TAX PLANNING WITH REFERENCE TO NEW BUSINESS- NATURE OF BUSINESS

(SEC.33AB, 35ABB,35AD, 44AD, 44AE, 44AF, 80JJAA, 115V TO 115VZC)

Submitted To: Prof. Jigna Trivedi

Submitted By: Ravi Joshi(A-21)

Dhiraj Makwana (A-26)

Bhavesh Patel(A-39)

Hardik Patel(A-40)

Poorvi Maniyar(B-27)

Dharmesh Patel(B-

TEA DEVELOPMENT ACCOUNT (SEC. 33AB)

TEA/COFFEE/RUBBER DEVELOPMENT ACCOUNT [SEC.33AB]

The assessee must satisfy the following conditions:

Condition one Assessee must be engage in tea, coffee or rubber plantation.

Condition two It must make a deposit in “special account”.

Condition three The deposit must be made within specified time-limit.

Condition four The account of the assessee should be audited.

Condition one - Engage in tea/coffee/rubber plantation

It must be engaged in the business of growing and manufacturing tea or coffee or rubber in India.

Condition two - Deposit It must make the following deposits:

a. deposit with NABARD

b. deposit for the purpose, specified in a scheme framed by the tea board/coffee board/rubber board with the previous approval of the central government.

Condition three – Time limit The aforesaid amount shall be deposited

within 6 months from the end of the previous year or before the due date of furnishing the returns of income, whichever is earlier.

Condition four - Audit The accounts of the taxpayer should be

audited by a chartered and the report of the auditor in form No.3AC is to be filed along with the return of the relevant assessment year.

AMOUNT OF DEDUCTION

A sum equal to amounts deposited in special account as mentioned earlier

40% of the profits of such business computed under the head “ profits and gains of business or profession” before making any deduction under section 33AB and before adjusted brought forward business loss under section 72

Whichever is less

KEPT IN MIND..

Where any deduction is claimed under this section, no deduction shall be allowed in respect of such amount in any other previous year.

Where a deduction is claimed under and allowed under this section to an association of persons or body of individual, no deduction shall be allowed to any member of the association or body in respect of the same deposit.

Any excess deposit in special account made during a previous year is not treated as deposit made in the next year or any other year.

CONSEQUENCES IN CASE OF CLOSURE OF BUSINESS

When the amount can be withdraw and it is treated as taxable profit

When the amount can be withdraw and it is not treated as income

1.Closure of business

2.Dissolution of firm

1. Death of the taxpayer

2. Partition of H.U.F

3. Liquidation of company

WITHDRAWAL CANNOT BE UTILISED FOR CERTAIN PURPOSE

Cannot be utilised for the purpose of purchase of any machinery or plant to be installed in any office premises or residential accommodation including guest house, any office appliance, any other plant or machinery which either is installed in an undertaking producing low priority items specified in the eleventh schedule in the income tax act or is an item of plant or machinery entitled to 100% write off by way of depreciation or for any other reason in one year.

CONSEQUENCES IF THE NEW ASSET IS TRANSFERRED WITHIN 8 YEARS

To whom it is transferred

Transfer within 8 year form the end of the previous year in which the asset is acquired

Transfer after 8 years.

Transfer to the central, state govt., local authority, a statutory corporation or a govt. company

Deduction will not be withdraw

Deduction will not be withdraw

Transfer in a scheme of succession of a firm by company

Deduction will not be withdraw

Deduction will not be withdraw

Transfer in any other case

Deduction will be withdraw

Deduction will not be withdraw

TELECOM LICENSE FEES (SEC.35ABB)

If all the following condition are satisfied than only deduction is available under sec. 35ABB.

Condition 1 The expenditure is capital in nature

Condition 2 It is incurred for acquiring any right to operate telecommunication services.

Condition 3 The expenditure is incurred either before the commencement of business or there after at any time during any previous year.

Condition 4 The payment for which has actually been made to obtain license.

AMOUNT OF DEDUCTION

The payment is allowed as deduction in equal installments over the period.

