UNIT-II

Tax Planning with reference to setting up of a new business

Q1) Explain the tax planning with reference to locational aspect of a new business.                                                     12

A1) Tax plan for launching a business with reference to locations related to A.Y2021-2022 and A.Y2022-2023. If you set up a business unit in the following location according to the next section, the following deductions apply:

1. Income from newly established units in the special economic zone. (Section 10AA) 2021-2022

1. Special provisions for newly established units in special economic zones. 10AA.

While calculating the total income of an entrepreneur, as in Section 2 of the 2005 Special Economic Zones Act from units that begin manufacturing or producing or providing services for goods or goods after April 1, 2006. However, by the first day of April 2021, the following deductions will be granted:

1. 100% of the profits and profits obtained from the export of such goods or goods, the service for the period of the fifth consecutive valuation year, and 50% of such profits and profits after the further five years of valuation year.
2. For the next five consecutive years, 50% of such gains and losses, or the amount debited to the profit and loss account and credited to the SEZ reinvestment reserve account (created and used for business purposes) evaluator) Whichever is less

B.    If the amount credited to the Special Economic Zone Reinvestment Reserve Account is used for a purpose other than the specified purpose, that amount will be used accordingly. Alternatively, if it is not used before the expiration of the specified period, the amount not used in that way will be considered profit and will be taxed accordingly.

C.   This section applies to all businesses that are units that meet all of the following conditions:

1. Started or started manufacturing or manufacturing or providing services of goods or goods during the previous year related to the evaluation year beginning on or after April 1, 2006 in the Special Economic Zone.
2. It was not formed by the division or reconstruction of an existing business.
3. It was not formed by the transfer of a machine or plant that was previously used for any purpose to a new business.

D.   Profit calculation

The profit from the export of goods manufactured in the SEZ unit can be calculated using the following formula:

1. Business profit of unit in SEZ × Export sales of unit in SEZ / Total sales of unit in SEZ

E.    Evaluation year 2022-2023

Same provisions applicable to evaluation year 2021-2022

2.     Profit and profit deductions from businesses or companies engaged in infrastructure development (Section 80-IA).

Evaluation year 2021-2022

If the company does the following activities, the company can claim the following deductions

A. Development, operation, or maintenance of infrastructure facilities

No deductions will be granted to companies starting the businesses listed in (A) after January 4, 2017.

B. Development, operation or maintenance of industrial parks and special economic zones. The relevant dates are: ---

1. Industrial Park-March 31, 1997-January 4, 2011
2. Special Economic Zone — March 31, 1997-January 4, 2006

C. Power generation and distribution

1. Power generation and distribution will begin on March 31, 1993 and by January 4, 2017.
2. From March 31, 1999 to January 4, 2017, transmission or distribution will begin by laying a new transmission line or distribution network.
3. From March 31, 2004 to January 4, 2017, we will carry out a major refurbishment and modernization of the existing network of transmission lines or distribution lines.

D. Rebuilding or reviving a power plant

The amount and duration of the deduction.

100% of such profits for the 10th consecutive valuation year.

Conditions

1. Business is not formed by splitting or rebuilding existing units

No business is formed by the transfer of a machine or plant that was previously used for any purpose (up to 20% of the previously used plant or machine is permitted).

Ii.       Account audit

Prior to the specific date mentioned in Section 44AB, the accountant was audited by the accountant defined in the description below subsection (2) of Section 288, and the evaluator by that date is such an accountant.

Iii.       Withdrawal of deduction

The government may withdraw the deduction for a particular business after making an inquiry.

Evaluation year 2022-2023

Same provisions applicable to evaluation year 2021-2022

3.     Profit and profit deduction (Sec 80-IAB) from businesses or companies engaged in the development of special economic zones.

Evaluation year 2021-2022

Eligible Assessor

Developers engaged in SEZ development projects notified after January 4, 2005 and before January 4, 2017.

The amount and duration of the deduction.

100% of such profits in 10 consecutive years of evaluation

Other provisions related to this section are:

1. Account Audit

An audit by the CA is required and the assessor must send an audit report with the return of income.

Ii.       Withdrawal of deduction

The government may withdraw the deduction for a particular business after making an inquiry.

