Corporate Tax Planning

Company Sec 2(17)
Company is defined to mean following:

 An Indian Company; or
 Any body corporate incorporated under the laws of a

foreign country; or
 Any institution , association or a body whether

incorporated or not , whether Indian or not which is
declared by a general or specific order as a company
by CBDT; or
 Any institution, association or a body whether

incorporated or not and whether Indian or non-Indian,
which is declared by general or special order of the
central board of direct taxes to be a company.
Types of Company
Types of companies
◦ Indian company
◦ Domestic company
◦ Foreign company
◦ Industrial company (electricity, power, shipping or
mining)
◦ Company in which public are substantially
interested / widely held companies owned by
Government/ RBI
 Section 25 companies: A company without share
capital declared by CBDT as such Nidhi / Mutual
Benefit Society Company owned by a cooperative
society
 Listed companies
Indian Company
 An Indian Company means a company formed &
registered under the Companies Act,1956 Besides it
includes the following:
 A corporation established by or under a Central or State
or Provincial Act
 Any Institution ,association, or body which is declared
by the Board to be a Company u/s 2 (17).
 A company formed & registered under any law in force
in the State of J & K .
 A company formed & registered under any law for the
time being in force in Union Territories of Dadra ,Nagar,
Haveli, Goa, Diu.
 In the afore said case ,a company will be treated as an
Indian Company only if its registered office is in India.
Domestic Company
 ―Domestic Company‖ means an Indian Company which
in respect of its income liable to tax under the Act,has
made prescribed arrangement for the declaration &
payment of dividends within India in accordance with
the sec 194.
 Indian Company will automatically be considered as a

domestic Company.
 In order to become domestic company it is essential

that the said other company may have made prescribe
arrangement for declaration & payments within India of
dividends out of such income.
 Foreign Company means a company which is not a

domestic Company.
Industrial Company
 It means a Company which is mainly engaged in the

business of generation or distribution of electricity or
any other form of power or in the construction of ships
or in the manufacture or processing of goods or in
mining.
Profits and Gains of Business or
Profession
 Business includes trade, commerce or manufacture

