Chapter 3

rax planning with reference to 1,,-

ra,..

setting up of a new business

of tax planning . .
J.l Areas area of business management. Some of th ·
e 1m ,m

Location of business.
(i) b.
Nature and size of usmess.
(ii)
(iii) Fonn of business organization and the pattern of its
ownershie.
(iv) Specific management decisions like make or buy, own.or lease, capital structure, renew
or rep etc.
(\) Employees remuneration.
(vi) Me(g°ers/Amalgamation of companies.
(vii) Double Taxation Relief.
(viii) Non-residents.
(ix) Advance Ruling.
3.2 Location of business
Tax planning is relevant from location point of view. !,here are certain locations which are given
ial tax treatment. Some of tbes@ are tts t:mdc.:-
1. Full exem tion under section 10AA for initial five ears 50% for subsequent five years
and further deduction of 50% for a rt er penod of five years in the case of a new y
esta units in special economic zones on or after 1.4.2005.
2. Deduction under section 80-IAB in res ect of profits and ains b an undertakin or an
eQ!,erpnse engage m the deve opment of Special Economic Zone.
3. eduction .under section 80-1B in the case of newly set up industrial undertaking in,,!ll
industrially backward State or district. .
4• Deduction under section 80-IC in case of newly set up industrial undertakin or sub51antt-al
exp nsion of an existin unoerta m m ce
ms
5
, • Deduction under section 80-IE in respect of certain undertakings in North-Eastern stat
Nature of business • .
- ·Tax planning is also relevant while deciding upon the nature of business. There are certain
c10. 11
. tnesses are granted special tax treatment. Some of them are as ows•
wh•tch
. - established units in special.economic zones [Section
Tea Newly JOAA]. ot Account
•
. eve opment Account, Coffee Development Acco unt an bber evel opme · · -
D . d R

,
1

u D
•
·3. [ ectton
• . . . .
33AB].
 Site rest . •
S • ; 0ratton fund [Section 33ABA]. . . . ·.. : ,3sA0]
peci ed business eligible for deduction of Capital Expenditure [Seen.on .
· ort•sation .
.
'...:_

•' .
..·-:
.
of certain preliminary expenses[Section 35D]. . ·• •.. • ·· ••·
•'

s Jle dit..ure 0n prospecting for certain minerals [·S.e.ction.35.E}. • ···(·,:.).

l)ec1arl • • . . • . . •. , · · · ·. • 36(1) vm-·•
eserve created by a financial corpo ron:..under.sect1?.n .. .,, •",:.•
,. ..· ,. • . ·•

• ;.' \ :.. ....: • •t I o. , .•

.
 78
Corporate Tax Planning & Management ca
8. Special prov1s1on for deduction in the case of bu ine for prospecting for rnin
(Section 42 and 4488].
9. Special provisions for computing profits and gains of business on presumptive basi (
44AD].
10. Special provisions for computing profits & gains of business of plying hiring or I
goods carriages [Section 44AE].
11. Special provisions in the case of shipping business [Section 44B], .
12. Special provisions in the case of business of operation of aircraft [S JOn 4488AJ.
13. Spec1•a prov1• s1• the case certa turnkey Power proJiects [Se• ction 44• 8B8].
I ons m • of m•
14. S pec1•al the case royaJty come of foreign compa. mes [Section 440].
• •
prov1 s1 0ns m • of m•
15. Special provisions in case of royalty income of non-residents [Section 44DA ..
16. Profits and gains of industrial undertakings or enterprises engaged m mfras
development, etc. [Section 80-IA].
17. Profits and gains of an undertaking or an enterprise engaged in development of S
Economic Zone. (Section 80-IAB].
18. Profits and gains from certain industrial undertaking other than infrastructure develop
undertaking [Section 80-18].
I Special provisions in respect of certain undertakings or enterprises in certain special c
9. States [Section 80-IC].
Special provisions in respect of certain undertakings in North-Eastern States. [S ction 80-
20.
21. Profits and gains from the business of co11ecting and processing of bio-degradable w
[Section 80JJA].
22. Employment of new workmen [Section 80JJAA].
23. Special tax rate under sections 115A, l 15AB, 11SAC, 11 SAD, I 158, 115B8, J
ljBA l 15D.
Tax planning and nature of business
Industry in general is to be owned by an individual, or an HUF or a firm or a company or a
operati e society or a trust. In case of aIJ these assessees who are carrying on business, the income
be computed as per provisions of sections 28 to 44D. These assessees will be 8ligiblc fut 00
exemptions/deductions which are specificalJy allowed on the baiii of the Aature of bU8iDess camee
• 6y....,such assessees. e,-. O'\.(
J} 3.4 Tax planning in respect of assessees engaged in the business of export of goodi
merchandise ;m
. Exempti_ona ailabl to the unit ?fa? entrepreneur whjch begms to manufacture orproduce
1/article or thmg or provide any service m a special economic zone on or after 1-4-2005
9 [Sec 1.General: ubject to the provisions of this section, a deduction ofs ·
lOAA].
• • an entre reneur as referr ·
ection 2
Special provi ions in respect ort ofofarticles thmgs or prov1
newly orestablished Units mg Special
in any service, ast e case
Economic may fSec
Zones · _,_·
JOAAI . the total income o t e assessee.
I. The deduction under thi tion i available qua the unit and not theassesse.e
h b · · ..,
2 Meanmgof
··1 Entrepreneur.
D . . mean a per .O n wh o as een g
Entrepreneur'
. •. ov b t e ev ment Comm, ion under ection I 5(9) [ · · 2·.·
5J • . c ct10 .
. .
• - ' Tar pl ,min,g-.,ith r
.
to tting up of a new business
eli ible for deduction: Deduction under this secf . .
1
79
.- ......,;_._-:---:----··-i-:1 . d. _iv_i_du_a_l..;_i_ ton ava1lab\ to an
u01t engag --.r--...::..:_:.:_- d
-- -· --- ·-- -- --- ·-. . ?
omic Zon means takin • .
by \and, a, air, or by • '·

\ii r reconstruction of a business alread .

• is formed as m
the business o

;r r he transfer of machinery or \ant, previousl

ver, the o owing are the two exceptions to 1s
condition: ch was used outs· • other than the
assessee

re fulfilled:
a) The machinery or plant should not be previously used in India.
b) The machinery or plant should be imported into India from a foreign country.
c) deduction on account of depreciation in respect of such machinery or plant
has been allowed or is allowable under the provisions of this Act to any
person pre iousl .
n under • 1OAA will, be available if the total value of the secondhaod

smg Officer shall h

h could be derived.
 80
Corporate Tax Planning & Management
. . •. otified under me P-RJ'.
2. , "Special.Econom ic Zone" means each Special Econorn_ic Zonen ns _.l Economi'.
4
·sub-section (4) of section 3 and sub-section (1) of secaon of ! xistilll:-
• Act, 200S (including Free Trade and Warehousing one) and incl OSJ . -
:n
· Economic
11e:1
Zone [Section 2(za) of the Special EconotnJc Zones Act,
4. Period for which deduction is available
20
• ·_
•od f 15 •
The deduction under this section shall be allowed as under fora total pen ° 1
ree
assessment years.
For the first 5 consecutive 100% of the profits and gains deriv d from tbe exP
assessment years beginning with of such articles or things or from services
the assessment year relevant to the
previous year in which the unit
begins to manufacture such
articles or things or provide

Next 5 consecutive assessment 50% of such profits or

gains
l---1.2y e a rs ----------+---------------:--:---::::------::--------,
Next 5 consecutive assessment So much of the amount not exceeding 50% of t
years profits as is debited to profit and loss account of th
previous year in respect of which the deduction is to b
.
allowed and credited to Special Economi c Zon
Reinvestment Reserve Account to be created an
utilised for the purpose of the business of the assesse
in the manner laid down in sub-section (2) below.
Example: An undertaking is set up in a Special Economic Zone and begins manufacturing
o
.10.2019. The deduction under section 10AA shall be allowed as under:

(/J) Consequences of mis-utilisatio-/. an r _machmery was rst put to use.

,vnon-utiJisation 0ar s
amount credited to the Spe ial Economic ZoneR . J re erve (Section IOAA(J)J:
e-mvestment Reserve ccount: .
 unit the s
are bears

Total turnover of busmess carried on by the uoderta

Judicial deci ion
ertion1 OAi in the nature of an "exemp ion'' provision and the profits of the eligible unit ha e
w be deducted at ource level and do not enter into the computation of income. The same analogy
can be deduced in case of section 10AA. [CIT v Yolwgawa India Ltd. (20I2) 341 !TR 385
(Kam)] •
Profit for purpoe of deduction under section IOA (also IOAA) should be allowed without setting
ofof f unabs rbed los and depreciation. [CIT v Tyco Electronics Tools India (P) lld (2012) 205
Taxman 403 (Kam)]
Sectin I OA/1OB (I OAA on the same analogy) deduction shall be allowable "ithout set off of
I seos f non-eligible units.[CIT v Black & Veatch Consulting Pvt. Ltd (20I 2) 20 raxmann.com 727
(Born]
tional' ation of provision relating to exemption of income of units operating in SEZ
ipb.nation under ection JOAA(l )I . al Of the assessee hence et•h
.
.Scet1. on I OAA allow deduction in computing the tot mcome puted •tn accordance with the
ue11onIto be allowed from.the total income of th_e.a ses ee as.com . However courtS hae
ro s1on f the Act be£ re g1vmg effect to the prov1s1ons of section lOA_A Is ontaios similar
1
kena view while deciding the matter pertaining to ection I OA twh hichda ;i:gand not from
rovi.ionJ that the deduction is to be allowed from the total income of e une
totalin ome of the as e ee. • 1 OAA(l ):
In ,j of the aboe the Act has inserted the following Expianot'
x La ation. or ther mo al of doubts it i hereby declared• w ·::::_··
th e:...t o ta l...!i!!nc o ; . -r, :?, Se(ctj• -
gec 1
e .·
. tal inco ·on re1 • ...- .. ,
•
clan .....rt - • • :
m . -. : .····;.'.·. ••
. . .
. .· , , ,_.. • .: .i• . ·c·b ,,
. . • . . -· ·..:..,f ·wut •
. . . • • . s l)ll!Side 1;;
.'
 11
Pendi · ., • · · of teehntcal ice:ef aliO /"o•r ifJl '••
Uctibl ture incurred in f, reign exchange for pro,1510 ed frolll total i,.9J8) • ,_,_'.••
. e foroomputmge port tumo er hall be exclu rJeS.ti_lll. ._•.•• _:• ••••::: ·_•
utmg deduction under section 1-0AA [CIT -v RCL Te ,' qg, ·' •.'_ ••••:•. •.•. '-\ '··-:;'.'
,.,, - ,; · ; ··:,. '
 o,1 rat Ta,· Planning & Managem nt

I.

d
'

ion of EPZ/FTZ into" pedal economic zo . zone is subsequently located ina

• trad zone ore 'port procesSmg · ne in
um • • • • I ted ion of such free trade zone or export pr cessmg zo .
• _zne f 10 on ecuti e assessment years referred om this ub-sectton
i m1 zon ear rele ant to the previous year in which the umt began to
e pd fr arti le or things or services in such free trade zone or export

• • • • II I ated in any free trade zone or export processing zone l

Hw , r. wh •a unit • lit n mi Zone by reason of conversion of such free trade zone or
I_ at m_at P ipea ial E on mi Zone and has completed the period of 10 consecutive
ema r rz nft rrmd t a ab v • it hall not be eligible for deduct·ion "1rom ·mcome as p r ov ided io
Jau (ii f ub- ti n (I) with effi t from the 1.4.2006.
7. B non enjo ment of other tax benefits:
I) Th 11, •ingallowan ore penditure shall be dee ed to have been allowed and absorbed
durin th urseof the r le ant assessment years endmg before 1.4.2006:
1)
d preciati n all wane under ction 32;
ilf ·p nditur on ientifi re earch under section 35; and be..,,
1
e ·p nditur inr lation to family planning under ection 36(1)(ix). .. ...._.• J
The afore aide penditure/allowance even if unabsorbed during the relevant assessment
years ending before 1.4.2006 _shall be deemed to h ve been fully claimed and allowed.
Ho e er unabsorbed depreciation unabsorbed expenditure on scientific research and capital
expenditure on family planning pertaining to assessment year 2006-07 or any subsequent
a m e n yt ear shall be allowed to be carried forward and set off. .
(2 o portionof the lo es pertaining to business under section 72( l) or capital gains under
ection 74(1 or ection 74(3) with respect to any as e sment year ending before l.4.2()()6
forming part of the tax holiday period to the extent pertaining to the undertaking, being the
unit hall be claimed in anya se ment year ubsequent to the last of the assessment
year·
fanning part of the tax holiday period. However, a per section I 0AA(6) losses referred to in
section 72(1) orsection7 4(1) and (3) in so far as uch losses relate to the business•Of th.e'
undertaking being theunit, pertaining to assessment year 2006-07 or any subsequellf:
assessment year shall be allowed to be carried forward and set off. ;.. ';.
 ·th refer nee to •etting up of a n "W bu ·ine s
tanning wi . iJ
TaXP . d· \t ha\\ be t)re umed that durm J" the tax. h \iclay .
,\l.3"
" af t e r d
ta bo\id8Yper_,o and had been a\\owed depte\:.iation a\\ wane :ndt u (\ r
had c \a ,m e
•
s. WO d t h e assessee
d' \
. b \e assets ha\\ be y. aft t th nc\u cc" \"
compute ac or mg
. \ o/\A f the deprec,a \'\ (h U.\
v o .
·ttend_o\\'nneriod. . o{ ama\gamat,•on and demer M .
. nohda r . nowab\e ,n case . .
cu n,t of an \nd,an compan

company f r the
. wh,ch the ama\gam or de erge! take t)\ace. _ .
t of profits and gains by an undertaking or enterprise engaatd \n
non ,n respe • SO lAB\ "
{S ecia\ "Economic \Section\• - b\ the \ •mcome of an a
enot \l nder th,s new section ava , a e ere tota
wh
. •
\S
ed ct1on u . • •
·nc\udes any profits and gams denved by an undertakmg or an enterprise
\ng a Spec,a Econom,c one, not, \ unaer·1n ·-
ct, 200
• \on sha\\ not app\y ee, being a deve\oper, w"er the
-.......,c Zone be ins on or a . .•
Quantum o e uc ion. . e deduction sha\\ be a\\owed of an amount equa\ t \ 0(.)% of \h• profits
d a,ns derived from such business for \ 0 cons • rs.
1\\e deduct,on • • •
as ses s m e ill l..t D.wnll:'J.J n
n \\f\edb
histing Developers of Special Economic Zones wU\ get deduction on\y for the un-tl.l)\red
l)enod: Where \n computing the tota\ income of any undertaking, being a Deve\ope,r for an'
as sment year, ,ts profits and gains had not been included by apphcat\on of the prov, ,on of u
sect\on 03)_ of section 80-lA, ths._uodertakiog being the Deve\ope • ucti
referred 10 m tn,s sect' · ·
a
ereafter 1t sha\\ be e\i ect
),as the case may be. .