Evaluation Year 2022-2023

Same provisions applicable to evaluation year 2021-2022

4.     Profit and profit deductions from certain start-ups (Sec 80-IAC).

Evaluation year 2021-2022

Qualified Assessor

1. Company
2. LLP.

Conditions

1. Assessors will be incorporated after January 4, 2016 and before January 4, 2021.
2. Total sales do not exceed 100 rupees in the past year related to the valuation year for which deductions under subsection (1) are requested.

Amount and duration of deduction

100% of such profits for the third consecutive valuation year out of the ten years beginning from the year the target start-up was founded.

General Conditions

i. Business is not formed by splitting or rebuilding existing units

Ii. The business was not formed by the transfer of a machine or plant that was previously used for any purpose (up to 20% of the previously used plant or machine is permitted).

Other provisions related to this section are:

Calculation of income for deduction

The calculation of income for distribution should be done as follows-

1. Account Audit

An audit by the CA is required and the assessor is expected to send an audit report along with the return of income.

b.    Withdrawal of Deduction

The government may withdraw the deduction for a particular business after making an inquiry.

Evaluation Year 2022-2023

Same provisions applicable to evaluation year 2021-2022

5.     Profit and profit deductions for non-infrastructure development projects (Section 80-IB).

Evaluation Year 2021-2022

If the total income of the assessed person includes profits and profits from the businesses mentioned in subsections (3) to (11), (11A), and (11B) (hereinafter such). A business is called a qualified business, in accordance with the provisions of this section, such profits and deductions of such valuation years from profits shall be permitted in calculating the total income of the valuated person as specified in this section.

1. The deductions for industrial enterprises in the backward state of industry specified in Schedule 8 begin with the first valuation year and then the profits from such industrial enterprises during the five valuation years of the next 20 years. And should be 100% of the profit. 5 percent of the profits and profits from such an industrial business (or 30 percent if the assessor is a company).
2. Deductions for businesses located in industrial rear districts, such as the central government, may be designated as Industrial Rear Category A or Industrial Rear instead, taking into account the prescribed guidelines notified in the official bulletin. Increase. Category B districts look like this-

1. 100% of the profits and profits from industrial businesses in the rear districts of Category A are 5 years from the first valuation year and then 25% (or 30% if the valuator is a company). Profit and profit of industrial business.
2. 100% of the profits and profits from industrial businesses in the rear area of   Category B are 3 years from the first valuation year and then 25% (or 30% if the valuator is a company). Industrial business profits and profits

c. The deduction amount for Multiplex Theatre is as follows.

1. 50% of the profits and profits from the multiplex theatre construction, ownership and operation business will take place anywhere for the fifth consecutive year since the first evaluation year.

However, what is included in this clause is in locations within the jurisdiction of the cities of Chennai, Delhi and Mumbai in Mumbai (known by municipalities, municipalities, notification area committees, cantonment boards, or other names). It shall not apply to multiplex theatres or Kolkata.

d.     The deduction to a business must be 100% of the profit for the period of seven consecutive valuation years, including the first valuation year, if such business meets any of the following:

a. Is located in the northeast and started or started commercial production of mineral oil before April 1, 1997.

e.     For businesses that benefit from businesses operating and maintaining hospitals anywhere in India, excluding excluded areas, the deduction shall be 100% of the profits and profits from such businesses. Continuous evaluation years starting from the first evaluation year.

Evaluation Year 2022-2023

Same provisions applicable to evaluation year 2021-2022

Special category of business or company Profit from the country and deduction for profit (Sec80-IC).

Evaluation Year 2021-2022

Started or started the production or production of the goods or goods specified in the 14th schedule, started the operations specified in the schedule, or manufactured or produced the goods or goods specified in the 14th schedule, or the business that started the specified operation The schedule will be significantly expanded during the start period-

1. In Sikkim, it will end on December 23, 2002 and before April 1, 2007. Also
2. Ended January 7, 2003, before April 1, 2012, Himachal Pradesh or Uttarakhand or
3. North-eastern states ending December 24, 1997, before April 1, 2007.

