1) Corporate Tax Planning and Business Tax Procedures by Dr. Vinod Singhania and Dr. Monica Singhnia

2) Direct and Indirect Taxation

By Dr. Singhania and Kapil Singhania

3) Students guide to Income tax by By Dr. Singhania and Dr. Kapil Singhania

4) www.ICAI.org

5) www.pwc.com

6) www.incometaxindia.gov.in

Learning objective

The objective of this paper is to give an exposure and understanding of tax management and planning, to keep the incidence of tax to a minimum with the framework of prevalent tax loss while handling matters affecting corporate management such as business, promotion, expansion, diversification and location.

The paper looks at the international aspects of tax planning including tax implications of foreign collaborations, subsidiaries, tax incentives for export promotion, tax aspects of merger, demergers, etc, tax implications of bonus issues, dividend policy and other administrative aspects. It also includes the tax avoidance and evasion issues.

Recap of Basics of Taxwhat are the 2 things that are unavoidable in LIFE

Death & Taxes -Are unavoidable

Classification of Taxes

• Direct and Indirect taxes

• Direct taxes – directly levied on source of income and wealth

• E.g. Income tax and Wealth tax

• Indirect taxes – indirectly levied on activity/transaction which generates income or wealth

• E.g. sales tax, service tax, etc.

KINDS OF TAXES

• Income-tax

• Sales tax

• Wealth tax

• Service tax

• Custom duties

• Securities transaction tax

• Excise duties…… and many more

What is Income?

A periodical monetary return coming in with regularity or some sort of regularity from a definite source.

Session 1 : Brief Overview of the Indian Income Tax Act, 1961

Income: A periodical monetary return, coming in with regularity or expected regularity of from a definite source

Previous year [3]

Assessment year [2(9)]

Person [2(31)]

Assessee [2(7)]

• Taxability:

• Based on the residential status of an assessee, i.e. whether the assessee is Resident (ROR, RNOR) or Non-resident.

Exemptions u/s 10

Section 10 Nature of exemption Amount

1 Agricultural income Full

2 Receipts by members of HUF Full

2A Share of profits from partnership firm Full

4 Interest on Government bonds to NRI Full

10D Proceeds of LIP and bonus on such policy Full

16 Educational scholarships to meet cost of education - Full

17A Awards from state or central government Full

23C(iiiab) Income of educational institutes Full

23C(iiiac) Income of hospitals Full

23D Income of Mutual Funds companies registered with SEBI Full

32 Clubbed income of minor child Upto 1500 per child

34 Dividend from domestic company Full

Deductions u/s 80

• Are given from the gross total income of an assesses. All deductions are covered under chapter VIA, section 80 of the act. List of deduction related to companies are discussed below. For salaried employees the main deduction is under section 80C, where certain payments (investments) are listed as eligible for deductions.

For example:

• a) The investments

• 1. Contribution to Provident Fund

• 2. Contribution to Public Provident Fund

• 3. Payment of life insurance premium

• 4. Investment in pension plans

• 5. Investment in Equity Linked Saving Schemes of mutual funds

• 6. Investment in Infrastructure bonds

• 7. Investment in National Savings Certificate etc;

• The overall limit is Rs. 100,000 for deduction u/s 80C

Computation of Total Income PY 10-11 AY 11-12

Particulars Rs. Rs.

Income from Salaries XX

Income from House property XX

Income from P & G of Business or profession XX

Income from capital gains (short term) XX

Income from Other sources XX X

Add: Clubbed incomes X

GROSS total Income XX

Less: deductions u/s 80 - X

Net taxable income YY

Add: Long term capital gains GG

Net taxable income MM

Computation of Final tax payable:

Net taxable income YY

Rates of tax (10 % 20% 30%) or as relevant ----------

Net tax payable 1

Add: Surcharge (tax on tax) 2

Tax payable [ 1 + 2 ] 3

Add: {education cess 3%} [1 x 3 %] 4

FINAL tax payable 5

Less: Tax already paid (T.D.S. / Advance tax) [5-6] 6

Assessed tax payable/refund 7

Income tax slab for AY 11-12

Income Tax Slabs for AY 11-12 for Resident Senior Citizens (FY 2010-11)

S. No. Income Range Tax percentage

1 Up to Rs 2,40,000 No tax / exempt

2 2,40,001 to 3,00,000 10%

3 3,00,001 to 5,00,000 20%

4 Above 5,00,000 30%

Income Tax Slabs for ay 10-11 for Resident Women (below 65 years) (FY 2009-10)

• 1 Up to Rs 1,90,000 No tax / exempt

• 2 1,90,001 to 3,00,000 10%

• 3 3,00,001 to 5,00,00 20%

• 4 Above 5,00,000 30%

Income Tax Slabs for ay 10-11 Others & Men (FY 2009-10)

• 1 Up to Rs 1,60,000 No tax / exempt

• 2 1,60,001 to 3,00,000 10%

• 3 3,00,001 to 5,00,000 20%

• 4 Above 5,00,000 30%

Levy of surcharge has been withdrawn for personal income tax payers

“Education Cess on Income-tax” and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of two per cent and one per cent respectively of income-tax.

Refer the Sum from PPT Slide# 15.

Introduction to Tax Management, Purpose and Significance:

Over the last eight decades, since the introduction of income tax, it has been observed that there is a constant struggle between tax payers and tax collects, the former trying to reduce (if not negate) their tax liability, and the latter seriously struggling to plug in the loopholes in the statue.

Tax planning, Tax Management, Tax Avoidance and Tax Evasion

Since the inception of Income Tax Act, assesses are always trying to minimize their tax liability while the law makers are constantly trying to plug the loopholes in the system by making more & more stringent provisions.

Tax planning

• Tax planning refers to availing the deductions, exemptions, rebates in such a way that the tax liability is minimized. Here all the tax laws are fully complied with and there is no intention of deceit.

• Tax planning can be defined as an arrangement of one’s financial and economic affairs by taking complete legitimate benefit of all deduction, exemptions, allowances and rebates.