• • ·----·-- • •
 4 Corporal Tax Plannin fa,la 111 f I/

Re triction of excessive profit· [ ection 80-J ( I O)J

Power of entral Government to notify undertakin s to whi ·h ·tlon KO f A[
[ ection 80-IA(I I)]· .
. Deduction in a e of amalgamation/demer er [ lion 80-lA(l )).
fN I In r1
3.6 Special provision in respect of eligible business of eligible tart up w
I CJ i 80 JAC(l)I Wh th r tt·
(1) 100% deduction of profit from eligible busines (Sect on d .• d iv ,cJ f <m• ·h
income of an a sessee, being an eligible start-up in lude any p o_fit anfth n., ·tit tJ b nf to t. .
bu ine there hall in accordance with and subjec_t to the prov• ion' 0 l to OO¾ of· th rm,n·.
omputing the total income of the a sessee, a dedu t1on of an amount qun I

gain deri ed from such bu iness for 3 consecutive asse sment year •
(2) Deduction to be allowed for any three consecutive a se ment . .
ISection 80-IAC(2)): The deduction specified in ection 80-IA (1) may, at th option of th .
be claim d by him for any 3 consecutive assessment year out of 7 year (5 Y ·u upl< A.Y. Ol7-1
beginning from the year in which the eligible start-up i incorporated.
(3) Conditions to be satisfied to claim exemption under ectlon 80-IAC( f) ISectfuh
IAC(3)): This section applies to a start-up which fulfil the following c ndition.· nam Jy:
i) it is not formed by splitting up, or the recon tru tion of a bu·ine air· dy in I t··n • :
Provided that this condition shall not apply in re pect of a tart-up whi h i form d . a r 11
of the re-establishment, reconstruction or revival by the a e' ee of th bu.'in s ' of any u
undertaking as referred to in section 338, in the cir um tancc and within th p ·riod . p • ·ified
in that section;
(ii) it is not formed by the transfer to a new busine of ma hinery or pl nt rn •viou. ly u.
any purpose.
Exp anatio I.-For the purpose:s of clause (ii) above, any machin ry or pl nt whi h w ,
outs,.de India by _any person oth .r than the as e se hall not be re ,ard d ,. machin ry or
prev,ou ly used f r any purpose, 1f all the following condition. arc fulfill d.namdy: .,.
(a such machine or p ant was not, at any time previou to th dat of th in l II
assessee, used m India; ._n Ion
l · r
Y
(b) such machinery or plant is import dint India:
(c no deduction on account of depr iati n in re t ·t f . •
allowed or is allowable under th prov,· • fph. 0 ch ma ·hm ry or pl nt Jt :
any person for any period prior to the •1 n t I I · •
date of the •. t 1 n co t 1e tot tn ·oni, f; :
1n
. t•
pum J
A
,
the a ses e in tallallon of th • rnachin ry ( r pl nt y 1
:

1
E planation 2.-Where in the case f a tart-u an . [
pr h• iou ly u edl for any purpo e i tran ter·r d Pt,aYnew ma buhmeryine or pl
d 1 nt ( ny p rt thcr o(.:
ma
mery or pant or part o tran f; n-cd doe not . o , an t 1 t llaJ val c f i
d
201/o..f the le tul valu of th, 1 ,·r, 1 ;
or plant u ed in the bu ine , then, for the purp f'
·fi d th • < es o clau • (t ) t· 1 •
pec1 ie • erem shall be deemed to ha e IO be<> . 1· ,. o tn L. :ub- e ti m th, '·<n<l1·t,·- • :
• • "'" C mp I d with. ' • '-' "'' . v• ;
•
( 4) Further cond1tmns applicable fior an • ...
Sect,on• 80-IAC(4)J: The provi ion contained in assessee claim• d
t' 80 mg eduction under . •ction 80 IA( •
I
a· may be apply to the eligible busine under th' ec _ion -IA(5)• and
1 ect1on The e • .
(i) omputation of profits of eligible bu ine [S •. prov1
·,·) A d. f . ect1on 80-IA(S)]
(' u 1t o account [Sectwn 80-IA(7)J
(iii)lnter-_un.it tran fer of goods (Section 80_,A(B)J
(iv) Re t ct on on double deduction [Section 80_1 ( )]
9
( v) Re tnctwn on exces ive profit [Section 80_ ( O)J
1
1

80-JA(7) to( 1 ) h • •. · •
a
ton relat to th fr,llc11 win ;,..
,·
,
 C

n t d S
• ro.r in the previou, ye.ar
- • duct'.n und r "h n 80..JA (I) isclaimd
frm th lnter-Minist rial Board of
ntra.1 Go emment. . ,
pnrtnr hip r f rr d t in ection 2(1)(n) of th
·

Deduction not to be allowed in cases where return is not filed within the specified time limit
• n 80AC): dedu tion hall be all d t the " under thi ection unle he furnishesa
f hi in ome f the rele ant assessment ear on r b for the due date pecified under section
l..
• Tu planning in respect of certain undertakings in North Eastern States ISection 80..IEI
Dedu rion under thi ection i allO\. ed to an a ee who e gro s total income includes any
fi andgain deri ed b an undertaking hich fulfil the following condition :
I) It bas durino the period beginning on 1.4.2007 and ending before 1.4.2017 begun or begins in
an of the onh-Eastern State :
(i to manufacture or produce any eligible article or thing· .
(ii to undertake substantial expansion to manufacture or produce any eligible artJ le or
thing·
iii to carry on any eligible busine s. ·
) • . b
1 tts not fonned by splitting up or the reconstruct1 on. a ess alread.y in. exisctenced: a
o f u 5m •
Howe er this condition shall not apply .m 88
o respect an undertaking which ts ,onne
f

resutI f the business of any

of the re-establishment reconstructi•on or revt• al.by the assessee aond within the pen·od
such undertaking as referred to in section 33B in the ctrcumstances .·
specified in the said section. . lant previously used for
3) It is not formed by the transfer to a new business of machmery orp ..
d
an purpose. can be transferre t2h0e%neowf
:
Howe er plant and machinery, already used for any purposeh• , nery does not exce •
• d • •
in ustn al undertaking provi ded value O
f h
sue .pl ant and m ac 1
. u nd ertaki. ng. .

the total alue of plan; and machinery of the new mduSlrt1. . · · -=-. - . -·::'."'."".a,
I A ._Y mach.mery or p a n .. w... . 1w. . : ,cb •.H. ... o· ide
•
In ·. . .· 1
fol} , shall no·t be regarded
. • O\Vtng conditions are fulfilletiL:.WlffMl!Yt r
•(a) such macb ·•
1 nery·or 1 n1
..
assessee,.used in - . .; -.a."1•:',:..:.'···.:.oe,,-;.-.,.-. ,. ·•• ·i,.r•

such machi •--·- ---

. tlO deduction
allQWed·or is; :a•M
 Corporate Tax Planning & Management Cbap,3'
r · nyp ri d prior to the date of the installation of the machinet"Y Of j,l:a . I
., I

· "Eli ,j I·' rticl or thing" mean the article or thing other than the following:- • •••j•••
< l c_d'f llin undr hapter 24 of the First Schedule to the Central Excise Tariff Act, 1985j •
wh1 h pertain. to bacco and manufactured tobacco substitutes; '·. '•
(h) P nm sal a covered under Chapter 21 of the First Schedule to the Central Excise Tariff
A·t,l 9 ; • •• • •
(c) plasti carrybag of !es than 20 microns as specified by the Ministry of Environment Bild''
I· ts vid Notification Number SO 705(E), dated the 2nd September, 1999 and SO
(8(E), d itcd the 17th June, 2003; and
(cl) •oids follin, under hapter 27 of the First Schedule to the Central Excise Tariff Act, 1985,
produced by petroleum oil or gas refineries•
. "'4,\i ,ib\e bu ·ine " mean the business
of, ( ) hotel (not below two star category);
(h) 'dv nture and lei ure ports including ropeways;
( ·) providingm dical and health services in the nature of nursing borne witha
. pa ity of twenty-five beds;
(J) r mning an Id-age home
( ·) p ·rating v cational training institute for hotel management, catering and food
ntr preneur hip development, nursing and para-medical, civil aviation related trainin' •
fashi n de igning and indu trial training;
(/) runnin information technology related training centre;
(g) manufa turing of information technology hardware; and C
/,) bio-t chnology. a
4. " ub tantial expan ion" means increase in the investment in the plant and machinery by Jrt.• C
least. 2. %,. f t c boo_k alue of pl_ant a d machinery ( efore taking depreciation in any year). ason.
. the hrst"day of th pt vtous y arm which the substantial expansion is undertaken,• •
5. Nort -Ea tern State " n eans the States of Arunachal Pradesh, Assam,
M ghalaya M1zoram, Nagaland, Sikkim and Tripura.
Quantum of dedudion
I 00% f th pr fit and gains derived from such business 1o • •
mmen ing with the initial assessment year. or consecutive assessmentyears.•
1. "Initial a sessment year" means the assessment year relevant to the • • • ; • •
und rtaking begins to manufacture or produce articles or thin previous.year tnwhich· - di
pan ion. gs, or completes substantial .
2. Notwith tanding anything contained in any other provision of this A • • ·. ;·,·' I)
incm f the a e see, no _deduct!on shall be allowed undCr an 0 c tm,
co ting the to •· • 35
hapt r VIA section I0AA,m relation to the profits and gains off1e ::r sec ,cm n .. .
Other condition of section 80-IA also applicable (Section 80-IE . e _g. • • -.••• ••• • I
ub- ·tin (5) and ub- ections (7) to (12) of section SO-IA h 11 (6)). The prov1S1ons containedJll . I
eligible undertaking under this section. s a ' so far as may be, apply to .
Th pr vi ion relate to the following:-
(i) omputation of profits of eligible business [Section 80-LA(5)];
ii) Audit of ac ounts [Section 80-IA(7)];
(iii) Inter-unit t_ransfer of goods [Section 80-lA(8)];
(iv) Re triction on double deduction [Sec ion80.-IA(9)];_•.••: .
. ..
' •.
-
 . , .,·,11 r. to . .tr ing U/ o.f a n " bw-•,'.,1
r,t.rpfam11 ng .. .r ,1 ,,
'.C>
"
,.

· . pr fit [ tion 80-1A( I O)l 7

mrn nt t notif undert kin t • hich tion
..l - ill
ly
, ,m1 1urn1t d omp· n in ca of amal mati n l · tion 1
or unexpir d period of 10 years in certain cases I .1 •
0
ain d i_n t n_o d ducti. n hall be all w• d l e ' "
en d f dedu tton m e of . th p ri d ofd d an un
\,u th d
.
nder on o to ech n 8 -18(4) e u c t t n un d e r
pro, r
en a n, nt ar..
ng for ho pit I
.n p ratin :r and maintainin a h pital ar ligible f r th Bowin d du lin:
;e pect of e penditur on building and operating anywb r in lodl
n
t lea t 100 bed for p tients (Section 3SADI
,, I 1111 w, 'd du ti n: l 00% dedu tion hall be allowed an ccount ran
in urred \c\'h and e r the u o e of the a
pee·
e .. . . .

r man ,a m um n ton 5
f capital nature sh ll I o not include any expenditure in respect of
wb.ida ggregate of pa m nt made to a person in a dav otberwi e than
b.,· 111 eque dra, n on a bank or an account payee bank draft or use of
lectroa
a bank t 10,000. -\
111 urr-> prior t 'Omm n em nt of operation to be allow d in Jhe yea
of p rati n: The , penditure incurred, wholly and exclu i ely. fi r the purpo
• all al b allowed a deduction during the previou year in whi h h
tJ) • f• ified bu ine if-
) itur i in urred prior to the ommencement of its operation ; and
t i apitalized in the books of account of the asses ee on th dat

• •
ature shall not include any expendi tu re •mcurred on.
an or goodwill or financial in tnunents.
a. Planning for Telecommunication Industry
e of this assessee is co
ommunicati •
assessee ts a . tiOO sen ces lSe(doll
expen 1ture or obtaining licence to operate telecommunica -

for a quiring an te·

. n apital e penditure is incurred by the asse see f the bu j
ication ervice either before the commencem nt O
nd f
• .
1 ation
. d urmg
rvice or thereafter any ttme . any pre mus
eara
• en made in a license a deduction e ual to the • •
-.:.....,.,.... wed for each of the relevant previou _J ·.:
p .
i) re\ •
 ant pre iou year means- · • •
a If . . . • . ,_...
•·.' ,,: ...