1. In the case of Clause i and Clause iii above, 100% of such profits and profits in the 10 valuation years starting from the first valuation year
2. In the case of paragraph ii above, starting from the first valuation year, 100% of the profits and profits of the following five valuation years, 25% of the profits and profits (or 30% if the valuator is a company).

Evaluation Year 2022-2023

Same provisions applicable to evaluation year 2021-2022

7. Profit and profit deductions for certain businesses in the north-eastern states (Sec 80-IE).

Evaluation Year 2021-2022

The deduction shall be granted to businesses that began production during the following period in any of the following north-eastern states:

Period-January 4, 2007-January 4, 2017

1. North-eastern states
2. Arunachal Pradesh
3. Assam
4. Manipur
5. Meghalaya
6. Mizoram
7. Nagaland
8. Sikkim
9. Tripla

Production activities that are eligible for deduction.

1. To manufacture or manufacture qualified goods or goods

b.     Making significant expansions to manufacture or produce qualified goods or goods

c. To continue a qualified business.

What is a qualified business?

1. Hotels not below the 2-star category
2. Adventure sports and leisure sports
3. Providing medical and health services
4. Cunning home for the elderly
5. Biotechnology related things, etc.

Amount and duration of deduction

100% of the profits earned from such businesses during the 10th consecutive valuation year starting with the first valuation year.

Evaluation Year 2022-2023

The same provisions that apply to the year 2021-2022.

8. Additional depreciation in the notified backward area

Evaluation Year 2021-2022

Assessors establishing new manufacturing companies in Andhra Pradesh, Telangana, Bihar, or West Bengal are subject to an additional depreciation of 15% of the cost of the new asset.

Evaluation Year 2022-2023

Same provisions applicable to evaluation year 2021-2022

Q2) Explain the tax planning with reference to nature of business of a new business.                                                        8                             

A2) Tax planning at the time of business establishment with reference to the nature of the business related to A.Y2021-2022 and A.Y2022-2023 – Analysis of six important deductions under the Income Tax Act

If you establish the following types of business units according to the following section, the following deductions apply: I would like to include an analysis of six important deductions under the Income Tax Act. Remember that there are so many concessions related to the nature of the business. However, this article focuses on six deductions related to the nature of the business.

1. Tea development account, coffee development account, rubber development account (section 33AB).

Evaluation Year 2021-2022

The permissible deduction amount is the lower of the following:

1. A sum equal to or a sum equal to the amount deposited according to this section
2. A total equal to 40 percent of the profits of such a business (calculated under the heading "Business or Occupational Profit and Profit" before making any deductions under this section).

Deductions based on this section are audited by an accountant whose accounting for such business of the previous year's evaluated person related to the valuation year for which the deduction is requested is defined in the description in subsection (2) below. Unless it has been done, it will not be accepted. Section 288 prior to the designated date referred to in Section 44AB, and the assessor, by that date, submit a report of such an audit in the prescribed form formally signed and verified by such an accountant.

Evaluation Year 2022-2023.

There is no change in the evaluation year 2022-2023.

2.     Site Restoration Fund (Section 33 ABA)

Evaluation Year 2021-2022.

Assessors operate in India consisting of exploration or mining or production of oil and / or natural gas, and in this regard the central government has signed agreements with such assessors for such operations. I'm out. By the end of the previous year, assessors must either (a) deposit the amount with SBI under a scheme approved by the Government of India's Ministry of Petroleum and Natural Gas, or (b) deposit any amount with the Site Restoration Account. The permissible deduction amount is the lower of the following:

1. Amount deposited under the scheme above, or
2. a total equal to 20% of the profits of such a business (before making any deductions based on this section, of "Business or Occupational Profit and Profit" Calculated under the heading).

Deductions based on this section are audited by an accountant whose accounting for such business of the previous year's evaluated person related to the valuation year for which the deduction is requested is defined in the description in subsection (2) below. Unless it has been done, it will not be accepted. ) A report of such an audit in section 288 prior to the designated date referred to in Section 44AB, and by that date, in the prescribed format formally signed and verified by such an accountant to submit.

Evaluation Year 2022-2023.

There is no change in the evaluation year 2022-2023.

3.     Specific businesses that are eligible for capital expenditure deductions (Section 35 AD)

Evaluation Year 2021-2022.

