Unit 2

Assmt of companies

Deductions for company

Tax Deductions under Section 80 IA:
80-IAB: Deduction for profits and gains derived

from the business of

developing a Special Economic Zone (SEZ) notified on or after 1/4/2005.
This deduction can be availed by the developers of SEZ.
80-IB: Profits and gains from industrial undertakings, hotel, scientific
research & development, mineral oil concern, cold storage plant, housing
projects, cold chain facility, convention centers, multiplex theatres etc.
qualify for tax deduction under this section. All assesses can avail this
deduction.
80-IC: Profits and gains derived by an enterprise in the special category
states including Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Assam,
Manipur, Meghalaya, Mizoram, Nagaland and Tripura, qualify for tax
deduction. All assesses can avail this deduction.
80-ID: Deduction arising from profits and gains from business of hotels and
convention centers in certain areas. All assesses can avail this deduction.
80-IE: Get tax deduction for taking up certain activities in Northeastern
states. All assesses can avail this deduction.

80J
Section

80J has been amended and it includes

the following subsections: 80JJA and 80JJAA:
80JJA: Deduction arising from profits and gains
from the business of collecting and processing
bio-degradable waste. All assesses can avail this
deduction.
80JJAA: 30% additional wages paid to new
regular workmen employed in the previous year
qualifies for tax deduction. Indian company
having profits and gains derived from
manufacturing of goods can avail tax deductions
under this section.

80G
Tax

deduction under this section can be availed by all

assesses. Donations to certain approved funds, trusts,
charitable institutions, and donations for renovation or
repairing of notified temples qualify for tax deduction under
this section. 80G has four subsections which include:
80GG: Rent paid in excess of 10% of total income for
furnished or unfurnished residential accommodation qualifies
for tax deduction.
80GGA: Donations for scientific, social or statistical research
or rural development program qualifies for tax deduction
under this section. 80GGB: Amount contributed to any
political party or electoral trust is eligible for tax deduction.
80GGC: Sum contributed to any political party or electoral
trust is eligible for tax deduction

Deduction

Sec no

Description

Eligibile amt

80IA

Infrastructure
refer slide 8

Profits from
business

100% refer slide

9,10

80IB

Industrial
undertakings
other than
infrastructure
Refer next slide

profits

Refer slide 4 ,5 ,6

80IC

Business in
special category
states

profits

Refer slide 7

80ID

Hotels and
convention
centers in
specified area

profits

100% of profits
for five
consecutive years

80IE

Business in north
eastern states

profits

100% for 10
consecutive years

80JJA

Business of biodegradable waste

profits

100% for first 5

years

Industrial Undertaking located in notified backward district,

state or region or other places or Small scale industrial
undertaking, engaged in manufacturing/producing any
articles/things or operating its cold storage plant;
2. Hotels;
3. Multiplex Theatres;
4. Convention Centres;
5. Scientific Research & Development;
6. Refining of Mineral Oil or Natural Gas;
7. Developing and Building Housing projects;
8. Operating cold Storage facility for agricultural produce;
9. Processing, preserving and packaging of fruits and
vegetables or integrated business of handling, storage and
transportation of food grains;
10. Operating and maintaining hospital in any area other
than excluded area.

Type of undertaking

Period of deduction

Industrial undertaking located

at industrially backward district
of Category "A

100% for first 3 A.Ys. and 25% (30% for

company) for next 5 A.Ys. (9 A.Ys. for Cooperative society)

Industrial undertaking located

at industrially backward district
of Category "B"

100% for first 3 A.Ys. and 25% (30% for

company) for next 5 A.Ys. (9 A.Ys. for Cooperative society) b

Industrial undertaking located

at industrially backward state
specified in Eighth Schedule

100% for first 5 A.Ys. and 25% (30% for

company) for next 5 A.Ys. (7 A.Ys. for Cooperative society)

Industrial undertaking located

in the State of Jammu and
Kashmir

100% for first 5 A.Ys. and 25% (30% for

company) for next 5 A.Ys. (7 A.Ys. for Cooperative society)

Small-scale industrial
undertaking.

25% (30% for company) for first 10 A.Ys. (12

A.Ys. for Co-operative society).

Hotels (approved by the

prescribed authority) located in
a hilly area or a rural area or a
place of pilgrimage or other
place notified by Central
Government.

50% for first 10 A.Ys. beginning with the

assessment year relevant to the previous year
in which the business of hotel starts
functioning.

Type of undertaking

Period of deduction

Hotels (approved by the

prescribed authority) located
other than above.

30% for first 10 A.Ys. beginning with

the assessment year relevant to the
previous year in which the business
of hotel starts functioning.

Business of building, owning and

operating a Multiplex theatre

50% for first 5 A.Ys. beginning with

the assessment year relevant to the
previous year in which a cinema hall,
being a part of the said multiplex
theatre, starts functioning.