co;; u rs?-ifI" ,.!!.! . :,i....• \(

..
 Corporal Tax Planning & Management
(b) paid for ac uirin such ri hts after the commencement of such busines5 the
d d • n a e allowed for the previous ears e innin wit t e revious ear ui·
"'hich the license fee is actua y pa1
and the subsequent previous year or years during which the licence, for which fee is paj
shall be inforce.
ii) "a ro riate fraction" means the fraction the numerator of which is one and the denominator
of which is the total number o t e re evant previous ear
• Where a deduction for any previous year has been claimed and aHowed under this section,
l depreciation shall be allowed under section 32(1) for the same or any subsequent year. ;
../
0

2. Payment has actually been made" means the actual payment of expenditure irrespectiye of t&e ,/
previous year in which the liability for the expenditure was incurred according to the method_!
of accounting regularly employed by the assessee. • •
Illustration 6.18: R. Ltd. obtained a licence to operate telecommunication services from ·
Department of Telecommunication on 1.7.2019 for a period of 11 years i.e. till 3O.6.2O3O for a sum of.
13,20,000. Calculate the amount of deduction available to the company under section 35ABB for the•
arious previous years assuming:-
(a) The payment of the entire licence fee is made on the date of acquisition of the licence;
(b) t4 00 000 was paid on the date of acquisition, t2,6O,OOO was paid on 15.10.2019 and balance
t6 60,000 will be paid in two equal instalments of t3,3O,OOO each during previous year 2020-
21 and 2021-22.
Solution
(a) Since the entire licence fee has been paid during
the previous year 2019-20, the deduction under
section 35ABB shall be allowed for 12 relevant
previous year in equal amount of t 1,10,000 each
year starting from previous year 2019-20 to
previous year 2030-3 I.
Actual fee paid during the year . '132OOOO = t I, l 0,000 each year
Unexpired period of licence z.e. 12
(b) Amount to be allowed as deduction in previous
year 20 I 9- 660000 = 55,000
12
20

Amount to be aJJowed as deduction

in previous year 2020-21
55,000
(lll2th the amount paid in 2019-20)
30,000
(3,30,?OO/l l i.e. amount paid in 2020-211
unexpired period of licence) •
Total
t85,OOO
Amount to be allowed as deduction
in previous year 2021-22 (]/12th of the amount paid in 20 I 9-2°.
t85,OOO and 1/11th of the amount paid in 202
21) . >-
+ 33,000 (3,30,000/10) i.e.
Amount paid in 2O2O-2 J
Unexpired period of licence.
 Taxplanning with reference to setting up of a new ?Usiness
l, 18,000 89

pre ious
ears 2022-23 to 2030-31 l,18,000 each year for 9 previ
ous Years·
( 1/12th of amountp .d . . ,.e.
ai 1n 20192
(l/11th of amount pa·d . - O)
l In 2020 21)
(I/10th of amount pa1·d. -
.
.
. . . tn2021-22)
Although the
· licence
• dts acquired for 11 years but deduction will be ll .
oteh.- 1-cence 1 s acqui re 1.7.2019 and 1·t remai•ns •m force tilla owed in 12 prev1•ous •
on ·11
w1
st e il be allowed w.e.f. previous year 2019-20 to previous year 30 6 2 3
0.Hence, the
educuonw 1•
d deduction is not on pro rota
b
as1
•
9 months for 2030 · ( , 12 p.revi·ous
previo
allowe ( . 3 e•
s z .e.
ears). •
31) • ·11b ll d. - . usyear2019-20 d
T eh
nths for pre ious year 2030- ' it w1 e a owe m equal mstallments for the relev 3
mo . hich licence was allowed to be used. ant previous
eartnW •

6.24aSale of licence
(a) Where the entire licence is transferred:
(i) If the sale proceeds and the deductions already allowed are less th th
• . .. h d f.i h 11 , an e cost of
ac ms1t.ton, sue e s a be allowed as deduction in the year ·m wh1' the
1c1enc. ch
licence 1s transferred. [Section 35ABB(2)] •
(ii) lfJ'1e sa!e roceeds and the deductions already allowed exceed the cost of acquisition of
the licence, then the amount of such excess or the aggregate of the deductions alread
allowed in the ast whichever i shall be taxable as business income oft e Y
w t'l'le licence is transferred. [Section 35ABB(3)]
(b) Where a part of the licence is transferred:
(i) Where a part of the licence is -n, ... ,..,...."'_,. A the written down value
of the·total licence, the balance amount not yet written off shall be allowed as deduction in
the balance number of e ual instal s. [Section 35ABB(5)]
(ii) If part of the licence is transferred for a sum exceeding the written down value of the
lice , the sale proceeds minus the written dawn value gf tbe foll licenceshall the
profit from such sale. rofit an amount equal to the amount already
wntten off in.....,the earlier years shall be deemed to be the business mcome. ection
SABB 3)]_
lt may be mentioned that the licence constitutes a capital asset and as such there will be capital
ain/lQ on sa e o en ire part o t e tcence t . . • h cost of the licence.
licence.There shall be no capita gain if the sale price of the hcence n ·r h I' ence is sold
Further, or computmg ong-term capita gam m exatton of cost shall be allowed 1 sue ic
after36 months. .. - ·.
 · &
90 Corporate Tax, Pl annm g Cbap.J
Management ..

3.10 Tax planning for assessees engaged in , f viding infrastructural facilities

th e busine s p ofr tructural facilities are eligible fi
Assessees who are engaged in the business of providingm as ,
deduction under section 8O-IA. , . f . frastructure facility f Sectiot,
Essential conditions for enterprises carrying on the busmess O m ,
80-IA(4)(ii)l
(i) The enterprise should carry on the business of-
(a) developing,
(b) operating and maintaining, or
(c) developing, operating and maintaining,
any infrastructure facilit,y. h · b
(ii) th,eenterprise is owned by an Indi•an company or a consortium. of sue com.pames .v, an
o,r
authority or a Board or a Corporation or any other body estabhshed or conSlltUtedunderan,
Central or State Act.
(iii) the enterprise has entered into an agreement with Central/Sta e Governn:ient_ r a 1
authority or any other statutory body for (i) developing, (ii) operating and mamtammg or (w)
developing, operating and maintaining, a new infrastructural facility.
(iv) the enterprise has started or starts operating and maintaining the infrastructural facilities on or
after 1.4.1995.
Provisions of section 80-IA shall not apply to any enterprise which starts the development or
operation and maintenance of the infrastructure facility on or after 1.4.2017 as such enterprise shall be
eligible for 100% deduction of capital expenditure under section 35AD. [Second proviso to section
80·
IA(4) inserted by the Finance Act, 2016] ,
Meaning of infrastructural facility
For the purposes of this clause, "infrastructure facility" means:
(a) a road including toll road, a bridge or a rail system;
( b) widening of an existing road by constructing lanes asa part ofa h · h · -.
( ) h •h . . . 1g way proJect; , •, ·
c :ro !c ay proJect mcludmg housing or other activities being an integral part of thehighwaY·
(d) a water supply project, water treatment system i . . , . . . , ' , , ,,
system r solid waste management system; ' rngatton project, samtation and .sewerage
(e) a port, airport, inland waterway inland . .
port Structures at the ports for storage l ading O; na igattonal channel in the sea.
d
'port' for this purpose• if the concerned portauthno,n ·tunhoad ng, etc.
Yas issued rt' fibe included in the definition of
a will
parto ft eh port. [C1 rcular No. J012005, dated 16. . ] ce I tcate that said structure forrtl
12 2005
Effluent treatment and conveyance system shallb .
J/2006, dated 12.1.2006] e treated as mfrastructure facility.[ Circular !Jo.
Quantl,m of de'duction

Assessee
Period of Deduction
. ommencingfrom % of profit
zmtza/ eligible for
assessment year)
Enterprise e n g a g dm• ----------------------------------------------------------------------------------developing,
maintaining de-du-ct-i o n-
 and operatmg any 1-9frastructural facility For 10 consecutive
- =-- -:=-===-:= --:- ----- a:ss e s sm en t y ears ,,.:
Period of deduction [Section 80-IA(2)]. Th d d . . , . 1 OO _.c
,
, f • e e uction 11b . ,, .. ·,
assessmentyears.outo 20 years b ginning with the ear ..w1 .e available for any tenconseQ --
develops and begms to operate any mfrastructure facili . m which the undertaking or theery.,;.
 . _ ith reference to setting up of a new busine s
Tax planningw . . . 91
J - rt
. 1 d waterways or mland port, 1t will be available o
in a n
•
• " r p0r
b t a 1rp o . .. . ad of 20 years ove. r 10 co-n i"""..e
er io
gi ven a f l 5 e ars
ms"e
!I ·e- ,earouot Y activities which are an integral part of the .h
t1ty • g or other d. d b h h 8 ag wa p .
of bou,tn .th tanding anything 1scusse a ove,. w ere ousing or other . ._roJ
fr fits 1.,,\(6)): 0 • proiect and the profits of which are computed acti 1lt ai
•
o f the highway J b 1· bl h On such bas·
'bed such profit shall not e 1a e to tax w ere the profit ha b ' and
s
parto
.., m,a be prescn t nd the same is actually utilised for the highway project ex
·e a couna
een.d.transferred
ialri the expiry of three years ll .
c: h . c u1 tngh .
h
• ue, 10 o wmg t e year m which su
b e1ore . . .. c amOUnt
acn\·, e account· and the amount remammg unutthsed shall be charg bl was
10 the re erv ' k ea e to tax
fthe earm• hich uch transfer to reserve account too p1ace.
w . . ...
p1,orung. -The as essee engaged• m mfrastructural
d • h ld fac1hties
. fy should either be an .
"' o ra t · lnd:ran
) I A nsortium of such companies an 1t s ou sat1s all the conditionsm en 1 on under
co • • d d . d h . .
4 i) to be eligible for cla1 m mg e uctt on un er t 1 s secti on.
tanning for Tea, Coffee and Rubber Industry
11Tap · • f t .d ffi .
'hiJ romputing the busmess mcome o ea m ustry, co ee mdustry and rubber indus
• 1 ction i available under section 33AB. Further, in case of such assessee lilly incom;'
• from Tea Board, etc. shall also be exempt. 0

T;_. Oenlopment Account, Coffee Development Account and Rubber Development Account
• 0 33AB and Rule SAC]

Deduction under ection 33AB is available to an assessee who satisfies the following conditions:
[ otial conditions
(i the as
e ee is engaged in the business of growing and manufacturing tea or coffee or
rubber in India
ii the as esseehas, within 6 months from the end of the previous year or before the due date of
furni hing the return of income whichever is earlier;
a)depsited with National Bank for Agriculture and Rural Development (NABARD) any
amount( ) in a special account maintained by the assessee with that bank in accordance
with and for the purpose specified in a scheme approved in this behalf by the I ea 8oud
or the Coffee Board or the Rubber Board; or
h depo ited any amount in the Deposit Account opened by the assessee in accordance eo:;:
and for the purpo e specified in a scheme framed by the Tea Board or the Coffee _
or the Rubber Board with the previous approval of the Central Government .
iii) teh asse ee must get its accounts audited by an Accountant asd efined in thael
Expla n a t w n
• ,t h d i e
3
below section 288(2) and furnish the report of such audit in Form No. AC, i°"g:get his
retum of income. In a case where the assessee is required by or Ullder any other :;ts of
accounts audited, it hall be sufficient compliance if such assessee ets tbe under
bu ines audited under such law and furnishes the report of the audit as requ ••,

othr law and a further report in the Form No. 3AC.

uantum or deduction: Quantum of deduction shall be-- ..
a lhe amount( ) deposited' in the chemes referred to above; or d gains of business.« .
h J 4f f the profit of such busine s computed
¼(} er t·he head profits an. . ·- · -
d
un
• Profes i n · ·. · '. ·
_ · -•
•ch • ' · 3,.i\B
• Ver 1 les . . . Section 3 - .
fhe · under this i.e. • • of .
f, i _PrQfi a_re to be computed before making any deduc on 72_ . . ill - ..
1 1aking adjustment for brought forward losses under section ts ore roaint .:.K: •.·
ccoun ·· ·
i
11
to compute profits from such business: If separate India.
(U
shall t,e u-· • . .. · ,'.••
it • ·
)f gr • cc.
owingand manufacturing tea or couee Or rubber m . ·=· _:
· .;--·
·
.,··_ . •• , .
\ -., . . . . ....,, .

. :,.·,.
92
b · . Corporate Tax Planning & Management Ch,p, '
USiness before 1 • · nts are not mainta1· ·
Will be cal c aiming deduction under this section. In case separate accou 1ltd
1
cu ated as under. .
Profits of the business l -· . a/ ffee/rubber
Total turnover of business of growing and manufa tunng te co
Total turnover of assesse's business .. .
. of a finn AOP or B01, no deduction will b·eallowed in tbe comi>Ufaµoi(b_[
~J ...."". u.ae of any partner or member of the AOP or BO1. • · · .' .: ·•·•-··
fa deductiQn has been allowed under section 33AB, no deductionshall beallowed• -
• •. • of QCh amount in any other previous year. ••• •

(B) Income of Subsidy from Tea Board (Section 10(30)) . • .