If the assessor chooses to be granted a deduction for the entire capital-based expenditure incurred completely and exclusively for the purposes of the particular business he undertook the year before such expenditure occurred.

Evaluation Year 2022-2023.

There is no change in the evaluation year 2022-2023.

4.     Amortization of specific reserves (Section 35D)

Evaluation Year 2021-2022.

1. Deductible – 1/5 of the next reserve for the last 5 years

1. Spending related to-

1. Creating a feasibility report
2. Creating a project report
3. Conducting market research or another research necessary for the evaluated person's business
4. Engineering services related to the business of the person being assessed

1. Legal costs to draft an agreement between the evaluator and others for purposes related to the establishment or implementation of the evaluator's business.

B.    If the person being assessed is a company, the expenditure is also-

1. As a legal expense to draft a company memorandum and articles of incorporation.
2. About printing of memorandum and articles of incorporation
3. As a company registration fee based on the provisions of the Companies Act of 1956
4. Fees, brokerage and fees for issuing company stock or bonds, drafting prospectuses, entering, printing, and advertising in connection with public offering issues.

C.   Other spending items that may be prescribed

2.     If the above total spending exceeds the amount calculated at 5%-

1. Of the cost of the project
2. If the assessor is an Indian company, at the choice of the company, of the capital, of the capital used in the company's business

Excesses shall be ignored for the purpose of calculating the deductions allowed in subsection (1).

3.     If the person subject to assessment is someone other than a company or co-operative, deductions will not be granted under subsection (1). Section (2) is audited by the accountant prior to the designated date mentioned in Section 44 AB, as defined in the description below subsection (2) of Section 288, and the assessor is deducted. Offer in the first year of being. Under this session, reports of such audits up to that date in a given format will be claimed.

Evaluation Year 2022-2023.

There is no change in the evaluation year 2022-2023.

5. Expenditure on exploration of specific minerals (Section 35E)

Evaluation Year 2021-2022

Eligible spending amortization is allowed in instalments evenly over a 10-year period. The amount that can be deducted each year is as follows.

1. 1/10 of the target expenditure or
2. Earnings from the previous year resulting from the commercial development of the mine or the deposition of minerals of other properties (before section 35 E deduction).

If the person being assessed is a person other than a company or co-operative, deductions under subsection (1) are permitted unless the person being assessed is accounted for in the year in which the expenditure specified in subsection (1) was made. It shall not be possible. 2) Prior to the specified date mentioned in Section 44 AB, audited by an accountant as defined in the description below subsection (2) of Section 288, and the evaluated person under this. A session to be offered in the first year in which the deduction is made is claimed and a report of such an audit by that date in a prescribed format.

Evaluation Year 2022-2023.

There is no change in the evaluation year 2022-2023

6. Special reserve made by the financial company under Section 36 (1) (viii)

Evaluation Year 2021-2022

An amount not exceeding 20%   of the profits earned from a qualified business calculated under the heading "Business or Occupational Benefits and Benefits" for special reserves created and maintained by a particular entity (under this clause). It will be taken to such a reserve account (before making the deduction).

Evaluation Year 2022-2023.

There is no change in the evaluation year 2022-2023.

Q3) Discuss about the tax planning of a form of business of a new business unit.

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A3) New businesses can be organized in one of the following formats:

1. Private business
2. Hindu undivided family
3. Association of individuals or groups of individuals
4. Partnership / LLP
5. Company
6. Cooperative

The choice of a particular form of organization depends not only on tax aspects, but also on other considerations, such as financial and resource requirements, limited liability requirements, and many other practical considerations.

However, depending on the tax status of the owner and the level of tax liability, you can choose from the various forms available to set up a new unit.

1. Self-employed:

In the case of sole proprietorship concerns, one of the important tax disadvantages is the services provided by the taxpayer to keep the business running when calculating income from the business. As a result, more taxable income is generated than in the case of private companies where individuals serve as managing directors. In the case of a private company, a reasonable remuneration to the managing director is allowed as an item of project cost, and within this allowable range, taxable income from the business will decrease, and the tax return will decrease accordingly it will be reduced.