or any adventure or concern in the nature of trade,
commerce or manufacture.
 Profession means vocation,attainment of special
knowledge.
 Business/profession should be carried on by the
assessee.
Allowable expenses
Sec 30- Rent,rates,taxes repairs,insurance for building.
Sec 31- Repairs & insurance of machinery, plant &
furniture.
Sec 32 - Depreciation
Sec 36(1)- Insurance Premium on stock ,building
,employees
Sec 36(1)(ii) –Bonus Commission to employees
Sec 36(1)(iii) – Interest on borrowed capital
Sec36(1)(iv)- Employers contribution to PF ,Super
Annuation Fund
Sec 36(1) (iva) –Employers Contribution to notified
pension Scheme Subject to 10% of
salary
Sec 36(1)(vii)- Bad Debts
Sec 36(1) (V)-Contribution towards approved Gratuity
Fund.
Sec 36(1)(ix)-Family planning expenditure ,Capital
expenditure one fifth of the expenditure is allowed as
Allowable expenses
 Sec 37(2B)- Any expenditure incurred by an assessee
on advertisment in any souvenir,brochure,pamphlet
published by political party is not deductible,any other
advertisment is deductible.
 Sec 37(1) General Deduction
 Expenditure should not be in nature of capital
expenditure.
 It should not be personal expenditure of assessee.
 It should have been incurred in the previous accounting
year.
 It should be in the respect of business carried on by the
assessee.
 It should have been expended wholly & exclusively for
purpose of such business.
 It should not have been incurred for any purpose which
is an offence or is prohibited by law.
Amount expressly disallowed under Act
 Sec 40(a) –Interest,royalty,fees for technical services
payable outside India or payable to non resident,TDS
need to be deducted & deposited before due date with
Government,if not, then no deduction.
 Sec 40 (a)(ia)-In case of resident assessee
Case 1-Tax is deductible but not deducted ,no deduction
in the current previous year, If tax is deducted in any
subsequent year the expenditure will be deducted in the
year in which TDS will be deposited by the assessee
with Government.
Case II- Tax is deductible & so deducted during the
current financial year but it is not deposited on or before
the due date of submission of return of income u/s
139(1),then no deduction in the previous year. If tax is
deposited with the Government after the due date of
submission of return of income ,the expenditure will be
deductible in that year in which tax will be deposited.
 Sec 40(a)(ia) covers the following expenses
Interest 193/194 A
Commission or Brokerage 194 H
Fees for Technical services 194 J
Fees for Professional 194J
Services
Payment to 194 C
contractor/subcontractors
Rent 194 I
Payment of royalty to 194 J
 Sec 40 (a)(ic) –Fringe Benefit
Resident Tax is not deductible.
 Sec 40(a) (ii) –Income tax is not deductible.Also interest
u/s 234 A,234 B,234C is not allowed.
 Sec 40(a)(iia) –Wealth Tax is also not deductible.
 Sec 40 (a) (iii)-salary payable outside India without Tax
deduction is not deductible.
 Sec 40(a)(iv)- Any payment to Provident Fund or the other
fund established for the benefit of the employees of the
assessee is not deductible if the assessee has not made
effective arrangements to secure that tax shall be deducted
at source from any payments made from the fund which are
chargeable to tax under the head ―Salaries‖.
 Sec 40(a)(v)-Tax on perquisite paid by employer not
deductible.
 Sec 40 A(2) – payments to relative is disallowed to the
extent such expenditure is considered to be excessive or
unresonable having regard to the fair market value of goods
or services or facilities.e.g x purchases goods from his
brother.A,B,C are three Directors of X Ltd .X Ltd employes
Mrs A or Mrs B for her tax advise.
 Sec 40A(3) –Payments exceeding Rs 20,000 paid otherwise
than by account payee cheque or bank drafts.(not allowed
by cash,bearer cheque,crossed cheque,crossed demand
draft),100% of such payment will be disallowed.Exception to
the above are mentioned Rule 6DD
 Rule 6DD is as follows
 Payment made to banking & other credit institution such
as Reserve Bank,commercial Bank.
 Payment to the Government ,such payment is required
to be made for legal tender ,direct taxes,custom
duty,excise,railway freight,sales tax.
 Payment through banking system e.g letter of
credit,mail or telegraphic transfer.
 Payment made to a person who resides in a village not
served by Bank.
Related party Transaction
 X purchases goods from his brother.
 A,B,C are three directors of X Ltd. X Ltd employs Mrs A
is paid by X Ltd for her tax advise.
 A & B are the two partners of AB & Co. The firm
purchases raw material from sister of B.
 X holds 20% equity share capital in X Ltd. X Ltd hires
truck owned by the brother of X & pays rent.
 Y Ltd holds 20% equity shares in X Ltd .A & B are
directors of Y Ltd. X Ltd pays salary to Mrs B.
 Sec 40 A(7) Gratuity is deductible only is the following
cases:
 Where gratuity is paid during the previous year or where
the gratuity has become payable during the previous year
(if no deduction was claimed on the basis of provision
earlier)
 Where any provision for gratuity (to meet liability of gratuity
in future) is made by way of any contribution towards an
approved gratuity fund.
 An employee retires during the current year,Gratuity is paid
to him during the current year.It is deductible during the
current year if no deduction was claimed earlier.
 A company has 50 employees .To meet future liability to
pay them gratuity at the time of retirement,a gratuity fund is
created & employer makes contribution,it is deductible only
if the fund is approved.
 Sec 40A(9) –If any contribution or payment is made
towards trust,company,not being recognised PF/gratuity
,then it is not deductible.
Sec 43 B Disallowance of Unpaid liability
 The following expenses are deductible on payment
basis-
 Any sum payable by way of tax ,duty ,cess or fee
 Any sum payable by an employer by way of contribution
to PF or superannuation fund
 Any sum payable as bonus or commission to
employees for services rendered.
 Any sum payable as interest on any loan or borrowing
from Public financial institution,state Financial
corporation
 Interest on any loan or advance taken from a
Scheduled Bank including a co-operative Bank.
 Any sum payable by an employer in lieu of leave at the
credit of his employee.
 Exception –If payment in respect of the aforesaid
expenses is actually made on or before the due date of
submission of return of income & the evidence of such
payment is submitted along with the return of income.
Examples of Deductible Expenditure
 Interest paid on delayed payment of tax e.g
 purchase tax,
 municipal tax,
 sales tax,
 service tax ,
 a delayed payment of provident fund
Examples of Non Deductible Expenditure
 Interest paid under any provision of Income Tax
,Wealth tax ,Fringe Benefit tax ,Advance Tax or Self
Assessment Tax,for late payment or short payment
of regular tax.
 Interest on loan taken to meet personal expenses.
 Where a penalty is incurred for contravention of any
specific statutory provision.
 Banking Transaction Tax, Securities Transaction
Tax,Commodities Transaction Tax are deductible.
Profits and Gains of Business or Profession
Profit and Loss account:
Net profit as per P&L account xxxx