• No intention to deceit the legal spirit behind the tax law.

• Tax planning can also be defined as an arrangement of one`s financial and economic affairs by taking complete legitimate benefit of all deductions, exemptions, etc.

Tax avoidance

• Tax avoidance refers to planning ones affairs in such a way by taking advantage of the loopholes in the system to minimize tax liability. Here also laws are complied with. The assessee takes the benefit of lacunae in the tax laws. Such actions cannot be called as illegal.

• Tax avoidance is tax hedging within the frame-work of law.

Tax evasion

• Refers to avoidance of tax liability through illegal methods. Tax evasion may involve procedures such as submitting false/ misleading statements, non- disclosure of facts etc. It is an intentional attempt to avoid payment of tax.

Difference between Tax avoidance and Tax evasion

• Case 1: X is an individual for the assessment year 2011-12, his gross total income is Rs. 1240,000, tax on it is Rs. 232780. To reduce his tax liability, he deposits Rs. 70,000 in PPF and his tax liability reduces to Rs. 211,150.

• As the tax liability has been reduced within the legal framework, it is tax planning

• Case 2: X ltd is a chemical manufacturing company. It has a factory in Haryana near Delhi border. Within the factory campus a piece of land of 2000 square meter is lying unutilized. The company wants to start a new unit to manufacture computer components. If this manufacturing unit is started they will NOT get a deduction u/s 80-IB.

• However, if the new unit is strated in J&K, the company can claim deduction under the income tax act, if they do so…. It is TAX PLANNING

• Case 3: Suppose in case 2 the process of manufacturing actually takes place in Harayana. To get the benefit of deduction under section 80-IB, the company takes a factory building on

rent in a village in Jammu and only on paper it is shown that the unit is situated in a village in Jammu….

• As the company wants to reduce tax liability by making incorrect statements about he location it is … TAX EVASION

• Case 4: If Rs. 50,000 is gifted by a husband to his wife, income generated there from is taxable in the hands of husband under the clubbing provisions of Sec. 64(1). Sec 64(1) is not applicable if gift is made by the same person out of the funds of his HUF in capacity as karta of family.

• If the gift is made by karta of the family to his wife, clubbing provisions can be avoided and ultimate tax liability will be reduced. However, the tax liabilities will be reduced by taking help of a loophole in the law but within the framework. It is tax avoidance.

• Tax Evasion and Tax avoidance are terms frequently referred to in economic and business relationships today that they constitute part of our conversational language and people in general language use these terms without knowing their exact meaning and difference.

• Whereas tax avoidance implies a situation in which the tax payer reduces his tax liability by making use of the loopholes in the tax laws and ambiguities in the in the legal provisions, in case of tax evasion, facts are deliberately misinterpreted or misrepresented and tax liability is understated. Thus tax avoidance is legal and is at times is also referred to as tax planning.

• The unsanctioned or black market economy is created due to evasion of both direct and indirect taxes, undervaluation of properties, anti-social activities like smuggling, foreign exchange racketeering, under and over invoicing of foreign trade, remittances from abroad through illegal means, etc.

Chp. Session 2: Tax Implications in the Legal Status of different types of business units

Types of Business Units;

Proprietorship

Partnership Firms

Company

Tax Rates For Proprietorship – Similar to Individuals

Income tax slab for AY 11-12

Income Tax Slabs for AY 11-12 for Resident Senior Citizens (FY 2010-11)

S. No. Income Range Tax percentage

1 Up to Rs 2,40,000 No tax / exempt

2 2,40,001 to 3,00,000 10%

3 3,00,001 to 5,00,000 20%

4 Above 5,00,000 30%

Income Tax Slabs for ay 10-11 for Resident Women (below 65 years) (FY 2009-10)

1 Up to Rs 1,90,000 No tax / exempt

2 1,90,001 to 3,00,000 10%

3 3,00,001 to 5,00,00 20%

4 Above 5,00,000 30%

Income Tax Slabs for ay 10-11 Others & Men (FY 2009-10)

1 Up to Rs 1,60,000 No tax / exempt

2 1,60,001 to 3,00,000 10%

3 3,00,001 to 5,00,000 20%

4 Above 5,00,000 30%

Tax implications for Partnership Firms

A partnership is treated as a separate entity for tax purpose. A partnership with a proper partnership deed is taxed as a partnership, and if no partnership deed exists, it is taxed as AOP. Normally it is better to be taxed as partnership.

Partnership can pay salary and allowances to the partners (which partners must report of their individual tax returns) and take deduction for it. The partnership profit after paying income tax is not taxable in the hands of partners.

However, the salaries to partners will e allowed only if computed as per Income tax laws

Income Tax Rates for Partnership Firms

Assessment Year 2011-12

Flat rate of tax at 30% on the net income of the firm.Surcharge: NilEducation Cess: 2% of the amount of Income TaxSecondary & Higher Education Cess: 1% on the amount of Income Tax

For Firms [(including Limited Liability Partnership (LLP)]

Firms (including LLP) are taxable @ 30 percent

Surcharge is not applicable

Education cess is applicable @ 3 percent on income-tax.

Companies - For the assessment years 2011-12 and 2012-13 the following rates of income-tax are applicable:

For Domestic Companies

Domestic companies are taxable @ 30 percent

Special method for computation of total income of insurance companies. The rate of tax on profits from life insurance business is 12.5 percent. Surcharge is applicable @ 7.5 percent if total income is in excess of INR 10,000,000. Marginal relief may be available. Education cess is applicable @ 3 percent on income-tax (inclusive of surcharge, if any).

For Foreign Companies

Foreign companies are taxable @ 40 percent

Surcharge is applicable @ 2.5 percent if total income is in excess of INR 10,000,000.Marginal relief may be available

Education cess is applicable @ 3 percent on income-tax (inclusive of surcharge, if any).

Minimum Alternate Tax

Minimum Alternate Tax (MAT) is levied @ 18 percent of the adjusted book profits in the case of those companies where income-tax payable on the taxable income according to the normal provisions of the Income-tax Act, 1961 (the Act), is less than 18 percent of the adjusted book profits.