Under the sole proprietorship, the total income of the business unit is assessed by the same person along with the other income, and the total loss and other allowances are to be offset by his hand against the other income. It shall be available. This may have some advantages in the first few years, after which the possibility of turning it into a company / company may be considered. Issues such as the possibility of capital gains tax should be considered for such conversions.

b.    Hindu Undivided Family:

Hindu undivided families as a unit of tax continue to exist for the purpose of running a business, often with the family running on behalf of the family. The law does not specifically provide for the disapproval of such costs, so it is advantageous to continue business through HUF wherever possible. The family's income is calculated and first taxed on the family's hands at the tax rate applied to it. The family's income may then be distributed among the members of the family, in such cases taking into account the specific tax exemption granted under Article 10 (2) of the Income Tax Act and does not attract tax liability,1961. Therefore, if the business is carried out by a Hindu undivided family, the benefits available in the case of the company can be fully utilized, and in addition, family members will not be obliged to tax them receive any portion of your family's income.

c.     Partnerships / LLPs:

All companies and LLPs are taxed at a flat rate of 30%. If the total income exceeds 100 million rupees, an additional charge @ 12% will be attracted.

In addition, education cess @ 2% and secondary and higher education cess @ 1% apply. There is no initial tax exemption and the entire income is taxed. When calculating a company's taxable income, it is necessary to allow certain deductions for interest and compensation. Company stock income in the hands of company partners is completely exempt.

d.    Company:

Usually for large ventures that require large investments and redemptions in loans from banks and institutions you need to hire a limited company. However, there are several options for corporate organizations. Based on ownership and control, a company is a widely owned company, that is, a company of substantial public interest within the meaning of Section 2 (18) of the Income Tax Act of 1961 can be organized as it can be organized as a closely held company. Depending on your choice of organizational structure, you should consider the following important tax implications from a tax planning perspective:

(1) The applicability of the provisions of Article 2 (22) (e) regarding deemed dividends on advance payments or loans to shareholders also depends on whether it is a company of substantial interest to the public depends. It should also be noted that the scope of these provisions has been significantly expanded by the occasional amendments made in Sections 2 (22) (e).

(2) The provisions of Article 79 regarding restrictions on the carry-forward of losses in the event of a significant change in the shares of a company also apply if the company is a company that has virtually no interest in the general public. This aspect is especially important for close companies where losses occur and shares are transferred before such losses are fully absorbed.

(3) Domestic enterprises shall pay tax @ 17.304% (15% + surcharge @ 12% + cess @) on any dividend declared, distributed or paid, except for dividends under Section 2 (22) (e). Please note that you have to pay 3%).

Therefore, it can be seen that the concept of deemed dividends under the provisions of Section 2 (22) (e) and Section 79 does not apply to privately held companies.

e.     Subsidiaries vs. Branches:

Income tax rates for foreign corporations can be as high as 50% or 40% in some cases (plus an additional charge @ 2% for total income).

30% of domestic companies (additional charge @ 7% if total income exceeds Rs 1 crore, @ 12% if total income exceeds Rs 10 crore), compared to Rs 1 crore and Rs 10 crore Is over 5%. This is because the former distribution is generally not taxed in India. In addition, certain tax incentives available to domestic companies are not available to foreign companies. Some examples are contingency amortization, spending on mineral exploration, export incentives, incentives for foreign project profits, convertible forex income, tax holiday profits for ships, hotels, etc. A foreign company that intends to do business in India does business through a subsidiary rather than directly through a branch office.

f. Co-operatives:

The co-operative form of a corporate organization, that is, co-operatives, is also advantageous from a tax perspective.

Deductions for the amount of reasonable compensation paid to members of society for the services provided, including the amount of fees payable to members of society, in addition to the general benefits that flow from the co-operative to society can be billed. Interest on deposits or loans given by them. Co-operatives are entitled to additional tax incentives arising from Section 80P, where co-operative income is exempted under various circumstances, depending on the nature and / or amount of income.

In addition to the various tax incentives available for all assessments, the co-operative is in a position to substantially benefit from the special benefits available under Section 80P. The social benefits that remain after the payment of taxes will be distributed among its members in the form of dividends in accordance with relevant law.

