free trade zone:
It has begun or begins to manufacture or produce during the previous year relevant to the
assessment year
(a) Commencing on or after 1-4-1981, in any free trade zone; or
(b) Commencing on or after 1-04-1994, in any software technology park or electronic
hardware technology park or;
(c) Commencing on or after the 1-04-2001 in any special economic zone;
Conditions 2: It should not be formed by splitting / reconstruction of business.
Conditions 3: It should not be formed by transfer of old machinery:
It is not formed by the transfer to a new business of machinery or plant previously used for
any purpose.
1. 20% of second value machinery allowed: Where in the case of an undertaking, any
machinery or plant or any part thereof previously used for any purpose is transferred
to a new business and the total value of the machinery or plant or part so transferred
does not exceed 20% of the total value of the machinery or plant used in the business,
then, the condition specified therein shall be deemed to have been complied with.
2. Imported Machinery allowed: Any machinery or plant which was used outside India
by any person other than the assesse shall not be regarded as machinery or plant
previously used for any purpose, if the following conditions are fulfilled, namely :
i.) Such machinery or plant was not previously used in India
ii.) Such machinery or plant is imported into India from any county outside India ; and
iii.) No deduction on account of depreciation in respect of such machinery or plant has
been allowed or it allowable under the provisions of the Act in computing the total
income of any person for any period prior to the date of the installation of machinery
or plant by the assesse.
(Value of imported machine can exceed 20% of the Total Value of Machine)
Conditions 4: Sale construction should be remitted to India in convertible foreign
exchange.:
Sale consideration should be remitted to India in convertible foreign exchange, within a
period of six months from the end of the previous year or, within such further period as the
competent authority may allow in this behalf.
Condition 5: Report of Chartered Accountant:
The deduction under [this section] shall not be admissible for any assessment year beginning
on or after the 1st day of April, 2001, unless the assesse furnishes in the prescribed Form 56 ,
along with the return of income, the report of an Chartered Accountant, as defined in the
Explanation below sub-section (2) of section 288, certifying that the deduction has been
correctly claimed in accordance with the provisions of this section.
Condition 6 : Return of income should be submitted in time.
If the aforesaid conditions are satisfied, the deduction u/s 10A may be computed as under:
'Export Turnover'':
received in, or brought into India by the assesse in convertible foreign exchange in
accordance with sub-section (3), but does not include
i.)
ii.)
iii.)
Freight,
telecommunication charges or
insurance attributable to the delivery of the articles or things or computer software
iv.)
outside India or
expenses, if any, incurred in foreign exchange in providing the technical services
outside India
Reserve Account'') to be created and utilised for the purposes of the business of the
assesse.
4. Transfer under a Scheme of Amalgamation or Demerger
In case an undertaking eligible for deduction under this section is transferred, before the
expiry of the specified period, to another Indian company in a scheme of amalgamation or
demerger
(a) No deduction shall be admissible under this section to the amalgamating or the demerged
company for the previous year in which the amalgamation or demerger takes place; and
(b) The provisions of this section shall apply to the amalgamated or the resulting company as
if the amalgamation or demerger had not taken place.
Conditions 4: It not formed by the transfer to a new business, of old plant and machinery.
However, it can be formed by transfer of old plant or machinery to the extent of 20%.
Condition 5: The assesse has income from export of articles or thing or from services from
such unit. In other words, the assesse has exported goods or provided services out of India
from the Special Economic Zone by land, sea, air, or by any other mode, whether physical or
otherwise.
Conditions 6: Books of Accounts of the taxpayer should be audited. The Tax payer should
submit Audit Report in Form No.56F along with the return of income.
2. Amount Of Deduction:
Deduction depends upon quantum of Profit derived from Export of Articles or things or
services (including computer software). It is calculated as under-
Deduction for First 5 Assessment Years 100% of Profits and Gains derived for a
period of five consecutive assessment years beginning with the assessment year
relevant to the previous year in which the Unit begins to manufacture or produce such
articles or things or provide services.
Deduction for 6th Assessment Year to 10th Assessment Years : 50% of such Profits
and Gains for further five assessment years and thereafter;
Deduction for 11th Assessment Year to 15th Assessment Year: Amount not exceeding
50% of the profit as is debited to the profit and loss account of the previous year in
respect of which the deduction is to be allowed and credited to a reserve account (to
be called the Special Economic Zone Re-investment Reserve Account) to be created
and utilized for the purposes of the business of the assesse.
3. Consequences For Merger And Demerger:
Where any undertaking is transferred, before the expiry of the period specified in this section,
to another undertaking, under a scheme of amalgamation or demerger -
previous year or, within such further period as the competent authority may allow in this
behalf.