Period starts from the date of such payment made till the license expires.

Note: Deduction starts from the year in which actual payment of expenditure is made irrespective of P.Y. in which liability is incurred according to regular accounting methods employed by assessee.

PROFIT OR LOSS ON SALE OF TELECOM LICENSE

Any profit or loss on sale of telecom license is taken into consideration while computing business income.

The relevant rules are specified in table.

Different situations Tax treatment

1 Entire telecom license is transferred

1.1 When sale consideration is less than WDV

WDV minus sale consideration is allowed as deduction under section 35ABB in the year of sale.

1.2 When sale consideration is more than WDV

The excess of sale consideration over WDV is taxable as business income in the year of sale.

2 When a part of telecom license is transferred

2.1 When sale consideration is less than WDV

WDV minus sale consideration will be allowed as deduction over the unexpired period.

2.2 When sale consideration is more than WDV

Same tax treatment as is given in 1.2

Notes:• In 1.2 & 2.2 the amount taxable as business income cannot exceed deduction allowed under 35ABB earlier.• The aforesaid amount is taxable whether business is in existence or not.• In respect of the same expenditure, no further deduction will be allowed under sec. 35ABB

CONSEQUENCE IN THE CASE OF AMALGAMATION OR DEMERGER

License Deduction available

Deduction not available

License Transferred Amalgamated OR Resulting Company.

Amalgamating OR Demerged company.

License not Transferred

Amalgamating OR Demerged company.

Amalgamated OR Resulting Company.

DEPRECIATION UNDER SEC. 32

If depreciation for any P.Y. is claimed and allowed under 35 ABB than it is not available under sec32.

EXPENDITURE ON SPECIFIED BUSINESS (SEC. 35AD)

CONDITIONS

The following condition should be satisfied to avail benefit U/S 35AD.

1. The specified businesses listed in table only gets deduction u/s 35AD.

2. Specified business should be new business.3. Audit of books of account.

SPECIFIED BUSINESS SHOULD BE NEW BUSINESS

Specified business should not be;

Set up by splitting up, or Reconstruction of business in existence, or Transfer of old P & M.

2nd hand imported machinery is treated as new.

Conditions

Before date of installments should not be used in India.

Imported into India from any foreign country. Prior to date of installation no deduction is

available on a/c of depreciation for such P & M.

AMOUNT OF DEDUCTION

100% of capital expenditure incurred by assessee for specified business is deductible, subject to following propositions;

Acquisition of land or goodwill or financial instrument is not eligible for any deduction u/s 35AD.

Expenditure incurred prior to commencement of operation wholly and exclusively for specified business is deductible in P.Y. in which the assessee commences the operation, if amount is specified in books of account on the date of commencement.

If the operation of business of laying and operating a cross-country natural gas distribution network is commenced during Apr 1, 2007 and March 31, 2009, the capital expenditure incurred before April 1, 2009 will be allowed as additional deduction u/s 35AD for the A.Y. 2010-11.

CONSEQUENCES OF CLAIMING DEDUCTION U/S 35AD.

The assessee is not allowed deduction I respect of specified business under the provision of Chapter VIA u/s 80HH to 80RRB for the same or any other assessment year.

No deduction for expenditure in respect of which deduction is claimed is allowed to assessee.

Any sum received or receivable on account of any capital asset in respect of which deduction has been allowed u/s 35AD, being destroyed, demolished, discarded or transferred shall be treated as income and chargeable to tax.

Loss computed in respect of specified business can be set off against gain from specified business only.

If the assessee owns two units one of them qualifies for deduction u/s 35AD and other not than there is inter unit transfer of goods or service between two units, then for the purpose of section 35AD calculation will be made as if such transaction are made as if such transactions are made at the market value.

SPECIAL PROVISIONS FOR COMPUTING PROFITS & GAINS FOR BUSINESS OF CIVIL CONSTRUCTION(SEC.44AD)

SPECIAL PROVISIONS FOR COMPUTING PROFITS & GAINS FOR BUSINESS OF CIVIL CONSTRUCTION (SEC. 44AD)

Who is covered by the scheme of section 44AD

SECTION 44AD IS APPLICABLE IF FOLLOWING CONDITIONS ARE SATISFIED.