However, the benefits under Section 80P are wef 2007-08, the Primary Agricultural Credit Association (i.e., defined in Part V of the Banking Regulation Act of 1949) and the Primary Cooperative Agricultural and Rural Development Bank (i.e., its region). The main purpose of the operation limited to Tarku with respect to all co-operative banks except (Society with) is to provide long-term credit for agricultural and rural development activities. It is intended to treat co-operative banks equivalent to other commercial banks that do not enjoy similar tax incentives.

From the above analysis of the various forms of organizations and their treatment for income tax purposes, it is understood that the provisions of tax law have a significant impact on entrepreneurs' choice of the particular form of organization to be established.

Q4) Write a note on tax considerations of optimal capital structure.           5

A4) The optimal capital structure is a combination of equity capital and debt funds. Their configuration depends on many factors.

1. Cost of capital and expenditures for raising such capital.
2. Expectations for shareholders through dividends, growth, etc.
3. The need to expand the business, that is, the rate at which the profits of the business are returned to the business again
4. Taxation policy;
5. Return on investment (equity + debt fund).

Tax Considerations

Interest on the debt fund is allowed as a deduction because it is a project cost. Therefore, the return on equity of the owner may increase.

Dividends to equity funds are not allowed as deductions as they are commensurate with the profits. Dividends are exempt in the hands of shareholders u / s 10 (34). However, the company that declares the dividend shall pay the dividend distribution tax @ 12.5%   + additional fee + education fee.

The cost-raising owner's funds are treated as capital expenditures and are not allowed as deductions. However, in the case of the second condition. Once 35D is met, the specified expenditure can be amortized.

The cost of raising the dent fund is treated as revenue expenditure. This can be claimed as a deduction when calculating total income.

If the evaluator is eligible for an incentive such as 10A, then the largest equity fund should be used.

If interest on the debt fund is paid outside India, the tax should be withheld, otherwise deductions are not allowed.

Q5) Discuss about the planning of tax for dividend distribution.               5

A5) Tax planning by issuing Bonus Shares

If bonus shares are issued to shareholders, the value of the shares will not be taxed as dividends. However, if redeemable preferred stock is issued as bonus stock, the amount shall be taxed as dividends at the time of redemption.

1. If bonus stock is issued to preferred shareholders, it will be considered as a dividend at the time of issuance and will be taxable.
2. The cost of issuing bonus shares is not allowed as a deduction due to capital expenditures.
3. Tax planning by purchasing treasury stock or distributing dividends

Purchase of treasury stock:

1. When a company purchases its own shares, shareholder repayments are not treated as dividends.
2. However, every second. 64A, if a company purchases its own shares from shareholders, capital gains generated by the shareholders are taxable.
3. Capital gains are calculated at 48u / s. Indexing acquisition costs

Value of the year of purchase shares
                                                                       X Cost of acquisition Index value of the year of acquisition of share

Q6) Write a brief note on tax planning with reference to sale of scientific research assets.                                   12

A6) After an asset is no longer used for scientific research related to its business, the actual cost of the asset contained in the block of related assets is 100, as described in Section 43 (1), 1 where the asset is used in the business. Nil because% deduction is already allowed. If such an asset is sold, the value of the block shall be reduced by the sale value of the asset.

Section 41 (3). Scientific research assets sold unused for business purposes

(1) If an asset that represents the capital nature of spending on scientific research is sold, (2) if it is not used for any other purpose, and (3) the sale price and the amount of education actually provided. , The deduction amount exceeds the capital expenditure (4) The excess amount or the deduction amount, whichever is smaller, (5) The year in which the sale is made, which shall be subject to income tax as income of the previous business or occupation.

This clause applies even if the business does not exist during PY.

Analysis:

Profit from business = selling price or cost, whichever is lower.

Capital gains = consideration for sale minus acquisition costs. LTCA minus indexed acquisition costs. There can be no loss under Capital G's head

Tax Planning View:

The question of tax planning is whether to sell scientific research assets for business purposes or not for business purposes.

Scientific research assets can be sold without being used for business purposes. The sale of the scientific research assets themselves shall result in capital gains, which are either short-term capital gains or long-term capital gains.