In the case of an assessee who carries on the business of growing and manufactunng tea Ind· 10

the amount of any subsidy received from or through the Tea Board un?er _any such scheme f
replantation or replacement of tea bushes or for rejuvenation or consohd tion of areas sed fa
cultivation of tea as the Central Government may, by notification in the Official Gazettespecify,_ .
be exempt. ·,
F oc lra i m i n g such exemption the assessee has to furnish along with his return of income for
t11t assessment year concerned or within such extended time as the Assessing Officer may a!lo a, •
certificate from the Tea Board as to the amount of such subsidy paid to the assessee dunng the
previous year•
he Central Government has since notified the following schemes for this clause:
(i) Replantation Subsidy Scheme of the Tea Board, as effective from the 1-10-1968.
(ii) A ended Replantation Sub idy of the Tea Board, as effective from the 12-3-1970.
(iii) Amended Replantation Subsidy Scheme of the Tea Board, as effective from the 1-1-1972
(Notification No. SO 3616, dated 27-9-1976]
Income of subsidy from Rubber Board or Coffee Board or Spices Board or any other Notified
Board (Section 10(31))
In the ca e of an a e ee who carries on the business of growing and manufacturing rubber.
coffee cardamom or such other commodity in India, as the Central Government may notify in tbi•
behalf, the amount of any ubsidy received from or through the concerned Board under any suell'
cheme or replantation or replace ent of rub?er pla ts, coffee plants, cardamom plants or plants. •
the growmg of such other commodity or for reJuvenat1on or consolidation of areas used for cultivattOf
of rubber, coffee cardamom or uch other commodity a the Central Government may notify shall be :
exempt. .
(C) Tea indu try will be eligible for deduction under section 80-18 as it is an industriJI
undertaking
Ta_x Planning.-The, asse cc for claiming de u tio under ection 33AB must deposit_ .
money with ABA D:f eaDevelopment Accou t within six month from the expiry .ofthe.previotP
year· r before fum1shmg r tum of lncom. w_h1chever_i earlier. Th money lying in the
should not be u ed to acqu1 ean asseth1ch 1s n t ehg1ble under the chcme. Further, the
m o. .· withdrawn from the cheme m anypreviou_syear must be utilised within the same
previous year the purpose mentioned in the chemethcrw1se,the amou t not utili ed by 31 t
March of the rele\' d\
previou year ha11be treated as the mcome ofthat previous y ar. The asset purcha ed, out of
funds of the chem , ould not e tra.nferred be re th expiry of 8 years from _th end f_:
. . earin which ,t wa acquired except what I allowed under the law, otherwtse such par:t:
previous yf th a set as is relatable to th deduction allowed, . hall be treated as income of the pteV•_ :
th cost o e ' . • , r d . ... . · . . ··.·.. ·
·nwhich the as et 1 o1d or otherwe1 transaerr • . .. • .·.•......• .. :··>
;
 1
year h sseeshould take the benefit of ubs1dy f.rom the Tea Board _at..f"rtbe pr y•_r
Further' uc asse •.• ..
.-;'
4
orpor I t Pl
( h) tart transmi ion or di rib ti
lin at any tim durin peri
th d du tion in thi ca b U
f uch network of new lin r • • di tributi •n
• • r, n. m·
( ) undertak: sub ntial reno at· • n
nti 1
distribution line at any tirn durin t
Q0/4 f
and modem i ation ' hall mean an i e
value of uch plant and ma bin ry a n l.
Other condition for undertaking re/err to in -/A( )]
(i) uch undertaking hould not Ii• up. tru 'tion
already in e i tence. Howev und rt ki 1

formed a a re ult of the re ·in in ·i ta

peci fied under ection 338. [ ti
(ii) It hould not be fonn d b the r pta.nl p vio
used for any purpo e. [ e tion 0-l
However plant and machinery, a u eel fi ran
industrial undertaking, pro ided f u h plan
the total value of plant and machin the n w i •
I it is not e ential
that the building in whi u •
also be new. Deductjon under ti n
undertaking i et up in an ol • • •
1. In view of the ongoing ref nn of th
r novation and modemi ation the re tri ti ns im
and plining up of an old bu ine hall n t appl
re-organi atjon of State Ele tri ity Board .
n oth r than_
2. Any machinery or plant whi h u
pu if
as ee, hall not be regarded ma hinery r pl
foJlowing conditi n are fulfilled namely:
f th in tallati n h -
(a uch machinery or plant a n t at any tim pr
as e ee, u ed in India.
(b uch ma hinery or plant i imp rt d int lndi tr
un . t ·id lndi • nd
( ·) no deduction, on ace unt of d p • • ni
all wed or i. all abl und r th p
hine pl nt
putin t t l in
any per on for an peri d pri rt th dat
the a th • i.n ry or
Quantum and period of deduction in ca e of abo e ondert kin
Period of deduction (Section 80-JA(2)1: Th d du ti n ill ten
a e ment year out of 15 year beginning with the ) ar in hi h th
ierat -s pow
comm nee tran mi ion or di tribution of por.
Qua11tum of deduction (Section 80-l (l)I: Th quantum f du tin hall be l00% of
profits for the con ecutive IO a e m nt ears.
Tax Planning.- uch as e ee mu t e erci e it option in th first ear . betber t . c;. i
depreciation on the ba i of written do\\ n alue method on th blo k r · or .•0 1h -.. .• ; ._
straight line method n _actu I c t of each a et. In the case of written down v l.u m tllod t_:ehill.-,'._ ·:
deductjon of depr c1all n t higher and the e goes oo r ng. cry ., and -,1'- .
negligible in the _la er ears. On the ot r and 1n the case of straight hoe m thQd, th re· ill bf:_, ,
burden of depr 1at10nm e hyear. _._..· : O.:>-·
 Tax planning i ith r :fi.ren e1ting up oaf

o
r
. . ne» bu.sin
Th a esi e also ehgtble f or d eduction under se t ·
. • . c 1 0n 80-IA -
. . . for a penod J 0 consecutive a sessment years •r 100% of ·ts _ 9
uv1tt . fi d • a 11 the ondition •. Profi fro •
IAare ·au • • mentioned rn SUcb
nd settion
.; fax planning for shipping business u
4
ecial provisions for computing profits and gains of sbiin . .
'dents [Section 448) PP,g busmess in the ca
I . .- . . f IIOQ-
- Notwithsta ndm an h m to the contrary contained in .
. . d d . section 28 to
essee, v ho 1s a non-res, ent an 1s en a e e us
m

account o carnageo passengers h:estock mail or goods shipped at anr p o no w s ,e n a

n all be deemed to_ be the rofits of such bus1.ness. The carriage amount will also include am unt
paid payable or received or deemed to be rece1 ed by way of demurrage charge or
handlingchargeor
y other amount of s1m1lar nature.
.15 Tax., planning for assessee engaged in the business of operation of aircraft
T r s ecial provisions for computing the inco e of assessee engaged in the businessof
peration of aircraft exc t a se s e 1 a res1 en asse

on-residents engaged in a business of operation of aircraft. Sin e uch a"ssessees are

ngaged in global business operations there are special provisions for computing busine incomeof
uch non-residen;} . .
pe5fal provisions for computing profits and gains of business of operation of the
gst
aircrafmt
fnon-residents [Section 44BBA] . . n
.- otwithstanding anything • to the contrary contam . 28 to 43A the
. ed . m section income t a_JlO-
' fl . teof, ,-0of:
·d •
esi ent engaged in the business of operation of. an atr h l ta acra rson
s a -
(a) the amount paid or payable whether m Ind,a . 1 d. .k> the ass toan -
or out O ,a . oodsfr<m rry pl.
on fi'1s behalf on account ol carriage o passengers Ii e- 5tock, mat 1org •
in India an .00d. l ...A·o . f c:miageafsnc.biWJlS
O
(b) the s1mount received or deemed to be receive m f1»,,.l accrnmt ---
•
'
13
Ill from- a place
- outside
- India.
- - - - - - . USA perates its flightsf to
.as a ustra
comp
tiom n 3 . 2 : X A irli ne s i ncorporated tlr 25.00,000o a. magfeare
any
O

ice , . . f
o
d collects charges O • • b"e nger
iersa durmg the previous year 2019-2 an . din US dollars fort flightS"'-ert
ssengers and cargo out of which t65 00,000 were receive on operation ofsuh .
ked fr om New York to Mumbai. The totaJ expens fth
es fortithe year
reiQll airlines. •
be 53/ ofdle
195 O O
' OO,ooo. Compute the income chargeable to tax O • ome is presumetdo . ·i
e
S · • 1• S the IDC - O:tn
o)J lution: As per section 44BBA, in case of an Air me , peJSOiTl)O g:. )
t the assessee orto:lll anY -
·(,) the amount paid orpayable (whether in or out of 10 .dia toCo mail or goods •. - ·- ,

b gers 1ves - . _ - ..
eh lf on account of the carriage of passen 1f of fbt•..
' lt}dia
India and • b or on beha • Oll[Side -
(ii) th ·ved in India y Ill any pla'--e -:. . ,•'.
a e amount receiv d or deemed to ber.e:; k, mail or goodS_{ro • - . .-,.:-.-::.··::,:.
ccount of the carnage of passengers hve . . _ ·.: _•:-_.- . :·'.•;,• _
1-lenc h · • ed as under. • " :. • ,._.-:··:
:
e, t e taxable income will be detemun · ·,
,_,\.:."·· V, •••/._::/.
. ,· · ;·, ,;·_. ,·

_ , ·}-:,.f,{ tr?:<X-::/_:/'._: .,,

96 Co,porat Tax Planning & Management
Passenger fare booked from Passenger fare booked.fro,,,
Mumbai to Ne't York whether New York to Mumbai-if
paid in India or not received in India
(
(

Far 65,00,000
60,00 000
Ta able income 3,00,000 3,25,000
ot .-1f thepassenger fare booked from New York to Mumbai in not received in India, then
uch fare shall not be included for calculating presumptive income.
3.16 Tax planning for industrial undertakings engaged in the business of commercial
production/refining of mineral oil
The industrial undertaking is subject to special provisions under c_tion 42,,_ Besides, it iseligibl•
for deduction under section 80-1B.
(A) Special provision for deductions in case of business for prospecting, etc. for mineral oil
\Section 421 .
The section grants certain special allowance to the oil-producing assessees who undertake the
bus e a e ¥ a un er an agreemen an m 1a 10n w1 e entra overnmerit, etc.
Unless it • eciall ided fodn the agreemen4 no special benefit under this section is all -·
Section 42(1) is applicable when the following conditions are satisfied:----------------------,,. --
(a) there is business consisting of the prospecting for or extraction or production of miner oils;
(b) i11 re]atiao to such-business, the Central Government has entered into an agreement with such
assessee for the association Q[ participation of the Central Government or y person
authorised by the Central Government in such business; and
(c) suchagre_e_m_en_t_h_a_s_b:....:e...::.e..:..:n_la d_onth.=..:e:....T.:..a.=..b:..:l:..:e....:.o:..:f_:e:..:a:.:c.:.:h...:H..:.o=-u::::s:.:e=-o:::;.;f:...;P:...ar.=·l=ia:u...r.o.e,.,..nt.
1.:. :.·

Special benefits conferred by section 42(1): If the conditions mentioned above are satisfied thc
section pro ides for the following additional allowance, in lieu of or in addition to the nonnoi
allo" ance admissible under other provisions of the Act:
(a) if. in the course of exploration-in respect of an area surrendered prior to the be inni of
ommercial roduc 1on an ex ense has been mcurre but the exp oration proved t-o
mfructuous or abortive such expenditure is to be a o • e co pufaTiolfo
the business profits of the assessee;
(b) expendi re incurred, whether before or after the beginning of commercial production,
by·ili
assessee m respect of- •
(i) any drilling activities or services, or
(ii) any exploration activities or services, or
(iii) physical assets used in connection with {i) or (ii) above,
is to be allowed deduction as business ex enditure in the com utation of assessee's busin .
mcome after the beginning of the commercial production by the assessee; and - -; :
(c) a- allowance· for the depletion of mineral oil in the minin area in respect of '
as nt ear relevant to e previous year 10 w ic commercial production 1s eg ri
-•
b r such succeedin ear or years, as may e speci 1ed in the agreemen 1s O • 0weff
e computation the business mcome o t e assessee. -- ---
meraloil" in section 42 hall include petroleum and natural g a s . :· _• . .. -_•·• _:,- _..... .· .:
above allowances shall be allowed only if these are specified in the agreement
wbiob:,t
The d d . t with the Central Go ernment etc. Further the allowances haU be com:p}1r-
see ha entere m o
asses d n. the manner specified in the agreement.
and ma e 1
 Tax planning with referen to tting up of a ne\-\ busine
3
P· .. in re pect of certain undertakings in orth Ea tern t
ial pro,-i ao0 . . ate I tttio
pee . der thi e t1on 1 a\\owed to an a e e ew h o e gross total . . n 80--1 l
[)edll tto u eri, ed b an undertaking which fulfils the fo\\owing conditio,_ncm tnclu
and ga1n . . .n.
fi ith durin the period begmmng on 1.4.2007 and ending before 1.4_2017 begun
1 f the rth-Eastem States: r be in •
0
1
manufacture or produce any eligible article or thing·
to undertake substantial expan ion to manufactur or produce an . ..b
. Y e11gL le arti I t
thing
fll t carry on an eligible bu ine s.
It i not fonned b p\itting up or the reconstruction of a bu ine already in i t nee:
H we er thi ondition ha\\ not apply in respect of an undertaking whi h i fi ed
re u\t f the re.-e tabli hment re onstru tion or r vi al by the as es ee of the businrm of aan
u h undertakmg a s refe rred to m section 33B, m the circumstance and within the
. d . pen
·oo
pe ified in the a1 sectton.
It i n t f rmed by the transfer to a new business of machinery or plant pre iousl used for
an' purp
H w ,. r plant and machinery, already u ed for any purpose, can be transferred to th new
indu trial undertaking pro ided alue of such plant and machinery does not exceed 20 1 f
th t ta\ alue of plant and machinery of the new industrial undertaking.
I. Ao ma hinery or plant, which was used outside India by any person oth r than
tb asseissee ha\\ n t be regarded as machinery or plant pre iously used for any purpose
i( the fol\ wing ndition are fulfi\\ed namely:
a u h machinery or plant wa not at any time previous to the date of the installation b tM
se e u ed in India.
b uch machin ry or plant i imported into lndia from any country outside lndia and - .
c no deduction n a ount of depreciation in respect of such machinery or plant. has •
allo d or i allowable under the provisions of this Act in computing the total mcom by
an • person for any period prior to the date of the installation of the machinery or plant
. the a
ee.
-·"Eligible articl or thing" means the art.icle.or thing other than the following:-.
. . h C tr l Excise Tanff Act..l .
a ods falhng under Chapter 24 of the Fn-st Schedule tot ena • .
whi h pertain to tobacco and manufactured tobacco sub5t1tutes; _, E .• T
b . S 1 1 d l to the Central,x.cle
pan ma: ala as co ered under Chapter 21 of the First c eu e
ct l 985 . . . · ofEn ii,,,1ment-
(c) l · 1 • ti d by the M m1stry- • 1- -A
1
•
• Past carry bags of less than 20 micron as spec ie nd September, 199 "".
For t vide otification Number SO 705(E), dated the 2
69 E) dated the 17th June, 2003; and .• Excise Tariff A t .19
1
(d) g 0d · - · .
fall mg under Chapter 27 ot the F irs t d \ to the Centra • •
eu c • . . ..
sch
Produced b p troleum oil or gas·refinerie • • • - ..
3 "Et · •
• i g ibl bu ine " mean the business of,-
(ab hotel
d
(not below two tar category)
. .
. · ·
a v nture and lei ure port including ropeways • · a hc-me • t.h 8 l'\Hfl'
r) . . of nurs,ne-
Providing medical and health service in the nature .. . :, . : ·. s: ··_:.--t
capacity of twenty-five beds; ·._:_-._ - -
-::,:
running an old-:-age horn ; •• •
 98
Corporate Tax Planning & Management Chap,
D:( ; = - = - - - - - - - - = - - _
ope ra tin g vo c a t i o na l trai ni n g in sti tut e fo r
entrepreneurship development, nursing and para-medical, c1v1l aviation related training
fa hion de. igning and industrial training;
(j) running infonnation technology related training centre;
(g) manufacturing of information technology hardware; and
(h) bio-technology. .
4 • "S ub stant1·al expansi·on" means i•ncrease •m the ·mvestmen the
• plant
. . and
. machmery
. by iu"I1
leaStt 25% of the book value of plant and machinery (before taki_ng epreciatwn i any year), as on
m•
. the first day of the previous year in which the substantial expans10n 1s undertaken, I