Conditions 7: Audit Report should be submitted in Form No. 56G.
2. Amount Of Deduction:
If the aforesaid conditions are satisfied, the deduction u/s 10B may be computed as under:
Profit of the Business of the undertaking X Export turnover
_____________________________________________________
Total Turnover of the business
For the assessment year beginning on the 1st day of April, 2003, the deduction under this subsection shall be 90% of the profits and gains derived from the export of such articles or things
or computer software
3. Period Of Deduction:
This deduction shall be allowed for a period of 10 consecutive Assessment Years beginning
with the assessment year relevant to the previous year in which the undertaking begins to
manufacture or produce such articles, or things or computer software.
No deduction under section 10B shall be allowed to any undertaking from the assessment
year beginning on the 1st day of April, 2010 and subsequent years.
For the removal of doubts, it is hereby declared that the profits and gains derived from on site
development of computer software (including services for development of software) outside
India shall be deemed to be the profits and gains derived from the export of computer
software outside India.
4. Transfer Under A Scheme Of Amalgamation Or Demerger:
In case an undertaking eligible for deduction under this section is transferred, before the
expiry of the specified period, to another Indian company in a scheme of amalgamation or
demerger
(a) No deduction shall be admissible under this section to the amalgamating or the demerged
company for the previous year in which the amalgamation or demerger takes place; and
(b) The provisions of this section shall apply to the amalgamated or the resulting company as
if the amalgamation or demerger had not taken place.
1. Conditions to be satisfied
This section applies to any undertaking which fulfils all the following conditions, namely:Deduction under section 80-IA is available only to the following businesses carried on by an
undertaking:Conditions 1: An enterprise carrying on the business of (i) developing or (ii) operating and
maintaining any infrastructure facility.
Conditions 2: Any undertaking providing telecommunication services, including radio
paging, domestic satellite service, network of trunking, broadband network and internet
services on or after the 1-04-1995, but on or before the 31-03- 2005.
Conditions 3: Any undertaking which develops, develops and operates or maintains and
operates an industrial park notified by the Central Government for the period beginning on
the 1st day of April, 1997 and ending on the 31st day of March, 2006:
Conditions 4: An [undertaking] which,
(a) Is set up in any part of India for the generation or generation and distribution of power if it
begins to generate power at any time during the period beginning on the 1st day of April,
1993 and ending on the 31st day of March, 2010;
(b) Starts transmission or distribution by laying a network of new transmission or distribution
lines at any time during the period beginning on the 1st day of April, 1999 and ending on the
31st day of March, 2010.
Nature of Industry
Assessee
Period of
commencement of
business
Deductions
Infrastructure facility(new
undertaking; agreement
with the Central Govt.)
Indian Company
On or after 1-4-1995
Telecommunication (New
undertaking: new Plant)
Any undertaking . In
case of domestic
satellite Indian
Company
1-4-95 to 31-3-2005
Any undertaking
Any undertaking
Substantial renova.
1-4-2004 to 31-32006.
It means AY specified by the assesse at his option to be initial year not falling beyond 15 AY
starting from the AY in which the enterprise begins to generate power; or commences
transmission or distribution of power. However, deduction can be claimed only for 10
consecutive AY falling within a period of 15 AY beginning with the AY in which an assessed
begins business.
When Set up
Compan
y
Period
Others
100%
30%
25%
100%
100%
30%
25%
1.10.94 to 31.3.2004
100%
100%
1.10.94 to 31.3.2002
30%
25%
1.10.94 to 31.3.2004
100%
100%
1.10.94 to 31.3.2002
30%
25%
1-4-93 to 31-3-2004
1.10.93 to 31.3.2004
1.4.91 to 31.3.2002
30%
25%
12 years for co
op. other 10
years
1.4.91 to 31.3.1995
30%
25%
----do----
100%
100%
First 7 years
From 1.10.98
onwards
100%
100%
First 7 years
From 1.10.98 ,
Project must be
completed by
31.3.2003
100%
100%
V. Profit from an
undertaking engaged in the
integrated business of
handling, storage and
transportation of food
grains [ 80-IB(11A)]
From 1.4.2001
onwards
100%
100%
30%
25%
1.4.2002 to 31.3.2005
50%
50%
VII. Setting up of
convention center
1.4.2002 to 31.3.2005
50%
50%
1.4.90 to 31.3.1994
and
50%
Nil
50%
Nil
VIII. Hotel :
(a) in hilly area or in rural
areas outside municipal
limits.