MAT credit is available for 10 years

Surcharge is applicable @ 7.5 percent in the case of domestic companies if the adjusted book profits are in excess of INR 10,000,000. Marginal relief may be available

Education cess is applicable @ 3 percent on income-tax (inclusive of surcharge, if any).

Rate of tax for companies

Income Domestic co. Foreign Company

ST Capital Gain 10% 10%

Long term CG 20% 20%

Winning from lotteries 30% 30%

Other income 30% 30%

Surcharge @ 10% ( 2.5 % for foreign Co. ) on tax and 2% education cess on tax [on tax and surcharge] and 1% secondary and higher education cess [on tax and surcharge]# #

(# # Source www.law.incometaxindia.gov.in)

Class exercise: compute net total income

Partnership Sec 40(b)

Section 40(b) of Income Tax Act places some restrictions and conditions on the deductions of expenses available to an assessee assessable as a partnership firm in relation to the remuneration and interest payable to the partners of such firm.

The deductions regarding salary to partners and any payment of interest to partners cannot exceed the monetary limits specified u/s 40(b) and are available subject to the fulfillment of conditions mentioned therein.

1> Deductibility of Interest paid to partners:

a)) payment of interest should be authorized by deed

b)) Payment of interest should be after deed date

c)) Rate of interest on partners capital should not exceed 12 per cent per annum

2> Remuneration to partners:The following conditions must be satisfied before claiming any deduction in respect of salary/remuneration or interest payable to partner by a partnership firm

Partner to be paid must be a working partner

Remuneration or interest must be authorized by the Partnership Deed

Quantification of remuneration is must in the partnership deed

No Remuneration to be allowed which relates to any period falling prior to the date of such partnership deed

Remuneration exceeding the limit prescribed u/s 40(b) to be disallowed: a s per section 40(b)(v) any payment of remuneration to any partner who is a working partner, which is authorized by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder will be disallowed

"book-profit" as to mean the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit (i.e. disallowed)

For a company – Directors remuneration is allowed:

Company as a taxable entity – introduction

Company as a taxable entity has some distinguishing features as compared to other form of organizations like proprietary concern, partnership firm, trust etc. A company is a separate legal person distinct from its shareholders.

There are special provisions like MAT for computation of tax liability of companies.

Various deductions, incentives and concessions are also given to companies in determining their income and tax liability.

Information about all the provisions and their proper and timely applications helps in tax planning and management.

Company means:

an Indian Company; or any body corporate incorporated under the laws of a foreign country; or

any institution , association or a body whether incorporated or not , whether Indian or not which is declared by a general or specific order as a company by CBDT; or

any institution, association or a body whether incorporated or not and whether Indian or non-indian, which is declared by general or special order of the central board of direct taxes to be a company.

Types of companies

Indian company

Domestic company

Foreign company

Industrial company (electricity, power, shipping or mining)

Company in which public are substantially interested / widely held companies owned by Govt./ RBI

Section 25 companies: A company without share capital declared by CBDT as such Nidhi / Mutual Benefit Society Company owned by a cooperative society

Listed companies

Investment company

Computation of income of a company

A company can have income under the following heads:

- Income from House property

- Profits and gains from business & profession

- Capital gains

- Income from other sources

Dividends

From an Indian company is exempt

Other companies – taxable

Deemed dividends

Under section 2(22), the following payments or distributions by a company to its shareholders are deemed as dividend:

A) any distribution entailing the release of companies assets

B) any distribution of debenture, debenture-stock, deposit certificates and bonus to preference shareholders

C) distribution on liquidation of company

D) distribution on reduction of capital

E) any payment by way of loan or advance by a closely held company to a shareholder holding substantial interest.f

Deduction under Chapter VI for companies

80G Donations to charitable institutions /trusts

80GGA Donations for scientific research or rural development

80GGB /C Contribution to political parties

80-IA Profits/Gains -- Infrastructure activity

80-IAB Profits/Gains -- Development of SEZ

80- IB Profits/Gains -- Other than infrastructure activity

80-IC Profits/Gains -- Undertakings in certain states

80JJA Profits/Gains -- Business of collecting & processing

biodegradable waste

80JJAA Employment of new workmen

80GGA Payments/Donations for scientific research or rural development

Purpose: Sum paid to a scientific research association, or to a university, college, or other institution as approved. Including social science or statistical research.

Sum paid for training persons for rural development programme.

Sums paid to National Fund for rural development set up and notified by central government

Sums paid to the notified National urban poverty eradication fund80GGB: deduction in respect of contributions given by companies to political parties or electoral trust

In respect of contribution to political parties.

W.e.f. A.Y. 2010-11, contribution to Electoral Trust also eligible for deduction.

Indian companies = 100% of sum contributed

Political parties should be registered with the Election commission of India.

Deduction available under sections 80IA/80IB/80IC

The accumulated losses and unabsorbed depreciation will be allowed to be carried forward if they determined then such losses / unabsorbed depreciation are apportioned in the ratio of assets distributed between the demerged company and the resultant company.

80-IA/ Rules 18BBA & 18BBE

Deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.

Assessee: Industrial undertaking or enterprises engaged in infrastructure development, etc.

Amount:

100% of profits for 10 consecutive assessment years in all cases except in case of telecommunication where it shall be 100% for first 5 years and 30% for next 5 years

80-IAB

Deduction in respect of profits and gains by an undertaking a enterprise engaged in development of Special Economic Zone:

Assessee: being a Developer, who derives any profits and gains from an undertaking or an enterprise from any business of developing a Special Economic Zone

Amount: 100% of the profit for 10 consecutive assessment year

Deduction U/S 80-IAB

Deduction of profits and gains derived from developing SEZ.

Example: Nokia SEZ in Tamil Nadu – Dec-2005

Benefit Period

Example: Central Government notified April-2006 as notified year, within 15 year period (2006-April to 2021-March) developer can take deduction in any 10 consecutive years (April-2010 to March-2020).

