1

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 Tax Planning:

"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 CORPORATE TAX 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 relevant financial year, the

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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

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Deduction in respect of profits & gains of certain undertakings in North-Eastern State

US 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:

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donation to political parties - these donations qualify for deduction u/s 80GGB

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

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operation

(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

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Rate of deductions: An eligible undertaking can claim deduction of 100%of profits & gains

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.

Specific conditions:

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.

Specific conditions:

(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.

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Approval from centarl Government: Such India company is notified before 31-12-2005 by the

central government for the purposes of this clause

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

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are included in the GTI of such undertakings.

Period of deduction: The undertaking can claim this deduction for a total period of 10 previos

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

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(ii) It is bought into use by Indian company 1-4-91 to 31-3-95.

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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.

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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

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research and development

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.

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1. Eligibility and rate of deduction [80IC(2)]

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);

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(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, 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)

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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.

(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.

37

(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.

(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

38

(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

(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.

39

40

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.

41

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.

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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 15,36,500Less: Allowable depreciation including dep. On water-cooler 20,000machine 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

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Total Income 15,14,000

44

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