The sale of scientific research assets after they have been used for business purposes shall reduce depreciation for subsequent years. Capital gains occur in response to blocks of assets. According to Section 50, capital gains can only occur on the last day of PY.

There is no block of assets;

WDV is zero.

If the assessor bears capital-related expenditures on scientific research related to his or her business, the full amount of such expenditures in the previous year is acceptable as a P.Y. Deduction.

The following three factors are required to meet the capacity under Section 35:

(I) Expenditures were incurred during the year.

(II) It is of a capital nature.

(III) It should be in scientific research.

Below is an example of capital expenditures that can be deducted for $ 35.

(1) Costs for purchasing plants and equipment for laboratories, and for purchasing or constructing buildings for conducting research.

(2) Purchase cost of air conditioner for laboratory.

(3) Purchase costs for cars and buses used to transport employees engaged in scientific research —

(4) Approach to R & D Research Institute Expenditure borne by evaluated persons for road construction — (IT V. Sandoz (India Ltd. (1994)).

Tax treatment when selling an asset: If the asset is sold without being used for any other purpose, the lesser of the sale price or the deduction will be taxed as business income the year before the sale [Section] 41 (3)]. However, the sale price exceeding the permitted deduction amount will be taxed as capital gains in accordance with the provisions of Article 45.

No depreciation allowed: No depreciation deduction is allowed for assets used in scientific research either in the year in which the expenditure was incurred or in the following year. The law does not stipulate that an assessor can acquire a business asset, use the business asset for a certain period of time, and then transfer it by simply filling in the books from the business side to the resident side. Deduction benefits under Section 35.

Q7) Discuss about the tax planning of income from newly established units in the special economic zone for the year 2021-22.                    8

A7) Special provisions for newly established units in special economic zones. 10AA.

While calculating the total income of an entrepreneur, as in Section 2 of the 2005 Special Economic Zones Act from units that begin manufacturing or producing or providing services for goods or goods after April 1, 2006. However, by the first day of April 2021, the following deductions will be granted:

1. 100% of the profits and profits obtained from the export of such goods or goods, the service for the period of the fifth consecutive valuation year, and 50% of such profits and profits after the further five years of valuation year.
2. For the next five consecutive years, 50% of such gains and losses, or the amount debited to the profit and loss account and credited to the SEZ reinvestment reserve account (created and used for business purposes) evaluator) Whichever is less

1. If the amount credited to the Special Economic Zone Reinvestment Reserve Account is used for a purpose other than the specified purpose, that amount will be used accordingly. Alternatively, if it is not used before the expiration of the specified period, the amount not used in that way will be considered profit and will be taxed accordingly.

B.    This section applies to all businesses that are units that meet all of the following conditions:

1. Started or started manufacturing or manufacturing or providing services of goods or goods during the previous year related to the evaluation year beginning on or after April 1, 2006 in the Special Economic Zone.
2. It was not formed by the division or reconstruction of an existing business.
3. It was not formed by the transfer of a machine or plant that was previously used for any purpose to a new business.

C.   Profit calculation

The profit from the export of goods manufactured in the SEZ unit can be calculated using the following formula:

II.       Business profit of unit in SEZ × Export sales of unit in SEZ / Total sales of unit in SEZ

D.   Evaluation year 2022-2023

Same provisions applicable to evaluation year 2021-2022

Q8) Discuss about tax planning of the profit and profit deductions from businesses or companies engaged in infrastructure development.     5

A8) If the company does the following activities, the company can claim the following deductions

A. Development, operation, or maintenance of infrastructure facilities

No deductions will be granted to companies starting the businesses listed in (A) after January 4, 2017.

B. Development, operation or maintenance of industrial parks and special economic zones. The relevant dates are: ---

c. Industrial Park-March 31, 1997-January 4, 2011

d.     Special Economic Zone — March 31, 1997-January 4, 2006

C. Power generation and distribution

d.     Power generation and distribution will begin on March 31, 1993 and by January 4, 2017.

e.     From March 31, 1999 to January 4, 2017, transmission or distribution will begin by laying a new transmission line or distribution network.

f.  From March 31, 2004 to January 4, 2017, we will carry out a major refurbishment and modernization of the existing network of transmission lines or distribution lines.