Cannot have provisions of sub-section (13) of section 80-IA

Transfer of operation and maintenance of SEZ.

Example: Reliance SEZ in Navi Mumbai

80-IB/ Rules18AAB,18BBC& 18DA

Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development, etc.

All assesses engaged in the business of Industrial undertakings/hotels/ ships/infrastructure development/ scientific and industrial research and development w.e.f. A.Y. 2009-10,

Profits from the business of a hospital in any area other than specified area

100% of the profit for a period of 5 consecutive assessment years

Production and refining of mineral oil

100% of the profits for a period of 7 consecutive assessment years

80-IC Deduction in respect of certain undertakings or enterprises in certain special category States

Conditions

It should not be formed by splitting or reconstruction of existing business.

It should not be formed by transfer of old plant and machinery

Such undertaking should be set up in certain special category of states – Sikkim, Himachal Pradesh / Uttaranchal , North eastern states

It is set up during the period 2002 -2012

The conditions as to the computation of profits , non availability of double deduction / recomputation of profits by AO , consequences of merger / amalgamations remain the same.

80-ID Deduction in respect of profits and gains from business of hotels and convention centres in NCR (noida)

All assesses engaged in the business of hotel or engaged in the business of convention centre

Amount: 100% for 5 consecutive assessment years

80-IE Deduction in respect of profits and gains from an undertaking in any of the North-Eastern States

Assessees who have begun or begin to manufacture or produce eligible articles or things or undertake substantial expansion or carry on any eligible, business on or after. 1-4-2007.

Amount: 100% for 10 consecutive assessment years

80 JJA : Deduction in respect of profits and gains from business of collecting and processing of bio-degradable waste.

Conditions:

1.The assessee is in the business of collecting /processing of biodegradable waste for generating power, production of bio-fertilisers, bio-pesticides, bio-gas ,organic manure etc.

Amount of deduction: The whole of profits from such activities shall be allowed as a deduction for 5 consecutive years beginning from the A.Y relevant to the previous year in which such business commences.

80 JJAA: Deduction in respect of employment of new workmen

Conditions

The tax payer is a Indian company

Income of the tax payer includes profits and gains from any industrial undertaking engaged in the manufacture or production of article or thing.

The industrial undertaking is not formed by splitting /reconstruction or amalgamation with another industrial undertaking.A report from a CA in form no.10DA along with the return of income.

Amount of deduction:

30% of the additional wages paid to new regular workmen. Such deduction is available for a period of 3 years from the year of provision of employment,

Workman does not include a person from armed forces, police service, an employee in managerial or administrative capacity or a person in supervisory category drawing wages of more than 1600/- p.m

Regular workman does not include casual labour/contract labour/ a person employed for less than 300 days in the year.

New workmen in case of new undertaking means workmen in excess of 100 In case of existing units it means new workmen in excess of 100 workmen constituting at least 10 % of the existing workmen.

Sec 80LA: Deduction in respect of certain incomes of off shore banking units and International Financial Services:

Eligible assessee:

A scheduled bank having a unit in SEZ

A foreign bank having a unit in SEZ

A unit of international Financial Services Centre in SEZ

Conditions:

1.A copy of permission obtained under the Banking Regulation Act

2. A certificate from a CA certifying the amount of deduction claimed.

Amount of deduction:

100% of the profits for the first 5 years. 50 % of the profits for the next 5 years. Certification by CA in form no. 10CCF

Residential status

Incidence of taxation of a company also depends upon its residential status.

A company is resident in India in the previous year if the control and management of its affairs is wholly situated in India during the previous year else it is a Non-resident. Control and Management means the decision making powers for the company.

Audit of accounts

Tax audit is compulsory if total sales /T.O/gross receipts exceed Rs.40 lacs in case of a person carrying on business or if gross receipts exceeds Rs.10 lacs in case of a person carrying on profession.

Tax audit report in Form 3CA and Statement of particulars in Form 3CD is to be submitted along with the return of income

Tax liability in case of a company v/s partnership firm v/s proprietary concern

Tax incentives play an important role in deciding a suitable form of organization apart from other factors like finance, technical expertise, level of operation etc. Which form of organization is a better alternative

Chp. 3 TAX Implications of Foreign collaborations

FDI is defined as a company from ONE country making a physical investment into building a factory/asset, etc. in another country.

Its definition can be extended to include investments to acquire lasting interest in enterprises operating outside of the economy of the investor.

Reasons for FDI

Why does a Country need FDI ?....... discuss

Economic growth

De-regulation

Liberal Investment rules

Operational flexibility

Any other factor that helps inflow of funds/investments in India

Types of Foreign collaboration agreements

• Joint ventures

• Technical collaborations

• Setting up branches/project offices

• FDI-investment by non-residents and overseas corporate bodies

Foreign collaboration agreements are of two types:

• Technical collaboration agreements : Expand your business into the Indian market by partnering with an existing local company ,

• under this enter in to an India Technical Collaboration Agreement for providing transfer of technology and technical know-how or technical assistance to India

• Financial and Technical collaboration agreements

• Providing finance and technical know-how as above

Technical collaboration agreements

Financial and Technical collaboration agreements

• In addition to technical agreements, if foreign collaborator makes investment in the capital of the Indian collaborator besides transfer of technology, the collaborator receives payments and also dividend on hares/interest on money lent.

• Such collaboration match with the policies of government of India

Tax implications of foreign collaboration

• In the hands of the foreign collaborator

• In the hands of the Indian collaborator

Important sections under Income tax act

• Presumptive Taxation - Section 44AD-computation of income who is engaged in the business of civil construction if gross receipt does not exceed Rs.40 lakhs-8% of the gross receipts paid /payable to the tax payer.

• Section 44DA-Computation of income by way of royalties and technical service fees in the case of foreign companies if agreements made after March 31st, 1976 but before 1-4-2003

• - 10% tax on royalty payable/paid.

