TAX Holidays & MAT for IT

Muruganandam M
1011037
 Presentation Brief
• Company Profile: Manufacturing and
marketing mass consumption items
• Target Audience: Middle level managers
• Topic: Tax holidays and MAT for IT
• Objective: Basic concepts about Tax holidays
and MAT in IT sector relate it to their work
Actual presentation starting
 About Presenter…
• Muruganandam M
• Management Trainee
• Business Development Department
• PGP in MBA, IIM Bangalore Batch 2010
• Why are we investing a part of our earnings in
instruments such as
– “Government Bonds”
– “PPF”
– “Government Infrastructure bonds”
– “National Security Certificate”
– “Equity linked Provident Fund”

TO SAVE TAX – More money in our pocket

 Why?
• Government is always interested in “Collecting
Tax” to run its machineries. Then, why it is
giving away the tax?
– To encourage Investments in specific areas to
stimulate the growth in that particular area
 TAX HOLIDAY
• A tax holiday is a temporary reduction or elimination of a tax
• A Tax slashing Device
– Import Excise Duty
– Custom duty
– Sales Tax
– Corporate Tax
• Example:
– Tax deductions of 100 per cent of export profits.
– Deduction of 30 per cent of net (total) income for 10 years for new industrial undertakings.
– Deduction of 50 per cent on foreign exchange earnings by construction companies, hotels
and on royalty, commission etc. earned in foreign exchange
– 100 % tax deduction for the IT investments in tier II and tier III cities
• These benefits will differ industry to industry
• Condition: Deductions under tax holiday <= total tax payable
 Why Tax Holiday?
• Incentive for business investments
• FDI – Foreign Direct Investments
• Stimulating growth in selected industry
• Less 'pinch' on the pockets and a good fast
growth of economy
 Tax Holiday
Information and Technology Sector
• Income Tax holiday
• 100% customs duty exemption on imports of
capital equipments (Lease/Loan/Paid)
• 100% Depreciation on capital goods over a
period of five years
• Central Sales Tax reimbursement
• Are we benefiting from this? YES
– New IT service company in STPI Hubli, to export
software to our companies in Europe and USA
 MAT - Minimum Alternate Tax
• Taxable income calculation
– Companies Act
– Income Tax Act
• Minimum of this should be paid as Tax to Income tax department
Example:
• We bought the following new items at the beginning of this
financial year
• computers worth Rs. 50000 – Expected life is 5 years
• Printers worth Rs. 30000 – Expected life is 3 years
• Companies Act - SLM method to calculate the depreciation expenses
• Income Tax Act – WDV method to calculate the depreciation expenses
– It allows 100% depreciation for these items
 Understanding MAT
Companies Act, India Amt (Rs.) Income Tax Act, India Amt (Rs.)
Net Sales 500000 Net Sales 500000
Expenses 420000 Expenses 420000
Less Dep. Charge-Computer 10000 Less Dep. Charge-Computer 50000
= 50000/5 = 50000*100%
Less Dep. Charge – Printer 10000 Less Dep. Charge – Printer 30000
=30000/3 =30000*100%

Taxable Income 60000 Taxable Income 0

Tax payable at 30% 1800 Tax Payable 0

Before MAT we paid Rs. 0 as Income Tax

After MAT we pay Rs. 1800 as Income Tax

Is government take away our hard earned money???