• he taxpayer -Individual,HUF,AOP,BOI,firm,compay,co-operative society or any other person.

• A Resident or a non-resident.

Condition 1

•Is engaged in the business of civil construction or supply of labor for civil construction work.

Condition 2

•Gross receipts- less than 40 lakh•Gross receipts are the amt. received from the clients for the contract and will not include the value of material supplied by the client.

Condition 3

NOTES: What is civil construction?

It is classified in three categories. A developer Builder Contractor

Sec. 44AD do not apply to a developer. It only applies to builders and contractors.

Civil construction as defined in the Act:

It includes construction (or repair) of buildings, dams, bridges or other structures, or of roads or canals.

It also includes the execution of any other work contract. It thus includes work related to electrical fittings, plumbing job, landscaping work, etc.

The taxpayer may be contractor or sub-contractor.

Interior Decorator:

Sec. 44AD has no application for computing income of an interior decorator as the business of interior decoration does not come under the business of civil construction.

If the above conditions are satisfied then only 44AD is applicable.

CONSEQUENCES IF SEC. 44AD IS APPLICABLE

Income to be calculated on estimated basis @ 8 % of gross receipt. Taxpayer can voluntarily declare higher income in his return.

Rate of 8% is comprehensive:

All deduction under sec. 30 to 38 including depreciation , are deemed to have been already allowed and no further deductions is allowed under these sections.

However in case of a firm, the normal deduction in respect of salary and interest to partners under sec 40 (b) shall be allowed.

The written down value is calculated, where necessary as if depreciation as applicable has been allowed.

Moreover ,it will be assumed that disallowance ,if any, under sec. 40,40 A and 43 B has been considered while calculating the estimated income @ 8 %.

AFTER CALCULATING INCOME STEPS TO FOLLOW

•The income calculated above will be aggregated with other income.

Step 1

•The brought forward business losses and other losses should be deducted.

Step 2

•All deductions under 80C to 80U shall be allowed.

Step 3

• Tax on net income shall be calculated according to the normal provisions and rebate u/s 88E should be allowed

Step 4

PROVISIONS FOR MAINTENANCE OF BOOKS OF ACCOUNT/COMPULSORY AUDIT – NOT APPLICABLE

• Not required to maintain books of a/c according to the provisions of sec. 44AA

Privilege 1

• Not required to get this books of a/c audited under sec 44AB

Privilege 2

The following privileges are available to taxpayer who declares his income from the aforesaid business @ 8% of gross receipt (or at a higher rate)

It may be noted that above privileges are available only in the aforesaid business. Even such an assessee has to comply with the requirements of both sections 44AA and 44AB in respect of his business which are not covered by the scheme.

While computing income of assesses under sec 44AD , the assessing officer does not have power to assess anything in excess of returned income if returned income is more than 8% of total receipt/sale consideration.

IS IT POSSIBLE TO DECLARE LOWER INCOME?

Yes a tax payer can declare his income lower than the deemed profits and gains .

The following are the consequences :

• He has to maintain books of a/c as per sec. 44AA

Consequence 1

• He has to get his books of a/c audited under sec 44AB.

Consequence 2

CASE STUDY

SPECIAL PROVISIONS IN CASE OF BUSINESS OF PLYING, HIRING OR LEASING GOODS CARRIAGES (SEC. 44AE)

Who is covered by the scheme of Sec.44AE?

Condition:1 Tax payer may be:

An individual HUF BOI Firm Company Co-operative society or any other person Resident or non resident

TRANSPORT OPERATION [SEC.44AE]

Condition:2

Tax payer is engaged in business of: Plying Hiring Or leasing of goods carriages.

Condition:3

The tax payer owns not more than 10 goods carriage at any time during the previous year.

Taxpayer deemed to be a owner in following cases:- Goods carriage on hire purchase Goods carriage on installments

For which whole or part amount is due.