Taxation of Non-Resident’s Royalty Income or Fees for Technical Services (Section 44DA)

• Royalties and fees for Technical Services received from the Government or an Indian concern by a Non-Resident or a foreign company in pursuance of an agreement entered into after 31-3-2003 shall be computed under the head “Business Income” in accordance with the provisions of the Income Tax Act i.e. after allowing deduction for various permissible expenses and allowances.

• If agreement after March 31, 2003 where royalty or technical fees is effectively connected to Permanent establishment(PE) in India-10%

115A, 115AB, 115AC and 115AD

• 115 A - Tax on dividends, royalty and technical service fees in the case of foreign companies.

• Where the total income of—

• (a) a non-resident (not being a company) or of a foreign company, includes any income by way of—

• (i) dividends [other than dividends referred to in section 115-O] ; or

• (ii) interest received from Government or an Indian concern on monies borrowed or debt incurred by Government or the Indian concern in foreign currency ; or

(iii) income received in respect of units, purchased in foreign currency, of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India, the income-tax payable shall be aggregate of—

(A)the amount of income-tax calculated on the amount of income by way of dividends [other than dividends referred to in section 115-O], if any, included in the total income, at the rate of twenty per cent ;

(B)the amount of income-tax calculated on the amount of income by way of interest referred to in sub-clause (ii), if any, included in the total income, at the rate of twenty per cent ;

(C)the amount of income-tax calculated on the income in respect of units referred to in sub-clause (iii), if any, included in the total income, at the rate of twenty per cent ; and

115A, 115AB, 115AC and 115AD

115AB. Tax on income of overseas financial corporation’s from units purchased in foreign currency or capital gains arising from their transfer

(1) Where the total income of an assessee, being an overseas financial organization (hereinafter referred to as offshore fund) includes-

(a) income received in respect of units purchased in foreign currency; or

(b) income by way of long- term capital gains arising from the transfer of units purchased in foreign currency, the income- tax payable shall be the aggregate of- (i) the amount of income- tax calculated on the income in respect of units referred to in clause (a), if any, included in the total income, at the rate of ten per cent;

(ii) the amount of income- tax calculated on the income by way of long term capital gains referred to in clause (b), if any, included in the total income, at the rate of ten per cent; and

(iii) the amount of income- tax with which the offshore fund would have been chargeable had its total income been reduced by the amount of income referred to in clause (a) and clause (b).

Overseas financial corporation means any fund, institution, association or body, whether incorporated or not, established outside India which has entered into an arrangement for investment in India with any public sector bank or public sector financial institution or mutual fund [as per u/s10 (23D)] and such arrangement is approved by SEBI

115AC – TAX ON INCOME FROM BONDS OR SHARES PURCHASED IN FOREIGN CURRENCY OR CAPITAL GAINS ARISING FROM THEIR TRANSFER.

Tax on income from Bonds or GDRs purchased in foreign currency or capital gains arising from their transfer would be taxable in India

115AD –

1)) Tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer -

(1) Where the total income of a Foreign Institutional Investor includes-

(a) income received in respect of securities (other than units referred to in section 115AB) listed in a recognized stock exchange in India in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956 ), and any rules made there-under; or

(b) Income by way of short- term or long- term capital gains arising from the transfer of such securities,

The income- tax payable shall be the aggregate of-

(i) the amount of income- tax calculated on the income in respect of securities referred to in clause (a), if any, included in the total income, at the rate of twenty per cent;

(ii) the amount of income- tax calculated on the income by way of short term capital gains referred to in clause (b), if any, included in the total income, at the rate of thirty per cent;

(iii) the amount of income- tax calculated on the income by way of long term capital gains referred to in clause (b), if any, included in the total income, at the rate of ten per cent; and

Foreign Collaborator Indian Collaborators

1.Non residents-Income received, deemed to be received and accrued, or deemed to accrue in India-taxable

2.Exempted income U/S 10 of IT Act.

3. Special computation of Income u/s 44DA, 115A, 115AB, 115AC and 115AD

4.Double taxation avoidance agreements.

1.Revenue expenditure-deduction is allowed.

2. Capital expenditure-depreciation u/s 32 is allowed.

3. Payment to foreign personnel in India-installation of equipment-capitalized-depreciation allowed.

4.Training expenditure-allowed deduction

5.Payment for acquisition of plant and machinery-depreciation allowed

6.Interest-allowed deduction u/s 36(1)(iii)

6. Interest paid to acquire capital asset-capitalized up to the date of put into use/ready to use.

Tax planning

1. Do not allot shares as dividend paid outside India , else tax to be deducted at source and income is deemed to receive in India.

2. Foreign collaborator should be a company registered outside India as they become non-resident in India. If it is a partnership firm entire control and management should be outside India.

3. Separate contract for separate work. Each job like supply of plant and machinery, installation, supply of design, patents, trade mark.

4. Property in goods to pass on outside India- foreign collaborator need not pay tax in India as the ownership passed outside India. The goods shipped in the name of the Indian company.

5. Make payments abroad. Acceptance of payments through banks in India should be avoided. But tax liability cannot be reduced for the payments of royalty, dividend, Interest, technical services.

6. Spare parts –there should be a separate agreement and should be supplied only after the year of commissioning of plant and machinery

7. Salary to foreign technicians- paid in India is taxable but daily allowances and living allowances are exempt u/s10(14) to the extent expended.

8. The foreign technician should not stay more than certain number of days in India

Tax planning for Indian collaborators

• 1.Capitalisation of installation expenses provided the business setup before such expense incurred

• 2.Treating purchase of spares as revenue expenditure-make separate contract and receive such spares only in the year subsequent to the year of commissioning.

• 3. Claim depreciation on plans and drawings.

Important Notes

• 1. Technical collaboration fees attract-20% TDS u/s 115A. Otherwise it is 40% tax.

• 2. If total income of a foreign company does not exceed 1 crore-no surcharge.

• 3. TDS paid by Indian company on behalf of foreign company for royalty payable under the terms of an agreement entered before 1st June 2002 relating to matter included in Industrial policy is exempt from tax u/s 10(6A)[Grossing the income is not required.]

