Module 4

Deduction regarding form of new business and location of new business

Income of newly established undertakings in free trade Zones etc [section 10A]

Deduction of profit is available to undertakings which is derived by the export of articles or things or computer software Eligibility : All the categories of the assessee Essential conditions to claim deductions: 1. It has begun or begins to manufacture articles, or things or computer software in FTZ, hardware technology park or in software technology park

2. Should not be formed by splitting up or reconstruction of unit already in existence * 3. Should not be formed by transferring machinery or plant previously used. In certain conditions as specified in the Act second hand machinery is allowed.(exceptions) Exceptions to point 3 : Plants or machinery used by any other assessee outside India , it should not previously used in India It should be imported from a foreign country Benefit of depreciation is not allowable previously AND Deduction under this section is allowable if the total value of second hand machinery or plant transferred to the new undertakings does not exceed 20% of the total value of P or M used in the industrial unit

4. Sale proceeds should be brought in convertible forex within 6 months from the end of P.Y. 5. Report in Form No.56F 6. Filing of return within due date under Section 139(1) 7. Tax Holiday: deduction is available in respect of any 10 consecutive assessment years beginning with the AY relevant to PY in which undertaking started manufacturing. 8. No deduction is available from the AY 201213

5. Profit from the business of the undertaking

Export Turnover Total Turnover of Undertaking

Special provision in respect of newly established units in SEZ [section 10AA]

Essential conditions It has begun or begins to manufacture articles, or things or provide service during PY 2005-06 or thereafter in any SEZ

 Tax holiday: 100% of the profits from the export for the first 5 years from the beginning and 50% for next 5 years and for further 5 Years 50% subject to creation of Special Economic Zone Reinvestment Allowance Reserve Account

Conditions to be satisfied for claiming deductions for further 5 years ( after 10 years)
1. The amount credited to special economic zone reinvestment reserve account is to be utilised I. for the purposes of acquiring machinery or plant which is first put to use before the expiry of a period of three years following the previous year in which the reserve was created; and II. for the purposes of the business of the undertaking other than for distribution by way of dividends or for the creation of any asset outside India; 2. Form no 56FF

Contd
Consequences of mis-utilisation / nonutilisation How to compute profit : Profit from Export Turnover the business X of the underTotal Turnover taking of Undertaking

 Treatment of unabsorbed depreciation , brought forward losses In case of amalgamation The benefit under this section is not available to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and it is available to the amalgamated or the resulting company as it would have been available to the amalgamating or the demerged company if the amalgamation or demerger had not taken place.

Special provision in respect of newly established 100% EOU [section 10B]

The benefit in respect of newly established 100% Export Oriented Units is Available to all Assessees on Export of Certain Articles or things or software Undertaking must be approved as a 100% EOU. All other conditions are same as section 10 A except form no 56 G should be furnished instead 56 F

Deductions in respect of profit and gains from undertakings engaged in infrastructure development Section 80IA

Assessee carrying any of the following eligible businesses through an industrial undertaking or enterprise (A) Provision of infrastructure facility; (B) Telecommunication services; (C) Industrial parks or special economic zone; (D) Power generation, transmission and distribution,

General Conditions/Points
The profits and gains of an eligible business shall be computed as if such eligible business were the only source of income of the assessee The accounts of the undertaking for the previous year relevant to the assessment year for which the deduction is claimed must be audited by a chartered accountant and Audit Report in Form No. 10CCB should be furnished along with the return of income.

 No deduction shall be allowed under this section if the assessee fails to file the return of income for such assessment year on or before the due date specified u/s. 139(1) Where deduction of any amount of profits and gains of business is claimed and allowed under this section, then the deduction to the extent of such profit and gains shall not be allowed under any other provisions of this chapter

 If any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other business of the assessee are transferred to the eligible business, then in either case it should be ensured that the transaction occurs at the market value of such goods or services as on the date of transfer, otherwise Assessing Officer (AO) has the power to recompute the profits based on the market value of such goods or services.

 If it appears to the AO, that business between the assessee (engaged in eligible business) and any other person is so arranged that the business transacted between them produces to the assessee more than ordinary profits, then the AO shall take the amount of profit as may be reasonably deemed to have been derived therefrom.