5. ''North-Eastern States" means the States , of Arunachal Pradesh, Assam, Manipur,J

Meghalaya, Mizoram, Nagaland, Sikkim and Tripura.
Quantum of deduction
100% of the profits and gains derived from such business for IO consecutive assessment yean
commencing with the initial assessment year.
1. "Initial assessment year" means the assessment year relevant to the previous year in which
the undertaking begins to manufacture or produce articles or things, or completes substantial
expansion.
2. Notwithstanding anything contained in any other provision of this Act, in computing the total
income of the assessee, no deduction shall be allowed under any other section contained in
Chapter VIA section 1OAA,in relation to the profits and gains of the undertaking.
Other condition of section 80-IA also applicable [Section 80-IE(6)): The provisions contained
in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, apply to the
eligible undertaking under this section.
These provisions relate to the following:-
(i) Computation of profits of eligible business [Section 80-IA(5)];
(ii) Audit of accounts [Section 80-IA(7)];
(iii) Inter-unit transfer of goods [Section 80-IA{8)];
(iv) Restriction on double deduction [Section 80-IA(9)];
(v) Restriction on excessive profits [Section 80-IA( IO)];
( vi) Power of Central Government to notify d rt k • .
[Section 80-IA(l I)]; une a mgs to which section 80-IC will not apply
( vii) Deduction to amalgamated company in case of amalg f [S •
•
. ama 10n ection 80-IA(l 2)]
D e uct1on allowed for unexpired period of Jo · . • •
Notwithstanding anything contained in this Act d dyea s in certain cases (Section 80-
IE(5)•f: .
under. th1 s ' oO e uchon shall be allo d t d kino
sect wn,
where the total period of deduction . . . we o any un erta .'
section, or under section 80-IC or under the second m_c1 usive of_ the penod of deduction under th1

as the case may be, exceeds ten assessment proviso to section 8 018( 4) d . toC
- or un er section_ ••
years.
Tax PJanning.-The Industrial undertaking shall be 1• 'bl
commercial production of mineral oil in Northern East Re • i e for deduction 80-IB not only f r
any part of India. Further, such industries will also be e ibtg ondbut al o for production of such oil
10

g e or educt10n under section 80-IE.

 ·ng with reference to etting up of a new business
11' Taxp Iannl • • f 9
•
. c11aP· . for assessee engaged m prospectmg or or extraction or ro ..
3
;. ,, 1Jl planning \ gases or both in India . p duct,on of
\ 3, t or natura d
• tro\e1un d ection 33ABA is a\\owe to an assessee who satisfies the follow· ..
pe oeduction un d·tt·ers ns· m g condition:
' o \ con I O • • • • f ·
sent ,
sE see is carrying on busmess consistmg o prospectmg for or extractio .
The asses h . l d' d . \ . n r
product, on
\. of petro\eum or natural gas or bot m n ,a an m re at\on to which the Cent \ G
.h h . ra overnme t
has entered into an agreement w1t sue ass ssee 1or such busmess. n
2 The assessee has before the end of the previous year
• () deposited with the State Bank of lndia any amount(s) in a special account ma· ta· ed
a • .h b k • d •h m m by
the assessee w1 th t at an , m accor ance w , t and for the purposes sp ec·fid .
• h ' M. • 1
scheme\ approved n t 1 beha\f by ,e m
m istry of Petroleum and atura\ Ga of the
s Government of lnd1a;
or th e
(b) deposited any amount in the Site Restoration Account opened by the assessee •
accordance with, and for the purpose specified in a scheme framed by the aforesa:
Ministry. This scheme is known as Deposit Scheme.
3. The assessee must get its accounts audited by an Accountant as defmed in the Explanation
below section 288(2) and furnish the report of such audit in the form No. 3AD a\ongwith
\al the return of income. ln a case where the assessee is required by or any other \aw to get its
accounts audited, it shall be sufficient compliance if such assessee gets the accounts of such
business audited under such \aw and furnishes the report of the audit as required under such
other law and a further report in the form prescribed.
Quantum of deduction: Quantum of deduction sha\\ be:-
(a) the amount deposited in the scheme referred to above or
(b) 20% of the profit of such business computed under the head profits and gains of buSiness or
, profession,
whichever is less. .
The profits are to be computed before making any deducti on · this section i e sect\On
d er ••
un
33ABAand before making adjustment for brought forward losses under section 72• .
1• !rofits from . manner as is menuoned
business in this case a\so is to be calculated m the same .
m section 33AB. • utatlon of the
l n the·case of a firm AOP·or BO I no deduction wi\\ be allowed in tbe comp
. ' ,
income o°f any partner or member of the AOP or BOl. . . ha\\ be al\o ed
in
3•. If a deduction has been allowed under section 33ABA, no (\eductlons
• respect of such amount in any other previous year. by way of in
Any NM credited in the ial account or ite estlJ_.m.
. l be A ..... • • . BA on acco
• · to a del:d[L .. nder section 33A ·th cen
lax P\ \\ d deductionu eement w,
.
S ite Re anning.-The above assessee sha\\
s oration Fund only when the assess bea owe t. red into an agr \ Gas. The ar
. f Petro\eurno .r the relevantp d r
t . ee has en"e r natura rev
Usbt
llllnent fi •
or prospecting for or extracti on or
production
t
°before the exp. hir}' . 01
not a\\owe
d
u ne
d i
ear ; deposited with State Bank/Site Restoration Accoun fan asset wh1c i;urpose
anowedso he Urtber, such fund must not be utilised for purch eb: uti\ised for t ab\e in
the hall hethe. e money withdrawn from the scb me musnutilised shall be
• e With·
sessee. in the same previous year ote rw1se theu
11
 100 Corporate Tax Planning & Managem nl
3·18 Tax planning for assessees engaged in business of prospecting, etc., for certain
[Section 35E) .
han co
8 .
mpany)who1 are ad
0f I Wh
d' taere·is_
an assessee,· being an Indian company or a person (othert
engaged m any operations relating to prospecting· f;or, or . produ ti
extractJOn f March, 1970n
or
31 0
specified minerals (mentioned in Seventh Schedule) and incurs, after the t day
nd1
specified expenditure, the assessee shall be allowed to amortise suchexpe ture. t .
. . . . d by the a ses eea any tr
. What IS specified expenditure: The expenditure should be mcurr h four years immediat•
0
durm.g.the year of commercial production and any on or mor tot ;ospecting for any mine
preceding that year, wholly and exclusively on any operatwns relati g I p 0 f the Seventh Schedule
or group of associated minerals specified in Part A or PartB, respecthive ' 1 or group of a ociat
on the development of a mine or other natural deposit of any sue mmera
minerals: h 11 be excluded from such expendI '
What is not included in specified expen ir re: Theres a h or authority and by
any portion thereof whic h is m et directly or mdtrec tly by any ot er per Oo espect of any property
. . r
sale, salvage, compensation or insurance moneys rea sed by the assessee m r
_1
rights brought into existence as a result of the expenditure. . .
Further the following expenditure shall not be eligible for deduction u_nder this section: .
(i) · Expenditure on the acquisition of the site of the source of y mmeral or group of associat
minerals referred to above or of any rights in or over suchsite;
(ii) Expenditure on the acquisition of the deposits of such mineral or group of associated mine
or of any rights in or ov r such deposits; or
(iii) Expenditure of a capital nature in respect of any building, machinery, plant or furniture fi
which allowance by way of depreciation is admissible under section 32.
Quantum of deducnon: The deduction to be allowed for any relevant previous year shall be
(a) an amount equal to 1110th of the expenditure (hereinafter referred to as the instalment); or
(b) such amount as is sufficient to reduce to nil, the income (as computed before making
deduction under this section) of that previous year arising from the commercial exploitati
of this mine or any other mine, or other natural deposit of mineral in respect of which
expenditure was incurred
whichever amount is less.
. Ho_wever, _the amount of the instalment relating to any relevant previous. year, to the extent
which 1t remams unaJlowed, shall be carried forward and added to the • t l I •
prev ious
e a tm g t od. year. next following and deemed to be part of that instalme t m d sa m e t !
1 or. s uc ce e n ,a n so o n
prev1 • d .
shall b. 0us years, so, k howdevefir, thhat no part of any instalment carn e ii:-o. rwar.d bey• ond the I
e
previous year as rec one rom t e year of commercial production.
Example: Suppose expenditures during the year of com.me • I
0d uction• . . .
and w1thm 4 ye
•
immediately preceding that year are t5,00,000. t50,000 i.e. 1 /] Othr t;tf
year starting from the year of production. If in any previo ' O,OOO shall be allowede
th
business (old or new) is less than t50 000 the balance whi· bus y)edar e profits from entire mini
owe m · the next year alongwith 'its yearly
' deduction
' ofc SOcou not be claim . e d as ed d uct1on
not
be be
all allowed, d cannot be earned forward beyond the 1 Oth . 00
' O but the mstalment which cou
•
commercial production. Deduction is allowed only from in previou; y a asrec oned from the year
other business income. com 0 mi mg busmess and not from an
Tax Planning.-The deduction under section 35E sh II b •
engaged in any operation relating to prospecting for at e. availableonly when the a es ee
. .rO d . ex ract1on or produ t· f .
which are menttone m the seventh schedule of th 1 c iono those mm
.
expen 1ture . d b e ncome-tax Act. • Fur th
d ment10ne ·1· a ove
shall be eligible for deduct,·o d h. er only spec_•
n
 Tax planning with referen·e to .f ttin1(up r f' a n hu',in, .'Jw

l 011P· 3 . respect of income of Venture Capital Company or

faJ ptanninig10 Venture Capital Undertaking ISection 10(2 )I
·3,19 trnent n 8
_"rolfl inves fa venture capital company or a venture cap, I Ju d r ,m 1 n .
meo
i11
,

AnY ...1,jng shall be exempt. l ,

·,al under • • •
ap1 ,axatr·on oif income accruing or arising to or r,-;• iv'/d b , , '/rfm1out ,t,
r of .,
ap
0
(/) M nneventure capital company or venture capital.fund [S'J:tirm 115 ( 1)] , In ,,;
r,1ade,n a.h tanding anything contained in any other provjsion of thi · Acta y ,
Notwtts f . ' mco • a r
_ . , to or received by a perso out o mv stments made in a venture capital co
• tnlifu d shall be chargeable to mcome-tax m the same manner as if it wereth, pan or,
Pita nnhad he made .mvestments d.trec1t y .m ht e venture capital mcom r ·1
undertakin,,
u h persO . . e•
In other words, such mcome sh ll be taxable m the hands of the investor in ad f th
ca ital company/fund although such mc me has accrued or arisen or is recciv not rom th
ca:ital undertaking but from venture capital company/fund.
For example, if such venture c pital comp ny/fund had derived income of 6,00,000 fr
di idend on shares from a venture capital undertakmg and t9 ,00,000 as intere t n inv tmcnt by
'ay of loan to such an undertaki_ng, a e son receiving an income of J ,50,000 from suchcompanyor
u d ould deemed to have received d1v1dend on shares of t60,000 and interest inc me of 90,)()(J,
Henu, the amount of t60,000 being dividend shall be exempt under section I 0(34) if the ventur
apital undertaking from which dividend income had been derived by the venture capital
company/fundhad paid tax under section 115-0 on dividend paid by it. However, t90,000 being
intere t receivedwill be taxable as income from other source.
Section l 15U prescribes the principle of pass through by treating the V r V• as a pas·
through vehicle and further, grants some concession in the shape of non-applicabHityof provi ion
Chapter XIV-D, XII-E or XVII-B; but does not provide that the income received by the invc tor from
VCC or VCF is exempt. In view of the above discussion, the income received by the asses ec frm
IVF is taxable in the manner as prescribed under section l I 5U. Since the As e·ingfficcr 1
sessed the income as short-term capital gain, the claim of the as essee a hort-termcapital ( rib;.
to be allowed. [Scope (P.) Ltd. v DCIT (2013) 33 taxmann.com 167: 142 ITO515 (Mum •
( 013) 35 CCH 0475]. N 64
0
p fi
( ) erson responsible for crediting or making payment to urm . a s a · ·h •t temenl in orm •