1.4.97 to 31.3.2001
1.4.97 to 31.3.2001
50%
Nil
1.4.91 to 31.3.1995
30%
Nil
(ii) Industrial Estate means such estates, which the Board, may, by notification in the
Official Gazette, specify in accordance with the scheme framed and notified by the Central
Government;
(iii) Industrial Growth Centre means such centres, which the Board, may, by notification in
the Official Gazette, specify in accordance with the scheme framed and notified by the
Central Government;
(iv) Industrial Park means such parks, which the Board, may, by notification in the Official
Gazette, specify in accordance with the scheme framed and notified by the Central
Government;
(v) Integrated Infrastructure Development Centre means such centres, which the Board,
may, by notification in the Official Gazette, specify in accordance with the scheme framed
and notified by the Central Government;
(vi) North-Eastern States means the States of Arunachal Pradesh, Assam, Manipur,
Meghalaya, Mizoram, Nagaland and Tripura;
(vii) Software Technology Park means any park set up in accordance with the Software
Technology Park Scheme notified by the Government of India in the Ministry of Commerce
and Industry;
(viii) Substantial expansion means increase in the investment in the plant and machinery by
at least fifty per cent of the book value of plant and machinery (before taking depreciation in
any year), as on the first day of the previous year in which the substantial expansion is
undertaken;
(ix) Theme Park means such parks, which the Board, may, by notification in the Official
Gazette, specify in accordance with the scheme framed and notified by the Central
Government.
3. Amount & Period Of Deduction:
If the aforesaid conditions are satisfied, the deduction u/s 80 IC may be computed as under:
Name of States
Nature of article
Sikkim
In
Any other
notified
area
area
Any
Article
HP or Uttaranchal
In
Any other
notified
area
area
Any
Article
North-Eastern States
In
Any other
notified
area
area
Any
Article
article
other than
the article
specified
in
Schedule
XIII
Period of
commencement of
Business
Amount of Deduction
specified
in
Schedule
XIV
article
other than
the article
specified
in
Schedule
XIII
specified
in
Schedule
XIV
article
other than
the article
specified
in
Schedule
XIII
specified
in
Schedule
XIV
23-12-2002 to 31-32012
7-1-2003 to 31-32012
24-12-1997 to 31-32007
Case 1
Case 2
Number of partners
Profit-sharing ratio
Equal
Equal
10,00,000
15,00,000
6,00,000
12,00,000
60,000
50,000
80,000
50,000
6,00,000
12,00,000
Tax on firm
Income of firm
Less: salary
3,78,000
Interest
7,02,000
1,20,000
1,80,000
1,02,000
3,18,000
31,518
98,262
10,506
24,566
Net income
Tax on partners
Salary
1,26,000
1,75,500
Interest
40,000
45,000
60,000
50,000
1,46,000
2,20,500
Nil
6,232
10,506
30,798
Case 2
6,00,000
12,00,000
Number of partners
2,00,000
3,00,000
60,000
50,000
1,80,000
3,00,000
deduction)
2,060
14,420
8,446
16,378
To avoid high tax incidence on firms, firms may be converted into sole proprietorship.
Partnership firm
The following basic assumptions have been made
a.) There are two partners X and Y with an equal share of profit.
b.) They want to draw the maximum permissible amount as salary. Both the partners will
draw equal salary.
c.) Income is from business (not from profession)
d.) They are entitled to simple interest at the rate of 12 per cent on the capital
contribution of RS.10,00,000.
e.) Partners do not have any income.
The table given below compares tax benefits available to a firm, LLP (Limited Liability
Partnership) and Company:
Firm
LLP
Tax rates
Applicability of surcharge
2011-12
2011-12
Not applicable
Not applicable
Dividend tax
Not applicable
Not applicable
firm
LLP
shareholders or partners
taxable
taxable
in
the
hands
of
in
the
hands
of
partners.
partners.
Deductible if permitted by
or shareholders
should be satisfied.
be satisfied.
Firm
LLP
Remuneration to partners or
Deductible if conditions of
Deductible
shareholders
satisfied.
deductible
balance.
balance.
if
conditions
of
Aggregate
amount
cannot,
however,
Section 78 is applicable
Section 78 is applicable
firm
LLP
Applicable
Applicable
Firm
LLP
Applicable
Not applicable
in
the
list
of
shareholders of a company
Cannot
be
claimed
as
under
However, deduction
section 36(1)(iX)
section
and 37
Whether weighted deduction
under
available
section
35(2AB)
is
Not applicable
Not applicable
36(1)(ix).
can
be