D. Rebuilding or reviving a power plant

The amount and duration of the deduction.

100% of such profits for the 10th consecutive valuation year.

Conditions

Iv.       Business is not formed by splitting or rebuilding existing units

No business is formed by the transfer of a machine or plant that was previously used for any purpose (up to 20% of the previously used plant or machine is permitted).

v.       Account audit

Prior to the specific date mentioned in Section 44AB, the accountant was audited by the accountant defined in the description below subsection (2) of Section 288, and the evaluator by that date is such an accountant.

Vi.       Withdrawal of deduction

The government may withdraw the deduction for a particular business after making an inquiry.

Q9) Discuss about tax planning of the profit and profit deductions for non-infrastructure development projects.                                         5

A9) If the total income of the assessed person includes profits and profits from the businesses mentioned in subsections (3) to (11), (11A), and (11B) (hereinafter such). A business is called a qualified business, in accordance with the provisions of this section, such profits and deductions of such valuation years from profits shall be permitted in calculating the total income of the valuated person as specified in this section.

1. The deductions for industrial enterprises in the backward state of industry specified in Schedule 8 begin with the first valuation year and then the profits from such industrial enterprises during the five valuation years of the next 20 years. And should be 100% of the profit. 5 percent of the profits and profits from such an industrial business (or 30 percent if the assessor is a company).
2. Deductions for businesses located in industrial rear districts, such as the central government, may be designated as Industrial Rear Category A or Industrial Rear instead, taking into account the prescribed guidelines notified in the official bulletin. Increase. Category B districts look like this-

Iii.       100% of the profits and profits from industrial businesses in the rear districts of Category A are 5 years from the first valuation year and then 25% (or 30% if the valuator is a company). Profit and profit of industrial business.

Iv.       100% of the profits and profits from industrial businesses in the rear area of   Category B are 3 years from the first valuation year and then 25% (or 30% if the valuator is a company). Industrial business profits and profits

c. The deduction amount for Multiplex Theatre is as follows.

Ii.     50% of the profits and profits from the multiplex theatre construction, ownership and operation business will take place anywhere for the fifth consecutive year since the first evaluation year.

However, what is included in this clause is in locations within the jurisdiction of the cities of Chennai, Delhi and Mumbai in Mumbai (known by municipalities, municipalities, notification area committees, cantonment boards, or other names). It shall not apply to multiplex theatres or Kolkata.

d.     The deduction to a business must be 100% of the profit for the period of seven consecutive valuation years, including the first valuation year, if such business meets any of the following:

a. Is located in the northeast and started or started commercial production of mineral oil before April 1, 1997.

e.     For businesses that benefit from businesses operating and maintaining hospitals anywhere in India, excluding excluded areas, the deduction shall be 100% of the profits and profits from such businesses. Continuous evaluation years starting from the first evaluation year.

Q10) Discuss about the tax planning of profit and profit deductions for certain businesses in the north-eastern states under sec 80-IE.                            5

A10) The deduction shall be granted to businesses that began production during the following period in any of the following north-eastern states:

Period-January 4, 2007-January 4, 2017

1. North-eastern states
2. Arunachal Pradesh
3. Assam
4. Manipur
5. Meghalaya
6. Mizoram
7. Nagaland
8. Sikkim
9. Tripla

Production activities that are eligible for deduction.

1. To manufacture or manufacture qualified goods or goods

b.     Making significant expansions to manufacture or produce qualified goods or goods

c. To continue a qualified business.

What is a qualified business?

1. Hotels not below the 2-star category
2. Adventure sports and leisure sports
3. Providing medical and health services
4. Cunning home for the elderly
5. Biotechnology related things, etc.

Amount and duration of deduction

100% of the profits earned from such businesses during the 10th consecutive valuation year starting with the first valuation year.

Evaluation Year 2022-2023

The same provisions that apply to the year 2021-2022.

8. Additional depreciation in the notified backward area

Evaluation Year 2021-2022

Assessors establishing new manufacturing companies in Andhra Pradesh, Telangana, Bihar, or West Bengal are subject to an additional depreciation of 15% of the cost of the new asset.

Evaluation Year 2022-2023

Same provisions applicable to evaluation year 2021-2022