[Section 115U(2)] . behalf of a venwre

th
.The person responsible for crediting or making payment of e income on enturc capital fund
eahap1tal company or a venture capital fund and the venture capital comp.any oravrduring whi h·uh
II furn•1h .
• s , by 30th November of the Financi al Year10c. the previous ye
g
II •
owm
come is distributed, to---
(i) the person who is liable to tax in respect of such income, ao<l . form N . 64 3ndduly
(ii) to the .Jurisdictional Chief Commissioner/Commis• ionc_' • r a statement in
• d ch
e 'fi1ed • • d ' 5, ted
n by an accountant m the manner m , ca . the year an u
therein, •
previ ou
•· . . ·d edited during
giving details of the nature of the mcome pat or er • 1 n ., rff1
0ther relevant details as may be prescribed. ny and income_frnqluir•d t0t,c
I n this . d • d by the compa tc.) 1r . 1 •orott:
Pita(gains. statement, the amount of mcome envc
, d other . me (intcre t,.
rn inve·tment 11 c . <Jf
O\lh.. sh ort-term capital gains d1v1 . 'dend s an . tmco • cornc ,ro
·• 1 1 sepa I ' . to t t to a1 1 0
. ,,,
Pi ta t r a t e Y. The pro portion of such ,
flt' ,1p
wl • '"' •
Under t a k _· .
mcome
.3) Natu mg is also shown in the form. .vest >d ltt ,vn t u tie
 e11111,.e re of income in the hands of the investor who hadm ·apit I fu.n':u1dt1'r1
c ap;, lfu nturt.: s ,1
1b . a nd. [Section I 15U(3)] 1 ,
any and t.h v f ;11v•sf ' •
de tncorne paid or credited by the venture capital co 1pn in th 11and
• to be
- of the same nature and in the same proportto .
 . & Manag ment Chap, l . (
102 Co,porate Tax Planning • • "ta\ fi d
. 1 mpany or the venture cap1 un ' as tht
received by or had accrued or ari en to, the venture capita co .
case may be during th pr iou year.
(4) Certain pro, i ·ion not to app y.[Section
15V( 4)]_ . d distributed by domestic companies)
The pro i i n f Chapter XII relatm to divienUTI or mutual funds) or Chapter XV11
Chapter XlIE (r lating to tax on d1stnbuted income Y apital company or venture capi
(relating t TDS) hall not apply to the income paid by a venturec
fund. . ·ta/ undertaking if not paid or creditea
(5) Tr atment of income from investments made m venture capt
to th p r on referred to ection 115U(l). [Section 115V(5)] . tu .
. d b th v nture capital company or ven re capital
The income accruing or arising to or receive Y _e e • ·tal undertaking if not paid (l
fund during a pre iou year from investments madem vent re ca 1 to have been credited tot
credited to the p r on referred to section l l 5U(l ), hall be _ee;: same roportion in whichsue
account of the said per on on the last day of the previous year 10 . . P .
person would ha e been entitled to receive the income had it been paid m the previou yea .
(6) Ventur capital company or venture capit•a_ nd, g an vestment.fiun.d specified m clause. (01 ·
/fu bem• m•
of the Explanation 1 to section 115UB not covered under section 115V [Section 1 l 5U(6), w.ej A.!'.
2016-17] .
Nothing contained in this Chapter shall apply in respect of any _income, of a p ev1ous y a relevant
to the assessment year beginning on or after the 1st day of Apnl, 2016, accrumg or anst g to,or
recei ed by a person from investments made in a venture capital company or venture capital fun
being an in estment fund specified in clause (a) of the Explanation 1 to section 11SUB.
Explanation 1.-For the purposes of this Chapter, "venture capital company", "venture capital
fund" and "venture capital undertaking" shall have the meanings respectively assigned Y) them
in section 10(23FB). .
Explanation 2.-For the removal of doubts, it is hereby declared that·any income which .ba. s
included in total income of the person referred to in section l 15U(l) in a previous.year, on account
of it having accrued or arisen in the said previous year, shall not be included in the total income
sue person in the previous year n which such income is actually paid to him by the·ventUR
capital company or the venture capital fund. ·· • ·
3.20 Tax planning respect of business of collection and processing of bio-degradable waste
This assessee is allowed a special deduction under section 80JJA which is as under:
. Where the gr?ss total incom_e of an assessee includes any profits and gains derived from the
busmess of collectmg and processmg or treating of bio-degradable waste for:
(i) generating power, or
(ii) producing, bio-fertilizers, bio-pesticides or other biological agents, or
(iii) producing bio-gas, or .
(iv) making peJJets or briquettes for fuel, or
(v) organic manure,
a deduction under section 80JJA shall be allowed.
Quantum of deduction
The whole of such•
profits
• •
or gains shall be allowed as a deduction ra peno
1c1
• d of fi1ve cons
ecuti'
0
assessment years begmnmg with the assessment year relevant to the previ·o . . h'ch su'
business commences. us year m w· 1 .,

3.21Tax planning in respect of income of Mutual Fund \ j))

This income of such assessee is exempt under section 10(23D) as per provision given below:
 Su!1,Lect to the provisions of Chapter XIIE, any inco:'.e of tb,e_fQllowing m al funds
exempt from tax:
 •

25% + SC+ H&EC

30% + SC+ H&EC
10% +SC+ H&EC

Provided that where any income is distributed by a mutua\ fund under an infrastructure debt fund
scheme to a non-res1 ent not emg a company) or a foreign com an , the mutua\fund sha\\be \iab\e
to pay add1hona\ income-tax at the rate of 5% on income so distributed (first proviso :
Pro ided further that nothing contained in this sub-section shall app\y in respect of an)' income
distributed, by the Administrator of the specified undertaking, to the unit ho\ders; (second proviso)
Amendment made by the Finance (No. 2) Act, 2019 \W .e.f. 1.9.2019\
Third proviso to section l l 5-R(2) has been inserted so as to provide that no additiona\ income_-tax
shall be chargeable in respect of any amount of income distributed, on or after \ .9.20l 9 hya
Specifie utua\ Fund out of its income derived from transactions made on a recognised stock
exchan e \?cat in any lnternationa\ Financial Services Centre and where the consideration for such
transact,on \S pa
or payable in convertible foreign exchange:
"Specified Mutual Fund" means a Mutual Fund specified under section\0(23D}-
(a) located in any International.Financial Services Centre;
(b) of which all the units are he\d by non-residents. . ark
M · · , d' t 0 Chat>ter XIl1: ' one-y tn (.
eanmg of Money market mutual fund lExp\anation \: , . \ nse (p) of clause
-
mutua fund means a money market mutual fund as defined in su 19%,
of theSecurities and Exchang Board of lndia (Mutual F ) e
Meaning of Liquid fund (Exp\aru}tion (e) to Cbaptet XII1: L:.'dt:.u:llllJIIG
\an of a mutual fund which is lassin 'oJ the Secun. . . ,.r.dl(,.,..,
liquid fund 1n accord.an Wt• tbe guide\ine i QeO b-y it in
1?92 or regulations mute-ilbe1 undet
&. of _\nt?A01tl'nW-1l'lt'N11, deb
 - true • e·debt SCMDCP _l the-
) of gll\ation 49L of.th ·u .: dB
 I· pl m ti, u h
, f' • mutu I t .nd
''1' • rant
hi ·h i tr (J d on
u, ,th ' f,m I
•
in th unit. of

(I

m unl
\ l -R b
h
4%

b) Wh r th in· m i di tributed to any other per on by 42.857% 12% 4%

a H& =49.92%
m n mark "1 mutual fund or liquid fund.
11.111% 12% 4%
di tribut d t any p r • n by an equity oriented
& - 12.942%

... Where th in omc i. di tribut d by a fund other than a

m ne mark t mutual fund r a liquid fund and uch
income i di tributcd t -
33.33% 12% 4%
(a) Individual r HUF
H& = 38.82%
(b) Any per on other than individual r HU 42.857% 12% 4%
H& =49.92%
( ) if recipi nt is non-re id nt/ reign company (under 5.26% 12% 4%
infrastructure debt fund) H& - 6.1271/o
3.22 Special provisions for computing profits and gains of business of plying, hiring or leasing
goods carriages /Section 44AEJ .
Notwith tanding anything to the contrary contain d in ection 2 t 43 the chm und r
section 44AE also provide for a y tern for e timating the income of n as s ee ngagd in the
business of plying, hiring or lea ing of good carriage . Th broad foature of th chem arc:
(a) the scheme is applicable to an assess e who owns not mor than JO goodv arria es at
anY time during the previous year and who i engaged in the businc f plyin , hiring r
lea inS of such goods carriage •
 . ,r, rence to setting up of a new business
l nning with re,e . \OS
fa:cPa h oods carriage (other than heavy goods vehicl ) ownedb
· of eac g e: Y the
") fit and gains mount equal to 7,500 1 o r every or part of the
Jr ro l s h n be an a h • h . month
mont
the P sessee sa •age is owned by the assessee mt e previous year.
(b) bOve as . he goods earn .
a .g whicht b vy goods vehicle (more than l 2MT gross vehicle weight) h
durtn e of ea l l 0 ' te
In the cas uld deemed to be an amount.equa t,o , 00 per ton of gross ve h.
umptive income w ght as the case may be, for every month or part of a monthd ' e1
pre
eight th oru ntaden we1 ,
goo ds vehicle 1. s owned b y ht e assessee
h . m. th e previous
.
. year or an amunng
wbich e heavy h actually earned from vel 1 e, h. h ever 1 s higher. ount
b sue c w tc
v . ed to have een .
cta1rn declare a higher amount than that specified above.
,f1., assessee may . . f . 30
1
t1 e . llowable under the prov1s1ons o sections to 38 shall for the purpos f
( c AnY deduct
abo ve i c , ono e be deemed . to have b been
ll already
d R given full
. effe .t to and no fuertshoer
eth . nd er those secti ons shal e a owe . emuneratl on .and mterest paid/payablet
d ducttonu . f h • o
:rmers, shall be allowed as dedub tlon rohmt e 1dn_c me t d under this Section. Such
11m1ts specified under sectio
compd P . shall
however, be su 1ect to t e con 1tlons an
deduction , n
40(b).
. Th written down value of any asset used for the purpose of the business shall be deemed to
ldl ha e been calculated as if the ss ssee had claimed and had been actually allowed the
deduction in respect of the depreciation for each of the relevant assessment years.
(e) The provision.s of secti ns 44AA and 441 .B.shall not apply in o far as they re\a e to this
business and m computmg the monetary hm1ts under those Sections for other busmess, the
gross receipts or, as the case may be, the income from the said business shall be excluded.
if) The assessee may choose not to opt for the scheme and may declare an income lower than the
specified amount. In th s case the assessee shall have to maintain books of account as
required under section 44AA(2) and get his accounts audited by a Chartered Accountant and
furnishes a report of such audit as required under s ction 44AD.
I. The expressions ..goods carriage", "gross vehicle weight" and "unladen weight" shall have the
respective meanings assigned to them in section 2 of the Motor Vehicles Act, 1988.
The expression "heavy goods vehicle" means any goods carriage, the gross vehicle weight of
which exceeds 12000 kilograms. •
According to the Motor Vehicles Act, 1988, the expression
(i)"Goods carriage" means:
(a) any motor vehicle constructed or adapted for use solely for the carriage of goods, or
(b) any motor vehicle not so constructed or adapted when used for the carriage of goods
t1'1) "G • • • gbt f the vehicle and
ros s vehicle weight" means in respect of any vehi cle the we t O .
l
tota
d ec rt1'f1i and, regi.stered by the reg1. sten•ng authon•ty as pemn•sst'ble for that vehicle. . t
load
e
(ii1) "U . ·1 • luding all eqmpmen
. nladen weight" means the weight of a vehicle or trat er. me the . ht of 8 driver
ordinarily used with the vehicle or trailer when working, but excludmg eh gof tbe vehicle
or attenda nt·, and where alternati.ve parts or bodi.es are used the unladen wboe1dg
lneans the weight of the vehicle with the heaviest such alternative part or _Y· ui,:b&Se or on
An asse • • b tber taken on hire P deell'ed
. ssee wh.o is in possession of a goods c age,w e able is still due, be -
be
lllstahn ents and for which the whole or part of the amount pay . .
!he _lhe 0wnerof such goods carriage. . . fr rn the b1flllffl;llt
0
hi.:- rne imated as per section 44AE, shall be bis income d· with
 asmg goods carnages. This incomew
. . be ava111 1v
d deductions under section SOC t 8O , if any wt 11
.......... 'IJDCQ,t.,..,

.-.GUna-.... •

'1o fulfilment of conditions mentioned therein, ·part0 f tbe

9' fro111 Vehk le.s is.to be coinputed for every•
0wn d by he assessee even thou h
'::!:ii°
use'!ibr
tbese
 Chap.3
• & Management
t 06 otporate Tax Planni ng ---wn anyg
. the assessee does noto fits and gaina
tion 44AE are not applicable m case h declares lower pro
ivtsron of
rtarna.-..,. or wns more than IO goods carriage or wh re e • -----
than the fits and gain specified in section 44AE.
IUustration 3.3: X owns the follow ng commerc•ia vJ ehicles:d two• days and the
er for 12 tmh onthd s.
oth
(i) 2 light commer ial eh1• cles 0
- ne DOr 9 months weight is 13 MT) for 6 moo s an 2s
. an
ii _
• ( h se gross d 12 days
vehice1
heavy good vehicle- one.w 4MT) for 11 months an d 15 days.
da and the other (whose unla1den isl d h other for 8 months an
(iii) • 0 D r 6 months an t e d section 44AE. Al
2 medium goods eh1cle-s ne o_ ifX opts for the scheI?e un er sits t20,000 in PP
(a) Compute the income from busmess ent year 2020-21, if he depo
compute his tax liability for the assessm th d .
• Account during the previous year. t ed for business for two moo s unng
.f t h trucks were no us
(b What will be the income I e
the ear due to st.nke?•
Solution
• d der·
(a) 44AE shall be compute as un •
The income under sectwn
(i) JO X 7500 + J2 X 7500
(ii) 7 X 13000 + 12 X 14000
(iii) 6 X 7500 + 9 X 7500
Income from Business
Less: Dedl}ction under section 80C
Total income
Tax on ts,16,500
Le;s: Rebate under section 87A (as the total income exceeds 3,50,000)