Case study-1

1. S Ltd a foreign company entered into an agreement with K ltd. an Indian company. This agreement is related to industrial policy of the central government and is in accordance with the policy. The royalty paid by K ltd is 100 lakh to S ltd compute the tax payable by S ltd under the following circumstances.

A) K ltd pays Income tax payable by S ltd as per the terms of agreement entered before 1st June 2002.

B) The agreement does not provide that K ltd will bear the tax but understanding that 100 lakh is net of tax.

C) The agreement entered on 1st June 2010.

Answer-1A) No grossing up is required as it was entered into an agreement before 1st June 2002 and the agreement indicates the TDS.

Total Income 100 lakhs

Tax on royalty @20.6%(20%+3%) 20.6 lakhs

B) Royalty income 100 lakhs (net)

Gross income (100 lakhs x 100/(100-20.6)=125.945 lakhs

Tax to be paid (125.945 lakhs x 20.6%) =25.945 lakhs.

(Since the agreement does not indicate the TDS we have to grossing up the income.)

C) If agreement entered on after 1st June 2002 grossing up of Income is required. The amount of tax payable by K ltd, on behalf S ltd. will to be exempt under section 10(6A).

Case study-2

Shanthi Ltd.a foreign company entered into a collaboration agreement on 1st June 2009 with an Indian company and was in receipt of the following payments during the previous year 2010-11

a) Interest on 10% debentures of Rs.100 lakhs issued by Indian company on 1st January 2008 in consideration of providing of technical knowhow, manufacturing process and designs.

b) Services charges @ 2.5% of the value of plant and machinery for Rs.800 lakhs leased out to Indian company payable each year before 31st March,

c) How do you deal with them for computation in case of Shanthi Ltd.

Answer-2

Since debentures issued for technical services and service charges amounts to royalty which is paid by an Indian company it shall be deemed to accrue or arise in India as per section 9(1)(v),( vi),(vii).It is taxed u/s 115A.It is taxed at 20% rate. Otherwise they are taxed at 40% rate.

Income to be taxed-debentures 100 lakhs x20%=10 lakhs

Interest on debentures (3 months)100 x10% x3/12 x20% = 0.5 lakhs

Service charges (800 lakhs x 2.5% x20% =4.0 lakhs

Total tax before education cess =14.5 lakhs

Educational cess[3% x14.5 lakhs] = 0.435 lakhs

Total tax liability = 14.935 lakhs

Note: No surcharge is imposed as the total income does not exceed for the foreign company rupees 1 crore.

• Additional Case study – see HAND OUT

• FDI or Foreign Direct Investment is any form of investment that earns interest in enterprises which function outside of the domestic territory of the investor.

• FDIs require a business relationship between a parent company and its foreign subsidiary. Foreign direct business relationships give rise to multinational corporations.

• For an investment to be regarded as an FDI, the parent firm needs to have at least 10% of the ordinary shares of its foreign affiliates.

• The investing firm may also qualify for an FDI if it owns voting power in a business enterprise operating in a foreign country.

Types of Foreign Direct Investment: An Overview

• FDIs can be broadly classified into two types: outward FDIs and inward FDIs. This classification is based on the types of restrictions imposed, and the various prerequisites required for these investments.

• Vertical Foreign Direct Investment takes place when a multinational corporation owns some shares of a foreign enterprise, which supplies input for it or uses the output produced by the MNC.

Horizontal foreign direct investments happen when a multinational company carries out a similar business operation in different nations.

• An outward-bound FDI is backed by the government against all types of associated risks. This form of FDI is subject to tax incentives as well as disincentives of various forms.

• Risk coverage provided to the domestic industries and subsidies granted to the local firms stand in the way of outward FDIs, which are also known as “direct investments abroad.”

Economic factors-Inward FDI

• These include interest loans, tax breaks, grants, subsidies, and the removal of restrictions and limitations.

• Factors detrimental to the growth of FDIs include necessities of differential performance and limitations related with ownership patterns.

Real estate sector

• The Government of India in March 2005 amended existing norms to allow 100 per cent FDI in the construction business.

• This liberalization act cleared the path for foreign investment to meet the demand into development of the commercial and residential real estate sectors.

• It has also encouraged several large financial firms and private equity funds to launch exclusive funds targeting the Indian real estate sector.

• Until now, only Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs) were permitted to invest in the housing and the real estate sectors.

• Foreign investors other than NRIs were allowed to invest only in development of integrated townships and settlements either through a wholly owned subsidiary or through a joint venture company in India along with a local partner.

Foreign players

• Lee Kim Tah Holdings,

• CESMA International Pvt Ltd.,

• Evan Lim,

• and Keppel Land from Singapore,

• Salim Group from Indonesia,

• Edaw Ltd., from USA,

• Emaar Group from Dubai,

• IJM, Ho Hup Construction Co., from Malaysia etc.

Motives

• Foreign Direct Investment is guided by different motives.

• FDIs that are undertaken to strengthen the existing market structure or explore the opportunities of new markets can be called “market-seeking FDIs.”

• “Resource-seeking FDIs” are aimed at factors of production which have more operational efficiency than those available in the home country of the investor.

• Some foreign direct investments involve the transfer of strategic assets.

• FDI activities may also be carried out to ensure optimization of available opportunities and economies of scale.

• In this case, the foreign direct investment is termed as “efficiency-seeking.”

Real estate is on the high growth path

• In 2003-04, India received total FDI inflow of US$ 2.70 billion, of which only 4.5% was committed to real estate sector.

• In 2004-05 this increased to US$ 3.75 billion of which, the real estate shares was 10.6%.

P.Y. - 2010-11

• During April-September 2011-12, the Indian real estate and housing sectors received US$ 453 million in foreign direct investment (FDI), according to the Department of Industrial Policy and Promotion India (DIPP).

• Further, the industry also witnessed growth in private equity (PE) investments as well.

• In the current calendar year so far (November 13, 2011), total investment from PEs was around US$ 741 million.