 Type of Undertaking or Enterprise Any enterprise carrying on business of (a) developing, or (b) operating and maintaining or (c) developing, operating and maintaining any infrastructure facility.

Relevant Conditions/Points
The enterprise should be owned by a company registered in India or by a consortium of such companies or under state or central govt The enterprise should have entered in to agreement with Central Government or a State Government or a local authority or any other statutory body for (a) developing, (b) operating and maintaining or (c) developing, operating and maintaining a new infrastructure facility.

 The enterprise has started or starts operating and maintaining the infrastructure facility on or after 1st April, 1995

Type of Undertaking or Enterprise

An undertaking providing telecommunication services like basic or cellular, domestic satellite service, network of trunking, broadband network and internet services Relevant Conditions/Points (a) It should not be formed by splitting up, or reconstruction, of a business already in existence (b) It should not be formed by the transfer to a new business of machinery or plant previously used for any purpose (exceptions already explained in 10A)

 Period of Commencement The undertaking has started providing the telecommunication services referred to above on or after 1st April, 1995, but on or before 31st March, 2005.

Type of Undertaking or Enterprise

An undertaking which develops, develops and operates or maintains and operates an Industrial Park or Special Economic Zone. Period of Commencement The undertaking has developed or develops the special economic zone on or after 1st April, 1997, but on or before 31st March, 2006. The undertaking has developed or develops the industrial park on or after 1st April, 1997, but on or before 31st March, 2011

Type of Undertaking or Enterprise

An undertaking which (a) is set up in any part of India for the generation or generation and distribution of power or (b) starts transmission or distribution by laying a network of new transmission or distribution lines or (c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines.

Relevant Conditions/Points
The undertaking for transmission or distribution of power by laying a network of new transmission lines shall be allowed deduction only in relation to the profits derived from laying of such network of new lines. "Substantial renovation and modernisation" means an increase in the plant and machinery in the network of transmission or distribution lines by at least 50% of the book value of such plant and machinery.

Period of Commencement
(a) For generation and distribution of power, the Undertaking begins to generate power between 1st April, 1993 and 31st March, 2012. (b) For transmission or distribution lines, the Undertaking starts transmission between 1st April, 1999 and 31st March, 2012. (c) For substantial renovation and modernisation of transmission or distribution lines, the Undertaking undertakes substantial renovation and modernisation between 1st April, 2004 and 31st March, 2012.

Quantum & period of deduction in case of above enterprises

Undertakings/enterprise Period and quantum of deduction For all the above enterprise except enterprise engaged in telecommunication 100% of the profit derived from such business for 10 consecutive AY out of 15 years*

For undertaking involved in the business of providing telecommunication service

For the first five years 100% For the subsequent five years 30%

Deduction in respect of profit and gains by undertaking or an enterprise engaged in development of SEZ Section 80 IAB

If GTI of an assessee, being a developer , includes any profit and gains derived by an undertaking or an enterprise engaged in development of SEZ after 1-4-05 100% of profit is available for10 consecutive AY out of 15years

Additional conditions
Audit of accounts Inter unit transfer of goods Restriction of double deduction Restriction of excessive profit Power of central government Return of filling return

Deduction to enterprise other than infrastructural development undertaking (80 IB)

Assessment years from which applicable 01.04.2000 Eligible Business Production of mineral oil Processing and packaging of fruits and vegetables, meat or meat products, or poultry or marine or dairy products Integrated handling, storage & transportation of food grains units Operation and maintenance of hospital in rural area

 Production / Refining of Mineral Oil o Is located in North-Eastern Region and started commercial production before 1.04.1997 or on or after 1-4-97 o Is located in any part of India and started commercial production after 1.04.1997 o Is engaged in refining of mineral oil and begins such refining on or after 1.10.1998 but on or before 31.03.2012. o Is engaged in commercial production of natural gas in blocks licensed under New Exploration Licensing Policy of Govt. of India and begins production on or after 1.4.2009. o Deduction: 100% for first 7 years

 Processing, preservation , integrated handling, storage and transportation of food grains, vegetables, poultry etc. o Begins operation on or after 01.04.2001 o Deduction 100% for first 5 years and 25% (30% in case of Company)for next 5 years
Provisions not to apply to an undertaking engaged in the business of processing, preservation and packaging of meat or meat products or poultry or marine or dairy products, if it begins operation before 01.04.2009

 Operation and maintaining hospital in rural area o Such hospital is constructed during 01.04.2008 to 31.03.2013 o Minimum 100 beds for patients o Construction is as per regulation of local authorities.

o Deduction 100 % for initial 5 years

Additional conditions
Not formed by splitting up or reconstruction except business discontinued due to extensive damage etc. Not formed by the transfer of a used plant and machinery except where the used plant and machinery does not exceed 20% of total value of plant and machinery.