Add: Health and education cess @ 4%

Tax payable (rounded ofO 16,438

(b) Income from vehicles is to be computed for every month or part of the month during
which these were owned by the assessee even though these are not actually used for
business, Therefore there will be no change in the answer.
3.23 Tax planning for Insurance business [Section 44]
otwithstanding anything to the contrary contained in the provisions of the Income-tax A
relating to the computation of income chargeable under the head, "Income from houseproperty\
"Capital gains" or "Income from other sources", or in section 199 or in sections 28 to 43B, the
rofits and gafas of any business of insurance, including any such business carried
on bya mutual iosuranel company or bya co-operative
socie shall be computed in accordance with the rules contained int
1rs e ncome-tax Act. - ..
---,,_ In case of insurance business of a non-resident, the taxable income shall be computed in
following ma n!!.!n ·---
 Tax. planning with reference to setting up of a new business
••l P ti os available to assessees 107
..1,4G ener•
deduc o .
011in
ect of donations to certam. funds, charitable institutionse' t c. (Section 80G
resp
Y ......da1cti d"tions for claiming deduction under this section l
.. •Icon ' . .
essentiJI
ducuo. nunder this section 1sh allowed to fiall assessees. , whether com pany or non c
I) doe h aving income er
h t d pro
d its g a m s of business or . ompany,
(un e 'ea an
whether . . e: -
pro1ess1on' or not
ation should be of a sum of money. Donations zn kind do not .
1
(2) fhe d;nVerma (Sri H.H.) v CIT (1991) 187 ITR 308 (SC)) See also
[Ram C/f (2017) 82 taxmann.com 154 (P&H))
[i: •
ify fo d duction.
ar Spmnzng Mills
Ltd.V .
e donation should be made only to specified funds/institutions.
(3) ;h availing deduction under this section it is obligatory on the part of th
(4) orper proof of payment. Where the payment is not proved by product assefssee to produce
pro . d • 80G . on o proper recei t
etc., the deduction un _er section 1s not available. [Golecha Properties (P) P,
(\988) 17 l ITR 47 (RaJ)) Ltdv. CIT
(S) Donation paid to trust hich is substan ially for religious purposes is not allowable under
section 800(5). [Upper anges Sugar Mzlls Ltd. v CIT (1997) 227 ITR 578 (SC)]
(6) No deduction shall be allowed under this section in respect of donation of any sum exceeding
U,000 ( l0,000 upto A.Y. 2017-18) unless such sum is paid by any mode other than cash.
[Section 80G(SD)1
Where a deduction.is allo':"ed in respect of any donation for any assessment year, no other
deduction shall be a owed m res of such SlU1l for the same or any other
818tssnlelltyear. • Donations made out of earlier years income or out of income exempt from
tax me entitled for
de.ductionunder
Deduction undersection 800.is[Circular
section80G availableF.onNoaccount
45/313/66, dated
of any 2.t2.1966]
donation made by the assessee to
specified funds or institutions. In some cases, deduction is available after applying a qualifying limit
whilein others, it is allowed without applying any qualifying limit. Again in some cases, deduction is
allowed to the extent of l 00% of the donation and in some cases it is allowed to the extent of 50% of
thedonation. The quantum of deduction in respect of various kinds of donations is given aus nd r:
(A) Donations made to following are eligible for 100% deduction without any qualifying limit:
{,) National Defence Fund set up by the Central Government.
(ii) Prime Minister's National Relief Fund;
(ii,) Prime Minister's Armenia Earthquake Relief Fund;
(iv) Africa (Public Contributions India) Fund;
v) National Foundation for Communal Harmony; b the prescribed
( i\
l Eminence approved Y ·
v,, University/Educational Institution of Nationa
authority
(vi)
. M aharashtra Chief Minister's Earthquake Re rte fFund· ' .
. ly for providmgre
r1ef to the
(v1i1) A f Guiarat exc1us1ve
_n fund set up by the State Government O 'J '

•
. victims of earthquake in Gujarat; . - . . •
(o:) z·11 . • d. tr i t 1 ·
a Saksharta Samiti constituted m any ts c ' d rransfus1 on
°
C unc•'
(x) Th ·1 any State Bloo n00r rct:
0
F
e National Blood Transfusion Counct or . d·cal relief to the r- ' the Air
{
 . A-
(xx1) • t provide me t fund or
,0 uy fund set up by a State Government O . N 1 Benevolent
Th th Indian ava
e Army Central Welfare Fund or e
(x;,·,i\
,, 1'L
Central Welfare Fund; . .
• clone Re1- ffund, 1996;
C
U:iv)
ie l Lle Andhra Pradesh Chief Mm1ster's Y

National Illness Assistance Fund; •

d
 hh

I up th

B ·tion ·Ith "' an, qMoli in limit:

i

d d" lionMbj t to quali/J ing limit:

I . I Jth rit . in tituti n r i ti

a XJmp n_,'. in the pr i u

ar a d nati n t In i
1h r iation or in tituti n , t bli h d in India
-
p rt and game : or

or 50 deduction ubject to qualifying limit:

; ppr d I al authority, in titution or as o iation t
h• bl p th r than promoting family planning.
;; n,·hi h ti fie the condition of ection 80G(S).
iii titut in India b or under any law for sati$fyi g the ne d £ r hou in
th urpo planning development or improvem nt of itie t v

fr tabIi h d b ntral or any State Go mm nt p cifi d und r

_ BB ti r pr m tin .intere t of th member of a minorit community.
. n.. n cifi d t mpl . m qu gurd ara church or other plac notified b th ntr.i\
m f hi t ric. archa ological or arti ti importanc for renovation or r pair
m . f
Qu It. • la ii: her the a0gre ate of the um re rred to in (C) and (D) abo
f adju r d • n om then all donation made to fund /in titution co er d under( C)
and the aggr gate amount hall b limited t lO1/c of dju ted G

• t.i n i mad by an
ithdra aJ of the f u h in tituti n t to
and disallo the ded.ution. [Jai Kumar
appro . - ITR 707 Cal))
Kankaria
. Tax, Pal ning with reference to setting up of a new business
n 109

o. . s•Adiuste"
P·3d Gross ,.,,at I Income: Adjusted Gross Total Income for this purpose means th e" Gro
1 0
as reduced by-· . . .
10come-terJll cap••tal gains' if any, which have been mcluded
. . m
the "Gross Total Inc
ome ;
f 0 ;)
•A'

apital gains of the nature referred to m section., 111A (i e short tenn .

( tong
(ii)
hO rt-terJllc • d k h . • • - capital gain
s transfer of shares through a recogn_ise stoc exc ange which are taxable @ 15%)·
00
d tions permissible under sections 80C to 80U excepting deduction under thi .
... all de uc s section
(111) . sectiop 80G;
,.e.
(iv) h . come on which income-tax is not payable i.e., share from AOP·
10 . . '
sue. me referred to m section 11SA, 11SAB, 11SAC, or 11SAD. These re1ate to
sections
( ) 1 nco . . h. h
v incomes ofNRls and foreign companies, etc. w ic are taxable at special rate of tax.
uantum of deduction: The quantum of deduction shall be the aggregate of the deductions
'bl under clauses (A), (B), (C) and (D).
rrn1ss1 e
Illustration 3.4: A, whos Gross Total Income for assessment year 2020-21 is 5,85,000 (which
. eludes long-term_ capital gams of 40,000 and short-term capital gains of 20,000) submits the
o\lowing information:

Contribution towards PPF \0,000

LIP paid for married son not dependant on him. 5,000
Mediclaim Premium paid by cheque for:
(a) Himself 2,000
(b) For married son not dependant on him 3,000 5,000
He has made the following donations:
(a) National Defence Fund 5,000
(b) PM's National Relief Fund 2,000
(c) Swachh Bharat Kosh 2,000
(d)Indira Gandhi Memorial Trust 5,000
(e)Delhi University 2,000
(declared as an institution of national eminence)
(f) Zila Saksharta Samiti 4,000
25,000
(g)An approved charitable institution
40,000
(h) Government for Family Planning.
(i)Donations of blankets to an orphanage
(j)Donations to National Children Fund
21
Compute: (A) Total Income for the assessment year 2020-
2020 21
(B) Tax Payable for the assessment year -
 11
O
c -:-:- ------.- 1 1,' . II um/H , Mi ma '11r1i1 ,,,,.........,_.,,,-·--
ora,l
.'n.
(I ) 80 ( I O 000 ,000) ,00_0
(2) 80D - for him elf 2,000

(3) 80G - Donation

(i) National Defence Fund

.ooo
(ii) Delhi University
2,000
4,000
2,000
(v) PM' National Relief
2.000
Fund
2,000 17,000
( vi) Swachh Bharat Ko h

Indira Gandhi Memorial Trust (5,000) 2,500

(B) Donations which are subj cl to qual(/yln llm/1:
Actual donations made to:
(i) Government for Family Planning
40,000
(ii) Approved Institutions
25.000
45,00
ut limited to J 0% of Adju ted Total
0
Income of t5,28,000
Out of t5,28,000 Donation of 40,000 for FamiJy Plannin
@100% 52,800
Balance t 12,800 a) 50% 40,00
0
Total Income 46,400
(B) Tax on tS,22,100 6,400
Long-term capital gain N0,000 @ 20%
Balance Jncome of f4,82,100 at slab rate
Tax payable
le.·s; Rebate u/ 87A (Nil a the total incomeexceeds
f5,00,000)

Tax payable (rounded off)

 l 11
Income i .calculated a under:

ain 40,000
SOC to SOU excepting
8OG 17 000

tlonmade in kind of blankets do not qualify ford duction und r cti O 800.
"" ' . .,. . tion in respect of certain donations for scientific research or rural
I ll I P 'uc eve1opment
d
t rion sOGGAI . . "
.
I u
n· n i penm 1ble to an as es see whos e Gross Total Income" doe not
. .
e m ome
,·nclud
d
De
eabl under the head "profits and gams of busmess or profession" .
• h rh dedu tion i a ailab\e in respect of the payments made during the previou year to
th
. wimz in tituti n :
11
t i t an a pr d re earch assoc ation (scie?tifi research association upto A.Y. 2010-11) which
has as 1t obJect the unde km of a scientific research or to a, univer ity, college or
other in titution to be used for sc1ent1fic research (Business assessees were allowed this
deductin und r ection 35);
·;; to an appro ed research association which has as its object the undertaking of re earch in
ial cience or statistical research or to an approved university, college or other in
titution
to be used for research in social science or statistical research (Business as essee were
allowed this deduction under section 35);
The deduction to which the assessee is entitled in respect of any sum paid to a research
association University, college or other institution to which the above clau e (i) or cla
(ii) applies. shall not be denied merely on the ground that, subsequent to the payment of
uch sum by the assessee the approval to such association, University, colleg or thr
institution referred to in clause (i) or clause (ii) as the case may be, has been withdrawn.
iii) to an association or institution engaged in any approved programme for rural developm nt,r
which is engaged in training of persons for implementation of rural e
elop= programmes or. to a notified rural development fund or to the
notifieNattnal .
, d h. d duct1on und r u n
Po erty Eradication Fund (Business assessees were a\\owe t is .e .d dr ti n
18
35CCA). In this case the assessee should furnish a certificateas· require un
35CCA; ·d t
The deduction, to which the assessee . .1 d • respect of any sump,
1
.h
1s entite f 1de elopment t hi
0
O
association or institution for carrying out the programme nu; that ub equent 1 the
th
this clause applies shall not be denied merely on e r unuch progranun•r the
payment of such s m by the assessee, the approval gra :dra:O. b
case may be, to the association or institution bas been wi . . or in titution wro ,
(') • or to an association Busine
IV to a public sector company or a local auth0 rtty' . . • ct or scheme l t,oU
Al"l:r w-

th · • t any ehg1ble proJe l o the

e National Committee, for carrying ou . JSAC). In this casea
Were allowed this deduction under secuo )SAC
furnish a certificate as a required under section •.
\\2

V>) th notifi ti n notif in

• rricd out b th publi

For the purpoe of thi section. the word "contribute" with its grammatical variations bas the
meanin as igned to it under section 293A of the Companies Act 1956.
(lV) Deduction in respect of employment of new workmen (Section SOJJAA]
(1) 30% of additional employee cost to be allowed as deduction for3 assessment yea11
\Section SOJJAA(l)l: Where the gross total income of an assessee to whom section 44AB applies
include any profits and gains derived from business, there shall, subject to the conditions specified
in ection 80JJAA(2), be alloweda deduction of an amount equal to 30% of additional employee
cost incurred in the course of such business in the previous year, for3 assessment years
including the
a sessment year relevant to the previous year in which such employment is provided.
(2) Essential conditions \Section 80JJAA(2)l: No deduction under section SOJJAA( I) shall be
allowed,
(a) the business is formed by splitting up, or the reconstruction, of an existing business:
if
However, nothing contained in this clause shall apply in respect ofa business wh·h •
fo
b·asa·hrmed restablishm
·esult of re- et .nt, recon.struction or revival by assesseeo icf etht
. eh
usmess mt e circumstances and w1thm the penod specified in section 33B·
(b) if the business is acquired by the assessee by way of transfer from an oili
result of any busm.ess reorganisation; Y er person or aas
(c) unless the assessee furnishes alongwith the return of•
accountant giving such particulars in the report ibncome t e report ofa chartered
FormNo. !ODA. as may e prescnbed. See rule 19AB and