Key taxation issues for Subsidiaries in India at PRESENT (Indo-German Chamber of commerce)

• Management Fee

• PAN for foreign companies

• EPC contract

• Deputation / Secondment

• Key provisions under DTC

Management Fee

• Management Fee – paid by subsidiary company (Sub co) to its parent company ( P co) for support on internal management functions via; finance, administration, reporting , marketing ,legal support and so on

• Such payments are within regulatory threshold i.e. FEMA allows management/consultancy fee can be paid without any monetary limits.

• Payment subject to 10% tax withholding. No service tax implications.

• Observations by I-Tax department:

• - Sub co gets benefit

• - basis of pricing these fees : mere cost allocation v/s marked up price

• - price justification

RECOMMENDATIONS:

• Follow Arms length pricing principle

• Maintain documentary evidence

PAN for Foreign companies

• From April 1, 2010 it is mandatory for foreign companies to quote their PAN if they are in receipt of sums which are chargeable to tax in India, I the hands of non-resident

• Consequences:

• If PAN not obtained – tax withholding to apply at 20% (if obtained 10%)

• Payment not tax deductible for payable if withholding requirements not met

• Recommendations:

• Obtain PAN, process is not cumbersome

Deputation/secondments

• P co dispatches employees to Indian Sub co in two capacities

• - engineers for transfer of know-how/technical services

• - senior staff for managerial/operational functions

• A formal technical service agreement (TSA) is executed

• No formal secondment agreement is executed

• Part salary of seconded staff paid by P co subsequently reimbursed by Sub co.

• Recommendations:

• Documentation clarity

• A secondment agreement to be prepared

• Charity of withholding tax/payments relating to P co.

EPC contracts

• A contract involving Erection, Procurement and Commissioning (turnkey basis) (EPC) resulting in several distinctly identifiable streams of income primarily

• - offshore – portion of thecontract performs outside India

• - Onshore – Portion of thecontract performs inside India , Model contract

Summary of Income tax Implications

• Revenue Streams NO PE in India PE in India

• Offshore supplies Not taxable Taxable

• Offshore services Taxable Taxable

• Onshore supplies N.A. Taxable

• Onshore services Taxable Taxable

• Note: a)) generally taxable at 10% of gross receipts

• B)) contract involving PE generally taxable at 42.02% on NET Income

Tax rate –comparison

• Particulars I-tax act, 1961 DTC

• Domestic co 32.44% 30%

• Foreign co 42.02% 30%

• Branch profit tax Nil 15%

• MAT 20.01% -> Bk/Prft <-20%

• Dividend Distn tax 16.22% 15%

Chp. 4 Tax Incentives fro Export promotion

Tax Incentives for Export Promotion under the Income tax act, 1961.

• India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965.

• With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000.

Incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:-

• Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units

• 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.

• Exemption from minimum alternate tax under section 115JB of the Income Tax Act in certain cases

• External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.

• Exemption from Central Sales Tax, Service Tax, State sales tax and other levies as extended by the respective State Governments.

• Single window clearance for Central and State level approvals.

• Exemption from customs/excise duties for development of SEZs for authorized operations

• Exemption from dividend distribution tax under Section 115O of the Income Tax Act.

Concepts

• Export turnover – earnings from export activities

• Not to include freight, telecomm charges, etc.

• Not to include costs or expenses facilitating exports

• Not to include insurance attributable to the delivery of the articles or things or computer software outside India

Exemptions u/s 10A and 10B

• SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED INDUSTRIAL UNDERTAKINGS IN FREE TRADE ZONES (Sec 10A) :

• Subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which this section applies shall not be included in the total income of the assessee.

• Conditions: This section applies to any industrial undertaking which fulfils all the following conditions, namely :-

• (i) It has begun or begins to manufacture or produce articles or things during the previous year relevant to the assessment year –

• (a) Commencing on or after the 1st day of April, 1981, in any free trade zone; or

• (b) Commencing on or after the 1st day of April, 1994, in any electronic hardware technology park or, as the case

may be, software technology park;

• (c) It is not formed by the splitting up, or the reconstruction, of a business already in existence

• (ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

• (iii) There must be repatriation of sale proceeds into India – in convertible foreign exchange during the PY or within 6 months from the end of the relevant PY.

• (iv) The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any five consecutive assessment years, falling within a period of eight years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things specified by the assessee at his option

• For the purposes of this section, - (i) "free trade zone" means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify 316 for the purposes of this section

"Manufacture" includes any -

(a) Process, or

(b) Assembling, or

(c) Recording of programmes on any disc, tape, perforated media or other information storage device.

(iv) "Electronic hardware technology park" means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce 318b ;

(v) "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;

(vi) "Produce", in relation to articles or things referred to in clause (i) of sub-section (2), includes production of computer programmes 318b ;

Amount of Deduction

• If all the conditions are fulfilled then deduction under section

• 10A may be computed as under:

• 10A: newly established undertakings in FTZ:

• Amount of deduction = profits x export turnover

total turnover

Special provisions in respect of newly established units in Special economic zone (10AA)

Conditions: A)) The assess is an entrepreneur as defined in section 2(j) of SEZ act, 2005. Entrepreneur is a person who has been granted a letter of approval by the development commissioner to set up in a SEZ

B)) the unit in SEZ begins to manufacture or produce articles or things or provide services during the financial year 2005-06 or any subsequent year.

C)) Conditions: This section applies to any industrial undertaking which fulfils all the following conditions, namely:-

(i) It has begun or begins to manufacture or produce articles or things during the previous year relevant to the assessment year –

(a) Commencing on or after the 1st day of April, 2005, in any free trade zone; or

(b) Commencing on or after the 1st day of April, 2005 in any electronic hardware technology park or, as the case may be, software technology park;

(c) It is not formed by the splitting up, or the reconstruction, of a business already in existence

(ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

(iii) There must be repatriation of sale proceeds into India – in convertible foreign exchange during the PY or within 6 months from the end of the relevant PY

Amount of deduction :

Profits of the business of the undertaking x Export turnover of the undertaking

Total turnover of the business carried on by the undertaking

Special provisions in respect of newly established 100% EOU 10B

Amount of deduction = profits x export turnover

total turnover

Applicable from the AY 2001-02 100% EOU

It must produce any article or things or computer software specified

Fundamentals of SEZs

– SEZs (special economic zones) are fundamentally different from the traditional free zones.