2. INCOME SHALL BE CALCULATED AS FOLLOW

Types of goods carriage

Estimated Income

Heavy goods vehicles Rs.3500 for every month(or part of a month ) during which is owned by the taxpayer

Other than heavy goods vehicle

Rs.3150 for every month (or part of a month) during which the goods carriage is owned by the taxpayer

Note:

Goods Carriage: Constructed or adapted for use solely for the

carriage of the goods Any motor vehicle or adapted when used for

the carriage of goods

Heavy goods vehicles: Any goods carriage the gross weight of it or, A tractor or road roller the unladen weight Exceed 12000 Kilograms.

Ownership :• During which the goods carriage is owned by the

taxpayer(Not on the bases of which it put to use)

For instance:Income of the taxpayer who is engaged in the aforesaid business and who purchases a “heavy goods vehicle” On May 16,2008 .The goods carriage is put to use on June 12,2008.

Income shall be Rs.38,500(35,00 x 11 months)

Hire declaration of income possible: All deduction u/s 30 to 38 including depreciation are

deemed to allowed and no further deduction is allowed under this sections.

Normal deduction in respect of salary and interest to partner u/s 40(b) shall be allowed.

SPECIAL PROVISIONS FOR PROFITS & GAINS OF RETAIL BUSINESS (SEC. 44AF)

RETAIL TRADERS [SEC.44AF]

1.Who is covered by the scheme of Sec.44AE ?

Condition:1Tax payer may be:

An individual HUF BOI Firm Company Co-operative society or any other person Resident or non resident

Condition:2

Tax payer is engaged in business of:- Retail Trade in any goods. Merchandise.

Condition:3

Total turnover from the above business does not exceed Rs.40 lakh.

Calculation of income:-

The income from the above mentioned business at 5 % of the total turnover.

A taxpayer voluntarily declare a higher income in his return.

All deduction u/s 30 to 38 including depreciation are deemed to allowed and no further deduction is allowed under this sections.

Normal deduction in respect of salary and interest to partner u/s 40(b) shall be allowed.

DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW WORKMEN (SEC. 80JJAA)

CONDITION TO BE SATISFIED IN ORDER TO GET DEDUCTION UNDER SEC. 80JJAA1. The tax payer is Indian company.

2. Income of tax payer include any profit and gain derived from any industrial undertaking engaged in the manufacture or production of article or thing.

3. The industrial undertaking is not formed by splitting up or reconstruction of existing undertaking or amalgamation with another industrial undertaking.

4. The assessed furnishes along with the return of income the report of a chartered accountant in form No. 10DA.

DEDUCTION AMOUNT

The amount of deduction is equal to 30 per cent of “additional wages” paid to the new “regular workmen” employed by the assessee in the previous year.

Deduction is available for three assessment years

MEANING OF WORKMAN

“Workman” means any person employed in any industry to do any manual, unskilled, skilled, technical, clerical, or supervisory works but does not include the following:

A person who is in air force, Military, Navy or in police services; or

A person who Is employed in managerial or administrative capacity; or

A person who is employed in a supervisory capacity and draws wages exceeding Rs. 1600per month.

MEANING OF REGULAR WORKMAN:

“Regular workman” does not include the following:

A casual workman; or A workman employed for contract labor ; Any other workman employed for a period of

less then 300 days during the previous.

MEANING OF ADDITIONAL WAGES

“Additional wages” has been defined as follows.

In case of new undertaking

In case of existing undertaking

In means the wages paid to new “regular workman” in excess of 100 “workman” employed during the year

It means the wages paid to new “regular workman” in excess of 100 ”workman” employed during the year

Additional wages shall be nil if the increase in no of regular “workman” employed during the year is less than 10 per cent of the existing number of “workman” employed in the undertaking as on the last day of the preceding year.

CATEGORIES

Hear in after all employee in an undertaking are grouped in the following categories.

A: Employees employed in managerial or administrative capacity. It also includes employees employed in supervisory capacity and drawing salary exceeding Rs. 1600 per month.