Business of building, owning and

operating a convention centre

50% for first 5 A.Ys. beginning with

the assessment year relevant to the
previous year in which the convention
centre starts operating on a
commercial basis.

Any company registered in India

(approved by prescribed
authority after 31st March, 2000)
carrying on scientific research
and development.

100% for first 10 A.Ys. beginning with

the assessment year relevant to the
previous year in which the company
is approved by the prescribed
authority.

Type of undertaking

Period of deduction

Undertaking engaged in commercial

production or refining of mineral oil,
Production of Natural gas under
licensed under NELP VIII OR Round IV
of coal Bed Methane Block.

100% for first 7 A.Ys. beginning with

the assessment year relevant to the
previous year in which the
undertaking commences the
commercial production or refining of
mineral oil.

Undertaking engaged in developing

and building housing projects

100% of the profits derived in the

previous year relevant to any
assessment year from such housing
projects.

Undertaking engaged in setting up

and operating a cold chain facility for
agricultural produce

100% for first 5 A.Ys. and 25% (30%

for company) for next 5 A.Y

Undertaking engaged in (a) business

of processing, preservation and
packaging of fruits and vegetables or
(b) integrated business of handling,
storage and transportation of
foodgrains.

100% for first 5 A.Ys and 25% (30%

for company) for next 5 A.Ys

Undertaking engaged in operating

and maintaining a hospital in a rural
area

100% for first 5 A.Ys

80IC
For

States of Sikkim and North Eastern States 100%

for first 10 A.Ys. beginning with the assessment year
relevant to the previous year in which the undertaking
or enterprise begins to manufacture or produce
articles or things or commences operation or
completes substantial expansion.
For States of Himachal Pradesh and Uttaranchal
100% for first 5 A.Ys. and 25% (30% for company) for
next 5 A.Ys. beginning with the assessment year
relevant to the previous year in which the undertaking
or enterprise begins to manufacture or produce
articles or things or commences operation or
completes substantial expansion.

SECTION 80-IA
DEDUCTIONS IN RESPECT OF PROFITS & GAINS FROM CERTAIN INDUSTRIAL
UNDERTAKINGS ENGAGED IN INFRASTRUCTURE DEVELOPMENT, ETC.

Persons

Covered
Assessee carrying any of the following eligible businesses
through an industrial undertaking or enterprise except any
person who executes a work contract (including the contract
awarded by central or state government) w.e.f 1st day of
April, 2000:
(A) Provision of infrastructure facility;
(B) Telecommunication services;
(C) Industrial parks or special economic zone;
(D) Power generation, transmission and distribution,
(E) Renovation, Reconstruction or revival of Power Generating
Plant
Eligible Amount
Profits and gains derived by an undertaking or enterprise from
any of the above businesses.

DDT
When

a company announces dividends, it is liable to pay a tax on

the amount that is paid as dividend. This tax is referred to as the
dividend distribution tax and is payable by the company
announcing the dividends. Investors can receive dividends from
two types of companies, foreign and domestic. The tax situation
for each of these is:
Domestic Companies: investors wont have to pay any tax on
the income they earn from dividends announced by domestic
companies that they may have invested in.
Foreign Companies: If the investor has invested in a foreign
company then the dividends paid by the company will be taxable
and the tax will have to be paid by the investors.
The dividend distribution tax is also applicable to mutual fund
investments but since investments in domestic equities (Indian
companies) are exempt from this tax, it is applicable to
investments in the money/debt markets.

Rules for DDT

There

are certain rules that are followed when assessing

dividend distribution tax and they are mentioned in section
115-O of the IT Act. These rules are:
The profits made by domestic subsidiaries of a company
wont be included in the profit while computing the dividend
distribution tax.
If the subsidiary is a foreign company then a tax will be paid
by the parent company on the income for the subsidiary.
Dividends once taxed, cannot be taxed a second time.
The DDT has to be paid to the government within 14 days
of the declaration, distribution or payment of dividends.
The responsibility for paying the tax lies with the company
and the principal officer.

 The

Domestic Company is liable to

pay DDT at 16.995 percent
( inclusive of surcharge and
education cess) on such
dividends.and tax at this effective
rate of 16.995% is paid on the
amount of dividend paid/income
distributed.