Add: expenses disallowed xxxx
Add: incomes related to business but not recorded
xxxx
V
Less: incomes not taxable under this head
xxxx
Less: expenses related to business but not recorded
xxxx
V
Set off & Carry forward of losses
 The process of setting off of losses & their carry

forward may be covered in the following steps:
Step 1 Inter-source adjustment under the same head

of income
Step 2 Inter head adjustment in the same assessment
year. Step 2 is applied only if a loss cannot be set
off under Step 1.
Step 3 Carry forward of a loss .Step 3 is applied only if a
loss cannot be set off under step 1 & 2.
Inter source Adjustment Sec 70
 If the net result for any assessment year ,in respect of

any source under any head of income, is a loss , the
assessee is entitled to have the amount of such loss
set off against his income from any other source
under the same head of income for the same
assessment year.
Following are the exceptions to the aforesaid rule.
 Loss in a speculation business can be set off only
against the profit in a speculation business.
 Long term capital loss can be set off only against
long term capital gain .
 Loss incurred in the business of owning &
maintaining race horses cannot be set off against any
income except income from such business.
 By virtue of section 58, a loss cannot be set off
against winning from lotteries ,cross word puzzles,
races including horse races, card games & other
games of any sort or from gambling or betting of any
form or nature.
One should note the following points:
 Loss from house property can be set off against
income from any other house property.
 Loss from a non-speculation business can be set off

against income from speculation or non-speculation
business.
 Short term capital loss can be set off against any

capital gain (Whether long term or short term)
 Under the head “ Income from other Sources” loss

from activity ( other than the business of owning &
maintaining race horses ) can be set off against any
income but other than winning from lotteries
,crossword puzzles.etc.
 If income from a particular source is exempt from

tax e.g income exempt from tax under section
10,loss from such source cannot be set off against
income chargeable to tax.
 If there is income from one source & loss from

another source within same head of income , one
has to set off the loss against income .
X Y Z
Speculativ Non- Speculati Non- Speculati Non-

e speculativ ve speculati ve speculat
e ve ive
A 140000 160000 150000
B (-) 50000 (-) (-)60000

180000
C 200000 400000 2,10,00
0
D (-)80000 (-)90000 (-
)2,20,00
0
90000 120000 (-)20000 310000 90,000 (-)
10000
 In this case , loss from speculative business can be

set off only against income from speculative
business. However loss from non-speculative
business can be set off against income from any
business –speculative or non-speculative. For
instance ,in case of Y loss of RS 20000/- from
speculative business can not be set off against
income of Rs 310000/- from non-speculative
business. In case of Z , loss of RS 10000/- from non-
speculative business should be set off against
speculative business income of Rs 90000/-.It may be
noted that Z does not have any option to set off (or
not to set off) the loss of RS 10000/- against income
of Rs 90000/-.
Capital A B C
asset
which is
transfer
red
Short Term Long Term Short Term Long Term Short Term Long Term
P 250000 460000 312000
Q (-) 90000 (-)490000 (-) 80000
R 400000 80000 556000
S (-) 380000 (-) 15000 (-) 590000
Total 160000 20000 (-)30000 65000 232000 (-) 34000
 Long term capital loss can be set off only against

long term capital gains. However short term capital
loss can be set off against long term as well as short
term capital gains.In case of B short term capital loss
of Rs 30000/- should be set off against long term
capital gains of Rs 65000/-.In case of C However
,long term capital loss of Rs 34000/- can not be set
off against short term capital gains of Rs 232000/-.It
may be noted that B does not have any option to set
off (or not to set off ) short term capital loss against
long term capital gains.
Inter Head Adjustment Sec 71
The provisions of sec 71 are given below.
Where the net result of computation made for any

assessment year in respect of any head of income is
a loss, the same can be set off against the income
from other heads.
Following are the exception to heads:
 Loss in speculation business can not be set off against
any other income.
 ― Loss under the head capital gains ― can not be set off
against income under other heads of income.
 ―Loss from the business of owning & maintaining race
horses can not be set off against any other income.
 A loss can not be set off against winning from lotteries,
crossword puzzle, races, card games & other games
of any sort or from gambling or betting of any form or
nature.
 Loss from business or profession (including
unabsorbed depreciation) can not be set off against
income under the head “salaries”.
 Before adjusting loss under section 71,one has to set
 Any loss can be set off against income under other
heads of income for the same year .House property
loss can be set off against speculative profit.
 No order of priority is given in the Act. One should try

to first set off those losses which cannot be carried
forward to next year.
 A loss has to first adjusted against available income

under other heads of income .No option is available to
set off a loss or not to set off a loss .
Set of & Carry forward of losses
 If tax payer has the following income/loss:

Current Year Next Year
( Rs) (Rs)
Business Income (-) 1,00,000 8,00,000
Long Term Capital Gain 2,30,000 3,00,000
 In this case ,after adjusting business loss of Rs

1,00,000/- on the remaining balance income Rs
1,30,000/- he will have to pay tax during the current
year.
 Where income from a particular source is exempt

from tax e.g income exempt under section 10,loss
from such source can not be set off against income
chargeable to tax. For the purpose of section 71,loss
of profit must be loss of taxable profits.
Carry forward of losses
 If a loss can not be set off either under the same head
or under the different heads because of absence or
inadequacy of the income of the same year ,it may be
carried forward & set off against the income of
subsequent year.
 Under the Act, the following losses can be carried
forward :
 Loss under the head ―Income from House Property ―
(Sec 71B)
 Loss under the head ―Profits & Gains of Business or
Profession‖(i.e loss from Speculative or non-
speculative business) (Sec 72,73)
 Loss under the head ―Capital Gains‖ (i.e Short term or
long term capital loss) (Sec 74)
 Loss from the activity of owning & maintaining race
Sec 71 B Loss from House Property
 When the net result of computation for any assessment

year under the head ―Income from House Property‖ is a
loss & such loss can not be or is not fully set off against
income under the other heads u/s 71 ,such loss can be
carried forward for set off against income from House
Property in the subsequent assessment years.
 Such loss can be carried forward for 8 assessment
years.
Carry forward & set off of business loss (Sec
72)
Such loss can be set off only against Business
Income:
 It is not necessary that business loss of year one
should be set off against income from the same
business in year two. Loss of Business A of year one
can be set off against profit of business A or some
other business in year two.
 A loss can be set off against profits of any business in
the subsequent year.
 Loss can be carried forward for eight Assessment
year.
 Unabsorbed depreciation carried forward u/s 32 (2)
will be set off only after setting off of the brought
forward losses under this section.
 Loss can be carried forward & set off even if the
Return of loss should be filed under
section 139(3):
 A loss can not be carried forward unless it is determined in
pursuance of a return filed within the time allowed under section
139(3) .If an assessee fails to file his return of loss on or before
the due date of furnishing return of income ,then following losses
can not be carried forward:
 Loss of speculative or non-speculative business(not being
unabsorbed depreciation).
 Short term or long term capital loss.
 Loss (not being unabsorbed depreciation) from the activity of
owning & maintaining race horses.
 In case where the profits are insufficient to absorb brought
forward losses, current depreciation, current business loss the
same should be deducted in following order.
 Current Depreciation
 Brought Forward Business loss
 Unabsorbed Depreciation
Carry forward & Set off of Speculation
loss (Sec 73)
 Loss from a speculative business can be set off only
against income from a speculative business
 Speculative transaction means a transaction in

which a contract for the purchase or sale of any
commodity including stocks & shares is periodically
settled, otherwise than by actual delivery or transfer
of commodity or scrips.
 Loss in a speculation business can be carried

forward to the subsequent year & set off only against
the profits of a speculation business carried on in
that year.
 Such loss can be carried forward for 4 assessment

years.
Carry forward & Set off of Capital
Loss(Sec 74)
 Long Term capital loss can be set off only against

long term capital gains .
 Short Term capital loss can be set off against short

term or long term capital gains.
 Such loss can be carried forward for eight

assessment year immediately succeeding the
assessment year in which loss was first computed.
 Such loss can not be carried forward unless return is

filed within the time limit of section 139(1).
Carry forward & Set off of Capital Loss(Sec 74)
Provisions Illustrated
 During the previous year 2011-12,X Ltd has
generated short term capital gains of Rs 80,000/- .It
has brought forward capital loss – short term Rs
10,000/-& Long Term Rs 15,000/-In this case, while
short term capital loss of Rs 10,000/- can be set off
against short term capital gains of Rs 80,000/-.Long
term capital loss of Rs 15,000/- can not be adjusted
against short term capital gains.
 During the previous year 2011-12,X has long term

capital gains of Rs 1,16,000/-.He has brought
forward loss –long term Rs 40,000/- & short term Rs
8,000/-.In this case,long term as well as short term
loss can be set off against long term gains.
Carry forward & Set off of loss from activity of
owning & maintaining of race horses(Section
74A(3)
 Losses incurred by owner of race horses in the

activity of owning & maintaining race horses can be
set off only against income ,if any, from the activity of
owning & maintaining race horses in the same
assessment year.
 Such unabsorbed loss can be carried forward to a