Explanation. For the purposes of this section,

(1) Additional e m. .ployee cost'. "Additional emp1oyee cost" means l •
• emo uments paid or
paya'dd h a. dd1ttonal employees employedd unngt
bel to • he prev10us year:
p
. 1fr-ov1 e t at m the case of an existing business the additionaI em•ployee cost shall be nil

(a) there is no increase in the number of emp1oyees from the t0

tal loyed as on the last day of the preceding year;
emp number of emplo ee
( b) edmr oftlumeb nts are paid otherwise than by an
a or Y use of electronic cleari eec heque or account payee bank
I
account tr . d n g system through a b nk
e ecpayo n,c mo e as maybe prescribe d : a account or
 Tax . ·th r fer nc to .s lting up of a n w busin • \\
planning w,
the first year of a new business.. emoluments paid or payablet.
1
prorided fbat nl yed during that previous year shall be deemed to be tho
1 yees employee
emP O e
elJJ 1 cost;
add• onafurthr that where an employee is employed during the pre iou year for
,1ded e d h b . a
Pr of less than 240 days or 150 hays, ast e cabse ayh , but ts employed for a
period of 240 days or 150 days, as t e case may e m t e immediately ucceeding
peear. he shall be deemed . to have been employed
d' l m the succeeding year and th
· · ns of this secti on shall apply accor mg y.
pro 1s10 . . . 0
.
h bove proviso has rattonahzed the deduction of 301/o by allowmg the benefit for a
T e :mp\oyee who is employed for less than the minimum period of 240 days or 150
ndeawys as the c se may be,d urm• g the f 1i rst year but conti•nues to _remain employed for the
minimum penod of 240 days or 150 days, as the case may be, m the subsequent year.
u) Additional employee: "Additional employee" means an employee who has been
employed during the previous year and whose employment has the effect of increasing the
total number of employees employed by the employer as on the last day of the preceding
year, but does not include,-
a) an employee whose total emoluments are more than 25,000 p.m. or
• b an employee for whom the entire contribution is paid by the Government under the
Employees' Pension Scheme notified in accordance with the provisions of the
Employees' Provident Funds and Miscellaneous Provisions Act, 1952; or
c) an employee employed for a period of less than 240 days during the previous year;
Pro ided that in the case of an assessee who is engaged in the business of
manufacturing of apparel, (or footwear or leather products inserted w.e.f. 1.4.2019
by the Finance Act, 2018) the provisions of sub-clause (c) above shall have effect as if
for the word and figure "240 days", the word and figure "150 days" had been
substituted or
d) an employee who does not participate in the recognised provident fund;
ii., Emoluments: 'Emoluments" means any sum paid or payable to an employee in lieu·of his
employment by whatever name called, but does not include-
a an contribution paid or payable by the employer to any pension fund or ?rovid nt
fund or any other fund for the benefit of the employee under any law for the time
bemg
in force and ·
an lump-sum payment paid or payable to an employee at • 0 f termination of lus
time . pay
teh . .
1 e or uperannuation or voluntary retirement, sue
h as gratmty
. severance ,
r' on and the
Iea 'e encashment voluntary retrenchment mmutat1on o pensi
benef1it,s co
r
Form of ownership . different forms of
f o vner hip is an important tool tax planmng There are hip maY
Of
: The form of owners hip
a m . different tax incidences at a given
. .
level of opera tion. It is the form 0 f
tive society, etc. · tc
owners
o hip partnership company o era ctivities to third parties e.• different
U"rrn,.....,.. e haring of profits respons1b1ht1es of thea h'p which are assessed
give_0
. fi s of owners I anY is of
i eren tax treatment under d1fferent orm lab system while a cotnPs that a part h
la .. lndi idua1s and HUF's are assessed ata s t have a specific shap :iarable t s
.
no emption limit. Taxation a ° f firm does be no tax.ed at normal rates s of own.ersh1P
0nthe
 to partner may
for companies.These he
foJ1TlirnP11•canon
41«1tmuhleto intere t an d alary
mainin part i taxed at a flat rate as taX laws. Thereforet,
n e 1• On and rebate under
114
pr . Corporate Tax Planning & Manag ·m nt Chap
OJect under different fo . •3 .
ownership suitablet nn .of owner hap at a certain level of profit are to be analysed and a forll 'ol r
O th0
1 S 0l se circumstances is selected.
• e proprietorsh • • Th · • Id •
proprietorsh • . 'P· e most common form of owner hip found an the busane s wor is sole
1 th s fonn of organisation the proprietor is the only owner of the business as ets and
he is sol
n I ip.
fonn of iry sp nSible for the affair of the business. The merits and demerits of a sole proprietary
Merits g isation may be summarised a under:

(a) A sole proprietorship is easy to establish because of little interference of govemrnent

regulations.
(b) The _cost of adopting this form of organisation is small because of there being no legal
requirement.
(c) All the profits of the business go in the hands of proprietor himself.
(d) In case of persons carrying on business on small scale and having sma_ll income fro_m other
sources, this form of organisation would be suitable because the propnetor can avail of the
ceiling of exempt income as under:
Exemption limit
(

For assessment year 2020-21:

(a) in case of individual resident in India who is of the age of 60 years or more at
any time during the previous year 3,00,000
(b) in case of an individual resident in India who is of the age 80 years or more at
any time during the previous year 5,00,000
(c) in case of other individuals 2,50,000
The tax liability of the individual will be minimum as the individual is subject to income-tax
at slab rate and the maximum marginal rate of income-tax in his case is 30% plus surcharge
@ 10% if the total income exceeds t50,00,000 but does not exceed t 1 crore and @ 15% if
the total income exceeds t l crore plus health and education cess @ 4%.
. (e) Besides the deductions which are allowed to all assessees under Chapter VIA, a sole
proprietor, being assessed as individual, is entitled to get certain deductions under the
following sections:
(1) section BOC relating to contributions to provident fund, life msurance premium,
subscription to certain equity shares or debentures, etc.
(ii) section 80CCC relating to contribution to certain pension funds.
(ii1) section 80CCD relating to contribution to notified pension scheme of the Central
Government.
(iv) section 80D relating to medical insurance premia.
(v) section 80DD relating to maintenance of a dependent who is_a person with disability.
(vi) section 80DDB relating to expenditure on medical treatment, etc.
(vii) section BOE relating to repayment of loan taken for higher education.
(viii) section BOGG relating to rent paid.
(ix) section 80QQB relating to royalty income, etc. of authors of certain books other than text
books.
(x) section 80RRB relating to royalty on patents.
(xi) section BOU relating to persons with disability.
 Ta plCJnmn llin up of an in
bu. 115

tend en
, . When
tent en ugh to meet the liab·t·. of
m I,•ab'II'tll- . I Il

uc _i . n aero_nt r unerati n payable to him attributable

It tha tt • the capital contnbuted and ri k taken by the ·
, nd th· h be • . propnetor
. at c m_u t g_1ven r uneTat1on fj r the rvice renderedby
m hih a u 1blt e pc d1ture. ut th1 1 n t so in income-tax law.
1 n th rm in drawb k thi f rm r 'ni ati n i that it d n t pf vide opportun·t·
J
• • .. I h .
th expandin u tn act1 v1 t1e . n t e c fa partn h ip finn, on the other hand 1fi 1es to
inrnn"be"-rai by the cxi tin partn r r by entering an ther partner. tnance
d' In ca fa u inc .• win at a higher s ed, and yield ng higher_ profits, a sole proprietary
, n, ation may n t nef 1c1al. the alary a1 to the pr pn or, and mtere t paid oncapital are
· II able, the pr fi come higher and tax incidence g high. In case of other entities, on the
,1 h' nd, rcmun rati m payable partners/ managing director, interest paid to partners are
allowed admi iblc expenditure t< the extt'1lt specified in the Act.
2. Hindu ndivided Family: A j int Hindu family pay tax on its total income at prescribed
rates th b' is f lab y tcm. The family can pay re nable remuneration to the Karta and other
family t,er; or th ir ervicc to the bu ine s and it i allowed as a deduction in computing the
business m . H >wevc.-r, interest n capital c ntributed by the family for the bu iness is not
deductible in puting bu in inc me. The member of the family, who has received the
remuneration from the
amily ill inclu c it in hi inc me under the head Salarie .
A Hindu undivided amily will al get a basic exemption of t2,50,000 from assessment
year 2 20-21. e idc. the deducti ns which are all wed to all a essees, it is allowed certain
deductions und r cction 80 , k0D, 80D , 80 DB and 80GG like individuals. The tax rates in
case of HUF are m •. applicable to individual.
The demerits of H F, however, are imilar to that of individuals.
J. Partnenhip firm
Mi rit. <;/ partnership . .d . bl.h Th only "' the
proce ure
I, A partner·hip form fh orgam ·at1on I al o easy to esta is • e . ior

format,. . . h' d ed and a nomma 1 c arge

in tenns of
n o • partner h ip I to draw up a partners ip
.
c t f. tamps r the deedeis to be incurred. d company fonn
2. •he dcci i n making on important bu matter ick as compare to any
aqu
of me is Th fiOre decision on
or ani ati n becau e partner meet frequently togeth er. ere '
imp rtant bu inc matter cannot be delayed. . b cause every important
1
3· I h . .k
f getting involved m ns Y ac t'1v'1f1es is very ess e 1
chance
d ci i n i made with the concurrence of all th epartne s: dd·1t·1onal resources is much1.
• bl f ra1smg a . asy to ra s
4, A mp red lO ole proprietor hip, t.h pro emo toraise finance, it will be r of partners
Wh n vcr the bu inc expands and it I necessary ·ngs because of num ·11be rnore
b . . ·It by way of borrow1 h lendersw1
Y admittin a new partner o r • mg the debts of the firm,t e
and th irJ. int and veral hab1hty to te of 12o/oP!
pay
•
1 0 r tcd in lcndin . • urn ra ·oncu
rtners at the rnaximthe limit rn ntt
5• Th firm can p· y int re t on capital and. loan . p;partners subject 10 d1
Furth r it can al o ive r muneration toits wor in . uch c wdhde,.; n I
, m cti n 40(b), • w
point ofvie
anY h ra
6 •.. .. "' income-tax ot ha" ha"
oteIn lJC
' 1 h1 fr rm of r ani tion i u1table irom f th finn don rshiP fifl11·
.mount f pr • . h artncrs o th partne
fit i not large andt andinterest from e
_eP
. Inc m x ept by way of remuneration • •
 Taxplanning with reference to etting up of a new business
117
,P·3 . 1 ha ing pecia\ skills, techniques, etc. A. company form of or . .
pr<w"es ,ona
h Ip in developing. managena .pro1ess1ona
1. d c. . l • s.1 gantsation
,
therefore e l . .
. of organisation has a so recetve soc1a recogmt1on because of the dis
Th• fi rm . 1 bl' h. f fi l . c 1osure of
4. me information fo exam?1 ' p is fmgo ma acco ntsb'. etc. This social recognition
. boOsting the mdustna 1sat1on o an economy, as 1s emg experienced nowa da ys .m
helP 1 0
India. . .
The company is subject to mcom( -! faththe ate of 30% +surcharge@ 7% only when its
e flat
total income exceeds l crore 1 210 1 t e tota 1 mcome exceeds U O crore) + 4% health and
education cess.
. advantages . . . .
omeof the demerits of this form of organisation which are generally felt are as under:
l. The first main disad ntage is the f rmati n of co1!1pany which requires a long procedure to
be adopted. In addition to ompl mg 1th certam l gal requirement, a large amount on
account of fees on share capital with which company 1s being incorporated and many oth
expenses have to be incurred. er
The stringent legal requirements to be complied with are also a major drawback. The
management has to face, at every step, legal provisions as are to be complied with.
3. Lack of profit motive mind et amongst the pe_rsons handling the affairs of the company is
also one of the drawback. Smce the company 1s not managed by the real owner, in most of
the cases, but by the managerial professional who do not have financial stake in the company,
the degree of interest and enthusiasm, as found in the proprietor and partners, cannot be
expected in a company form of organisation. Nevertheless, it does not mean that paid
officials are devoid of initiative, however, there are many officials who do lack initiative.
4. Despite strict legal requirements, the chances of defrauding the innocent public are quite real.
In many cases the management indulges in manipulating the figures of the results and invites
public to invest therein.
5. Decisions on important business matters cannot be taken immediately. For this, the m e ing
of the Board of Directors has to be convened which takes some time. Delayed dectSions
happen to be one of the drawbacks of this form of organisation.
6. Many times, it is found that there may be clash in the interest of two class ofshareholders,
viz, equity shareholders and preference shareholders or group shareholders.
THEORETICAL QUESTION . d be
lanning shoul
l. What are the important areas of business management where tax P
attempted? . h b siness of export of
. . 1or an assess ee engaged t eu
2· Discuss the avenues of tax planmng .
m ds.
goo £ me an
. mco
of mputing the
3· Are there any special provisions under the Income Tax Act or co
assessee engaged • f
the busmess o opera 1
f on of aircrafts. d'ture on
. d businesses.
. spec1fie
m
4. Explain the deduction available u/s 35AD in respect of expen i
=------::-:-:- ;;-;; I"O NNSS - a private
PRACTICAL QUEST armersbip or aschargin8
business either asa p business t,eforreofit aftet
_ 1. Mr. Kapil and Sachin proposed to set upa each. Profit of the t 1s oo, -P0rki118
000
tied company, with capital contribution o U0,00@12% p.a. is estimated :ith approP : iJ!vol
tr remuneration at 15,000 p.m. each and mtere:i dividend. Advise :Uoftax i Ph:. f\Ssume ra
are proposed to be distributed equally as pro frm the point of vie p0sed bUS'oe
Ut the form of organization they shoul ch:::th r than from the pro
eac case, assuming that they have 0<:>mco
tax m case of a company is
30%.