Rest additional conditions similar as section 80 IA

80IC Special provisions in respect of certain undertakings or enterprises in certain special category states

Applicable from AY 01.04.2004 to an undertaking carrying on or undertaking substantial expansion of specified business in a special category state. It should be set up in Sikkim, Himachal Pradesh, Uttranchal or north eastern states Manufacture or produce specified goods mentioned in thirteen schedule. In the remaining area, it can manufacture any article in the fourteenth schedule Conditions Not formed by splitting up or reconstruction except business discontinued due to extensive damage etc. Not formed by the transfer of a used plant and machinery except where the used plant and machinery does not exceed 20% of total value of plant and machinery.

 Quantum an period of deduction: In case of Himachal or Uttranchal first five years 100% and 30% (25 % for non corporate assessee) for the next five years

Deduction in respect of profits and gains from business of hotels and convention centre in specified area.[80 ID]

The hotel or convention centre should be located in the National Capital Territory of Delhi, Faridabad,Gurgaon, Gautam Budh Naga r or Ghaziabad. The hotel is constructed and starts functioning between 1.4.2007 and 31.7.2010 The convention centre is constructed between 1.4.2007 and 31.7.2010

 100% of the profits from Hotels and Convention Centres will be allowed as deduction for five years if : The assessee should submit along with the return an audit report in specified formate

Certain undertaking in North Eastern states [ sec 80 IE]

Undertaking begins manufacturing things or articles or provide services during 1-4-2007 and March 31, 2017 Deduction under this section is not available in respect of tobbaco, pan masala, goods produced by petrolium oil etc Eligible services under this section are hotels ( 2 stars and above), nursing, old age homes, vocational institutes, IT related training centres etc

 The activities take place in any north Eastern states The business should not formed by a splitting up Books of account should b audited and return should be filled out 100% of deduction available for the first 10 years

Deduction in respect of employment new workmen [sec 80 JJAA]

The tax payer should be an Indian company Should be producing or manufacturing articles or things The business should not formed by a splitting up Report in form no 10 DA should be taken from charted accountant

Amount of deduction
The amount of deduction available is 30% of additional wages Additional wages : wages paid to new regular workmen "in excess of 100 workmen employed during the year Deduction is available to three AY No deduction is available to an existing unit , if the increase in the new regular workmen is less than 10% of existing number of workmen employed

Tea coffee rubber development account 33AB

Conditions: 1.The assessee must be engage in tea coffee or rubber plantation 2. It must make a deposit in special account 3.The deposit should be made with specified time limit 4.The account of assessee should be audited

 Deposit with special account: A.Deposit with National Bank for agriculture & rural development any amount in accordance with a scheme approved by tea board coffee board or rubber board B.The amount shall deposited within 6 months from the end of PY or before due date of furnishing the return of income whichever is earlier

 The amount of the tax payer should be audited by CA Amount of deduction A sum deposited in the special account or 40% of profit of such business computed under profit & gain of business profession before making any deduction under this section or adjusting B/F losses. Whichever is less

 Amount withdrawal from the account: if the amount from the account has withdrawn & if not utilized for the purpose for which it is withdrawn it can be taxed as taxable purpose be (it can withdrawn for special purpose) If the amount is withdrawn because of closure of business or because or dissolution it will be taxable but when there is death of taxpayer, partition of HUF , liquidation of company it will not be taxable though the amount is not utilized

Consequences if the asset is transfer in 8 years

If the asset acquire from the money withdrawn from the special account & if it is transferable or sold to central govt, state govt, local authority, etc or for transfer in scheme of succession of firm by company the amount of deduction will not be withdrawn . But in any other case the amount of deduction will be withdrawn