– They are much larger in size; offer broader range of activities such as

• a single-window management,

• streamlined procedures,

• duty-free privileges,

• also access to the domestic market on a duty-paid basis.

– Whether the enclave is termed an EPZ, FTZ or SEZ, the cardinal factors are

– appropriate infrastructure and transport facilities,

– low factor cost,

– flexible labour laws,

– convertibility of currency,

– stable legal and administrative regime, and

– a commitment to the canons of an open economy

Main objectives of the SEZ Act

– generation of additional economic activity;

– promotion of exports of goods and services;

– promotion of investment from domestic and foreign sources;

– creation of employment opportunities;

– development of infrastructure facilities

80IA - Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc

(1) Where the GTI of an assessee includes any profits and gains derived by an undertaking or an enterprise from the eligible business, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years will be allowed

(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park

(3) This section applies to—

(i) any enterprise carrying on the business 91[of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfils all the following conditions, namely :—

(a) it is owned by a company registered in India or by a consortium of such companies 92[or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;]

(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;]

(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995:

80-IA/ Rules 18BBA & 18BBE

Deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.

Assessee: Industrial undertaking or enterprises engaged in infrastructure development, etc.

Amount:

100% of profits for 10 consecutive assessment years in all cases except in case of telecommunication where it shall be 100% for first 5 years and 30% for next 5 years

Tax Incentives

• Direct Tax benefits for Developers

– Minimum Alternative Tax provisions not applicable

– Exemption from Dividend Distribution Tax

Sec 80IB

• Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings

• In respect of Industrial undertaking, operation of ship. Hotels and industrial research

• Industrial undertaking – should be a new undertaking, not from transfer of old plant and machinery should emply10/20 workers.

• The amount of deduction in the case of an industrial undertaking in an industrially backward State shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking

80-IB/ Rules18AAB,18BBC& 18DA

• Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development, etc.

• All assesses engaged in the business of Industrial undertakings/hotels/ ships/infrastructure development/ scientific and industrial research and development w.e.f. A.Y. 2009-10,

• Profits from the business of a hospital in any area other than specified area

• 100% of the profit for a period of 5 consecutive assessment years

• Production and refining of mineral oil

• 100% of the profits for a period of 7 consecutive assessment years

• Deduction available under sections 80IA/80IB/80IC

• The accumulated losses and unabsorbed depreciation will be allowed to be carried forward if they determined then such losses / unabsorbed depreciation are apportioned in the ratio of assets distributed between the demerged company and the resultant company.

80-IAB

• Deduction in respect of profits and gains by an undertaking a enterprise engaged in development of Special Economic Zone:

• Assessee: being a Developer, who derives any profits and gains from an undertaking or an enterprise from any business of developing a Special Economic Zone

• Amount: 100% of the profit for 10 consecutive assessment year

Deduction U/S 80-IAB

• Deduction of profits and gains derived from developing SEZ.

• Example: Nokia SEZ in Tamil Nadu – Dec-2005

• Benefit Period

• Example: Central Government notified April-2006 as notified year, within 15 year period (2006-April to 2021-March) developer can take deduction in any 10 consecutive years (April-2010 to March-2020).

• Cannot have provisions of sub-section (13) of section 80-IA

• Transfer of operation and maintenance of SEZ.

• Example: Reliance SEZ in Navi Mumbai

• 80-IC Deduction in respect of certain undertakings or enterprises in certain special category States

Conditions

• It should not be formed by splitting or reconstruction of existing business.

• It should not be formed by transfer of old plant and machinery

• Such undertaking should be set up in certain special category of states – Sikkim, Himachal Pradesh / Uttaranchal , North eastern states

• It is set up during the period 2002 -2012

• The conditions as to the computation of profits , non availability of double deduction / recomputation of profits by AO , consequences of merger / amalgamations remain the same.

• 80-ID Deduction in respect of profits and gains from business of hotels and convention centres in NCR (noida)

• All assesses engaged in the business of hotel or engaged in the business of convention centre

• Amount: 100% for 5 consecutive assessment years

• 80-IE Deduction in respect of profits and gains from an undertaking in any of the North-Eastern States

• Assessees who have begun or begin to manufacture or produce eligible articles or things or undertake substantial expansion or carry on any eligible, business on or after. 1-4-2007.

• Amount: 100% for 10 consecutive assessment years

Sec 80LA: Deduction in respect of certain incomes of off shore banking units and International Financial Services:

• Eligible assessee:

• A scheduled bank having a unit in SEZ

• A foreign bank having a unit in SEZ

• A unit of international Financial Services Centre in SEZ

• Conditions :

• 1.A copy of permission obtained under the Banking Regulation Act

• 2. A certificate from a CA certifying the amount of deduction claimed.

• Amount of deduction:

• 100% of the profits for the first 5 years.

• 50 % of the profits for the next 5 years.

• Certification by CA in form no. 10CCF

Tax Planning:How to evaluate whether one should set up SEZ / SEZ Unit ?

SEZ Developer

• Viable commercial proposition

• Active support of State Govt.

• Proximity to Port

• Financial soundness

• Capacity to attract FDI

• Generation of employment

• Availability of skilled labour in the nearby area and social infrastructure

• Commercial viability

• Selection of a right SEZ

• Location,

• Area,

• Facilities,

• Benefits,

• State policies,

• Infrastructure, etc.

• Credentials of Developer

• Proper information about formalities / availability / cost estimates etc.

• Product should be capable of maintaining demand in the overseas market for a sustainable period.

• Availability of required labour in the nearby area

• Overall serious commitment to EXPORTING.

Assignment:

Q1) Explain the tax implications in the legal status of different types of business units

Q2) Explain the tax implications of foreign collaborations including subsidiaries and equity participation (sec 115 onwards)

Q3) Explain the tax implications of export promotions (exemptions and deductions)