 Dividend

is an income received by the person holding

shares in a company. Dividends are the portion of
profits of a company distributed to its members. So
this a chargeable income, but in order to avoid the
complexity in collecting tax from every assessee
receiving dividend, government has introduced DDT ,
where company deducts tax from dividend income
while distributing to its members and pays remaining
amount to shareholders.
Thats why dividend received by the shareholders is
not taxable in their hands. Prior to the introduction of
DDT dividend in the hands of share holders was
taxable

 dividend

distribution tax shall be paid to the

credit of the central government within 14 days
from the date of declaration, distribution or
payment of any dividend whichever is earliest by
the company.
Upto 30.09.2014, the tax rate of 15% was
applied on the actual dividend distributed. But
w.e.f. 1.10.2014 the amt of divident distributed
shall be presumed as 85% and shall be grossed
up to 100% then 15% shall be applied on such
gross amount

STT
STT

is levied on every purchase or sale of securities that

are listed on the Indian stock exchanges. This would
include shares, derivatives or equity-oriented mutual
funds units
The securities transaction tax (STT) was introduced in India a few
years ago, to stop tax avoidance of capital gains tax. Earlier,
many people usually didnt declare their profits on the sale of
stocks and avoided paying capital gains tax. The government
could tax only those profits, which have been declared by people.
To stop this situation, the then Finance Minister P Chidambaram
in the Union Budget 2004-05introduced STT. Transactions in
stock, index options and futures would also be subject to
transaction tax. This tax is payable whether you buy or sell a
share and gets added to the price of the stock at the time the
transaction is made. Since brokers have to automatically add this
tax to the transaction price, there is no way to avoid it.

Scope of STT
According

to the Securities Contracts (Regulation) Act, 1956,

STT would be applicable on following securities.
Shares, bonds, debentures, debenture stock or other
marketable securities of a like nature in or of any incorporated
company or other body corporate
Derivatives
Units or any other instrument issued by any collective
investment scheme to the investors in such schemes
Security receipt as defined in section 2(zg) of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002
Government securities of equity nature
Rights or interest in securities
Equity-oriented mutual funds
STT is not applicable for any off-market transaction.

STT rates
Product
EquityDelivery
EquityIntraday
Future
Option

Transact
ion

STT rate

Charged on

Purchase
Sell
Purchase
Sell
Purchase
Sell

0.10%
0.10%
0.025%
0.010%

Turnover
Turnover
Turnover
Turnover

Purchase

0.125%

Settlement price,
on exercise

Sell

0.017%

Premiu

 Taxation

of profit or loss from securities

transactions depends on whether the
activity of purchasing and selling of shares
/ derivatives is classified as investment
activity or business activity. Treatment of
STT also depends upon whether the
income from these securities transactions
are included under the head Income from
Capital Gains or under the head Profits
and Gains of Business or Profession.

Scenario 1: Income from Capital Gains

This refers to the scenario where the assessee is either Salaried or is engaged
in some other business or profession and trading in securities is not the main line of business. In such cases gains or losses from securities
transactions are taxed under the head Income from Capital Gains. Gains or losses are subject to Short Term Capital Gains (STCG) or Long Term
Capital Gains (LTCG) tax depending upon the period of holding, i.e., if the holding period is less than 1 year, gains are classified as STCG and if the
holding period is equal to or greater than 1 year, gains are classified as LTCG. Any equity share, which has been sold through a recognised stock
exchange and on which STT has been paid, is entitled to exemption from LTCG under Section 10 (38) of the Act. Similarly, in case of STCG of such
shares, the gains shall be taxed only at 15%, plus surcharge and education cess under section 111A of the Act.
Important points to note:
STCG and LTCG rates of 15% and NIL are available only if the specified security is sold through a recognised stock exchange. Private deals or
transactions, not routed through a recognised stock exchange in India, will not be covered
the purchase of the specified securities could be through any mode and need not be through a recognised stock exchange
The exemption is not available to transactions where STT has not been paid
Since LTCG is exempt, Long Term Capital Loss, arising from these specified securities, cannot be set-off against any other gain/income. This loss
shall lapse
As per section 40(a)(ib) of the Income tax Act, STT cannot be claimed as an expense in computing the income chargeable under Capital Gains
Scenario
2:
Profits
and
Gains
of
Business
or
Profession

This refers to the scenario where main business of the assessee is trading in securities. In such cases the gains or losses are classified as business
income, which is taxed at the regular rate of income-tax. STT paid in respect of taxable securities transactions entered into in the course of business
shall be allowed as deduction under section 36 of the Income-tax Act.

Set off and carry

forward
refer word doc

 Section

40A (3):
Any payment exceeding Rs. 20000 or Rs.35000( in case of
payment to a transporter engaged in plying, hiring, transporting
etc.) in a day by a assessee will be allowed as a deduction only
when payment is made by a account payee cheque.
EXCEPTIONS:
This section is not applicable when
Payment is made to bank or financial institution,
Govt. Under required law
Payment on a Banking Holiday
Payment to employees not exceeding Rs.50,000 Payment in a
village not served by a bank
Book Adjustment
Payment for purchase of agriculture produce, Poultry farm
produce, Dairy items, cottage industry(working without aid of
power.