Example
Find out the tax consequences in the following cases: Business profit of X Ltd. , a tea growing and manufacturing company , is 70 lakhs for the AY 2012-13. it deposits Rs 25 lakhs in the special account, for claiming deduction under this section, it wants to claim set off of brought forward business loss of Rs 12 lakhs

 By withdrawing Rs 20 lakhs on January 20, 2013 from the special account. X Ltd. Purchased a non depreciable asset for 18 lakhs according to the scheme framed by the Tea board. The remaining amount will not be utilized up to March, 2013

Amortisation of telecom license fees[35ABB]

Conditions
Capital Expenditure Acquiring any right to operate telecommunication services Incurred before or after commencement of Business Mainly incurred to obtain license. If conditions fulfilled claim can be done u/s 35ABB

 Amount deduction: starting from the year in which such payment is made & ends on the year in which license comes to end in equal installment

Profit or loss on sale of telecommunication license

Diffeernet situations Tax treatment

1.If entire license is transferred 1.1. when sale consideration is less than WDV 1.2when sale consideration is more than WDV 2. When the part of the license is transferred 2.1 when sale consideration is less than WDV 2.2when sale consideration is more than WDV

1.1. loss is allowable as sale in the year of sale 1.2 profit is treated as income in the year of sale 2.1 loss is allowable as sale as deduction over the unexpired period 2.2 profit is treated as income in the year of sale

Deduction in respect of expenditure on specified business.35 AD

An assessee shall be allowed a deduction in respect of the whole of any expenditure of capital nature incurred, wholly and exclusively, for the purposes of any specified business carried on by him during the previous year in which such expenditure is incurred by him It is investment linked tax incentive

Specified business
1. Setting up and operating cold chain facility on or after 1/4/2009 2. Warehousing or storage facility of agriculture products - on or after 1/4/2009 3. laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network (has been approved by the Petroleum and Natural Gas Regulatory Board ) in case of lying and operating cross country natural gas pipelines on or after 1/4/07 In any other case on or after 1/4/09

4. on or after the 1st day of April, 2010, where the specified business is in the nature of building and operating a new hotel of twostar or above category as classified by the Central Government 5. on or after the 1st day of April, 2010, where the specified business is in the nature of building and operating a new hospital with at least one hundred beds for patients

6. on or after the 1st day of April, 2010, where the specified business is in the nature of developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, 7. on or after the 1st day of April, 2011, where the specified business is in the nature of developing and building a housing project under a scheme for affordable housing framed by state or central govt

8. On or after 1/4/11 production of fertilizers in India 9. On or after 1/4/12 Setting up and operating container depot 10.On or after 1/4/12 Production of honey and beeswax 11.On or after 1/4/12 setting up of storage facility for sugar If the above mentioned 1,2,5,7,8 business commences its operation on or after 1/4/12 , eligible for 150% deduction

 following conditions to be fulfilled it is not set up by splitting up, or the reconstruction, of a business already in existence; it is not set up by the transfer to the specified business of machinery or plant previously used for any purpose; No double deductions Set of losses of specified businesses

Sec 35CCC Expenditure on Agricultural Extension Projects

APPLICABILITY Where an assessee incurs any expenditure on agricultural extension project notified by the Board in this behalf in accordance with the guidelines as may be prescribed, then, there shall be allowed a deduction on such expenditure.

 AMOUNT OF DEDUCTION The assessee shall be allowed a deduction equal to 150 per cent NON ALLOWABILITY If the assessee has already claimed any deduction for any assessment year, in the respect of expenditure as incurred above, then the assessee shall not be allowed any further deduction for the same or any other assessment year.

Sec 35CCD Expenditure on Skill Development Projects

APPLICABILITY Where a Company incurs any expenditure (except expenditure in the nature of acquisition of any land/building) on any skill development projects as notified by the Board in this behalf in accordance with the guidelines as may be prescribed, then, there shall be allowed a deduction.

 AMOUNT OF DEDUCTION The assessee shall be allowed a deduction equal to 150 per cent NATURE OF EXPENDITURE The deduction shall be allowed for expenditure incurred on Skill Development Projects