B: It includes casual workmen and workmen employed through contract labor (but not coming under category A)

C: Other workmen (Not coming under categories A and B) If employed for less than 300 days during the previous year

D: Other workmen (Not coming under categories A and B) if employed for 300 days or more than 300 days during the previous year

DEDUCTION UNDER SEC.80JJAA(IN CASE NEW UNDERTAKING)

In the case of new undertaking is available as follows.

1. First find out whether no of workmen(B+C+D) employed during the previous year is more than 100.

2. If yes, then find out wages paid to new regular workmen (D) in excess of 100 workmen employed during the year.

3. 30% of the wages determined in (2) is the amount of deduction under sec. 80JJAA.

DEDUCTION UNDER SEC.80JJAA(IN CASE OF EXISTING UNDERTAKING)

In the case of an existing undertaking is available as follows.

1. First find out whether no of workmen(B+C+D) employed during the previous year is more than 100.

2. If yes then find out number of regular workmen(D) newly employed during the year and whether it is equal to or more than 10 per cent of the existing number of workmen (B+C+D) employed in the undertaking on the last day of the preceding year.

3. If yes then find out wages paid to new regular workmen (D) in excess of 100 workmen employed during the year.

4. 30% of the wages determined in 3 is the amount of deduction under section 80JJAA.

TONNAGE TAX SYSTEM (SEC. 115V TO 115VZ)

TONNAGE TAX SCHEME [SEC115V TO 115VZ]

Basic Features:

It is scheme of taxation where income arising from operation of ship is determined based on the tonnage of ship.

The income is taxed at normal corporate rate.

Tax is payable even if there is loss.

A company may be forced to leave place in certain circumstances.

SALIENT FEATURES

A company owning at least one qualifying ship may join. A qualifying ship is one with minimum tonnage of 15 tons & having a valid certificate.

Certain types of ship like fishing vessels, pleasure crafts, harbor & river ferries etc. are excluded in terms of section.

Section 115VG gives the manner of computation of daily income as follows:

Qualifying ship having net tonnage

Amount of daily tonnage income

Up to 1,000 Rs:46 for each 100tons

Exceeding 1,000 but not more than 10,000

Rs:460 plus Rs:35 for each 100 tons exceeding 1,000tons

Exceeding 10,000 but not more than 25,000

Rs:3,610 plus Rs:28 for each 100 tons exceeding10,000tons

Exceeding 25,000 Rs:7,810 plus Rs:19 for each 100tons exceeding 25,000tons

Example: Suppose a tonnage tax company operates only one qualifying ship throughout the previous year 2009-10. The ship has a net tonnage of 25,000tons and the corporation tax rate for that year is 30.9%.

TONNAGE TAX LIABILITY CALCULATE AS FOLLOWS

Daily profit Rs

For the first 1,000 tons 460

For the1,001 to 10,000 tons 3,150

For Remaining 15,000 tons 4,200

Total 7,810

Annual profit

Rs:7,810 X365days Rs:28,50,650

Tonnage tax: Rs:28,50,650X30.9%

Rs:8,80,851

A company is not allowed any set-off of loss nor is any Depreciation allowed.

It is need to be bifurcate the qualifying ships and non-qualifying ships at the time a company joins the scheme.

A company may opt for tonnage tax scheme by applying to Joint commissioner for a period of 3 months i.e. any time between 1st October 2004 to 31st Dec 2004.

Section 115VT: Company has to create a reserve of at least 20% of its book profit to be utilized for the purpose of acquisition of new ship.

Section 115VU: Company has to comply with min. training for 5 consecutive year.

Section 115VV : Company has opted for tonnage tax, not more than 49% of net tonnage of qualifying ships operated by it.

Section 115VW: Maintenance of separate books of account and audit of the same is compulsory for co. opting for the same.

Section 115VX: The details regarding valid certificate of net tonnage ships.

Section 115VY &115VZ: It provides contingencies of amalgamation & merger

THANK YOU