ASSIGNMENT ON EXEMPTED INCOME OF COMPANIES

BY DIPTIMAYEE SAHU MBA (GENERAL) 4th SEM

INTRODUCTION
The companies income tax (exemption of profits)order 2012 was made by the president in exercise of the powers under section 23(2) of the companies income tax act. the order has a commencement date of 27 april 2012 and will be in force for 5 years from the commencement date

1. Sec 10(23 FB)- INCOME OF VCF

VENTURE CAPITAL FUND TAXATION

VCF is a fund formed by various investors for

certain basic purpose. VCFs are constituted as trust where the trust deed lays down exact contribution of each member in the corpus SEBI regulates the VCF under venture capital regulation act 1992.

Provisions under I.T. act

Section 10 (23fb) of the i.t. act exemption from tax on any income of a venture capital company from investment in a venture capital under taking. 1. Section 10(23fb)(a) defines a venture capital company as a company recognized as venture capital company by SEBI. 2. Section 10(23fb)(b) defines venture capital fund as a fund as a fund registered s trust under registration act and granted certificate of registration by SEBI and which fulfills the conditions mentioned in SEBI regulations. 3. Section 10(23fb)(c) from 01/04/2013 defines venture capital undertaking to mean same as defined by SEBI

SECTORS
SECTORS IN WHICH THE VENTURE CAPITAL

UNDERTAKING CAN INVEST AND GET TAX FREE INCOME From 01/04/2013. there is no restriction regarding the sectors in which a VCU can invest. Before 01/04/2013 only 9 sectors were prescribed u/s 10(23fb) for which tax exemption are granted, but now this restriction is no more there and once SEBI grants certificate of registration, a VCU can invest in any field within the sebi framework. In nut shell, If the VCF are registered with SEBI and abides by SEBI guidelines, itsincome is tax free fully

2. (10 A & 10AA)

Free Trade Zone (FTZ) Special Provision in

respect of Newly Established Undertaking in Free Trade Zone. 1. CONDITIONS TO BE SATISFIED: It must begin manufacture or production in free trade zone It should not be formed by splitting / reconstruction of business. Sale construction should be remitted to India in convertible foreign exchange. Report of Chartered Accountant Return of income should be submitted in time.

2. AMOUNT OF DEDUCTION GENERAL PROVISIONS :

the deduction u/s 10A may be computed as under :

Profits of the business of eligible undertaking Export Turnover of eligible undertaking =______ _________________________
Total Turnover of eligible undertaking Export Turnover'': means the consideration of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India.

3. PERIOD AND RATE OF DEDUCTION :

Out of the total income of an assessee a deduction

of 90% of such profits and gains as are derived by an undertaking from the export of articles, or things or computer software shall be allowed. Rate of deduction for unit set up in Special Economic Zone on or after 1-4-2003 shall be as follows for first 10 assessment years : First 5 Years 100 % of profits and gains derived from the export of such articles or things or computer software for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, and thereafter,

 Next 2 Years : 50% of such Profit and Gains is

deductible for further 2 assessment years. Next 3 Years : for the next three consecutive assessment years, so much of the amount not exceeding 50% of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the ''Special Economic Zone Reinvestment Allowance Reserve Account'') to be created and utilised for the purposes of the business of the assessee

4 TRANSFER UNDER A SCHEME OF AMALGAMATION OR DEMERGER : In case an undertaking eligible for deduction under this section is transferred, before the expiry of the specified period, to another Indian company in a scheme of amalgamation or demerger (a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or demerger takes place ; and (b) the provisions of this section shall apply to the amalgamated or the resulting company as if the amalgamation or demerger had not taken place.

50B. Special provision for computation of capital gains in case of slump sale.-

(1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place : Provided that any profits or gains arising from the transfer under the slump sale of any capital asset being one or more undertakings owned and held by an assessee for not more than thirty-six months immediately preceding the date of its transfer shall be deemed to be the capital gains arising from the transfer of short-term capital

 For the purposes of this section, net worth shall

be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its books of account : Provided that any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of computing the net worth.

(2) In relation to capital assets being an undertaking or division transferred by way of such sale, the net worth of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of sections 48 and 49 and no regard shall be given to the provisions contained in the second proviso to section 48. For computing the net worth, the aggregate value of total assets shall be, (a) in the case of depreciable assets, the written down value of the block of assets determined in accordance with the provisions contained in sub-item (C) of item (i) of sub-clause (c) of clause (6) of section 43;

 (b) in the case of capital assets in respect of

which the whole of the expenditure has been allowed or is allowable as a deduction under section 35AD, nil; and (c) in the case of other assets, the book value of such assets.

 (3)

Every assessee, in the case of slump sale, shall furnish in the prescribed form along with the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 288, indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section.

Sec.32 depreciation
section 32 of the Indian income tax act deals with depreciation of fixed assets used for the purpose of business during the whole of or a part of a year. tangible assets being: building, machinery, plant furniture and fittings. intangible assets being: patents, copyrights, trademarks, franchisees and any other business or commercial right of such nature. rates for depreciation are provided in rule 5(1) of the income tax act ( in case of business engaged in generation and distribution of power rates are provided in rule 5 (1A) )

Eg. if you bought a machine for 100000, rate of depreciation is 15%, then value of your machine at the end of this year will be 100000 15% of 100000 = 85000 there are more conditions that apply to an asset in section 32, you can visit incometaxindia.gov.in to read all sections and rules of the act.

Conditions for claiming Depreciation

The assets must be owned, wholly or partly by

the assessee. Co-owners are entitled to claim depreciation to the extent of the value of the asset owned by each co owner. The asset should actually be used for the purpose of business or profession of the assessee.

 Depreciation is not allowable on the cost of land.

Depreciation is mandatory from AY 2002-03 and

shall be allowed or deemed to have been allowed irrespective of claim made in P&L A/c. Where the asset is not exclusively used for the purpose of business or profession the depreciation shall be allowed proportionately with regards to such usage of assets (sec 38).