subsequent year & set off only against income from
the activity of owning & maintaining race horses.
 Such loss can be carried forward for four
assessment years .
74A(3)
Business Income Any other Income
Income from the Any other business
activity of owning & income (including
maintaining race income from the
horses activity of owning &
maintaining any
other animal horses)
Case of X
Income of the 80,000 90,000 12,000
Current Year
Less:B/F Business (-) 70,000 (-) 95,000
loss pertaining to
A.Y 2011-12
Total 10,000 (-) 5,000 12,000
74A(3)
Business Income Any other Income
Income from the Any other business
activity of owning & income (including
maintaining race income from the
horses activity of owning &
maintaining any
other animal horses)
Case of Y
Income of current 1,90,000 70,000 60,000
year
Less: B/F Business (-) 2,10,000 (-) 55,000
loss pertaining to
A.Y 2011-12
Total (-) 20,000 15,000 60,000
74A(3)
 In the case of Y, the brought forward loss from the

activity of owning & maintaining race horses (to the
extent it could not be set off against income from such
activity i.e Rs 20000/- can not be set off against
income from other business .It can be carried forward
up to the A.Y 2015-16.
 However in case of X, the brought forward loss from
other business to the extent it is not set off Rs 5000/-
can be set off against income from the activity of
owning & maintaining race horses.
Carry forward & Set off of loss
Type of Income How many Should the Is it
Loss against yrs loss to business be necessary
which c/f be c/f continued to submit
loss can be forward the return in
set off time ?
1.House Income from 8 yrs NA No
property HP
2.Speculation Speculation 4 yrs Not Yes
loss profit Necessary
3.Non-
speculation
loss
3.1 Any income No time limit Not No
Unabsorbed other than Necessary
Depreciation Salary
3.2 Business Any Business 8 yrs Not Yes
loss profit Necessary
Carry forward & Set off of loss
Type of Income How many Should the Is it
Loss against yrs loss to business be necessary
which c/f be c/f continued to submit
loss can be forward the return in
set off time ?
4.Capital
Loss
4.1 Short Any income 8 yrs Not Yes
Term from Capital Necessary
gain
4.2Long Long Term 8 Yrs Not Yes
Term Loss Capital Gain Necessary
5.Loss from Income from 4 yrs Yes Yes
race horses same activity
Carry forward & Set off of loss in case of
Discontinued Business
 The Business or profession is discontinued.
 Loss of such business pertaining to that period could
not be set off .
 Such business is not a speculation business
 After discontinuance of such business ,there is a
receipt which is deemed business income u/s 41.
 Then such loss can be carried forward even after 8
years & can be set off even if the return of loss is not
submitted in time.
Loss on sale of shares ,securities or units [Sec
94(7)]
 Record Date means such a date as may be fixed by
company/mutual fund/UTI for the purpose of
entitlement of the holder of the securities
/shares/units to receive the dividend (or income).
 Section 94(7) is applicable if the following conditions
are satisfied:
1. Any Person buys or acquires any
Securities/shares/units within a period of 3 months
before the record date.
2. Such a person sells or transfers such
securities/shares/units within a period of 3 months
(9 months in the case of units ,after the record date)
3. The dividend or income on such securities
/shares/units received (or receivable) by such
person is exempt from tax.
Loss on sale of shares ,securities or units [Sec
94(7)]
 If the above conditions are satisfied then provisions
of sec 94(7) are applicable as follows:
 Find out the amount of loss from a transaction which
satisfies the above condition.
 Find out the amount of dividend receivable on the
record date which is exempt from tax.
 If (a) is less than or equal to (b) ,then loss can not be
adjusted .Conversely ,if (a) is more than (b) ,then (a)
minus (b) can be set off against income under the
head capital gains.
Taxation of Export Undertaking Sec 10A
 Undertaking established in Free Trade Zone :

 Conditions to be satisfied:
 Must begin manufacture or production in Free Trade
Zone It has begin to manufacture /produce article or
things or computer software during the following
years:
Location Year
Free Trade Zone From the A.Y 81-82 or any subsequent
year
Electronic Hardware From the A.Y 94-95 or any subsequent
Technology park or year
software Technology Park
Special Economic Before April 1,2005
Zone
 In the case of units which begins to manufacture or
produce an article or thing or computer software on or
after April1,2005 in SEZ, deduction will not be
 Free Trade Zones are Kandla, Santacruez, Falta,

Madras, Cochin, Noida.
 Electronic software /hardware Technology Park: It
means any park set up in accordance with the
scheme notified by the GOI.
 Computer Software means
 Any computer programme recorded on any disc,
tape, perforated media or other information storage
device.
 Any customized electronic data or any product or
service of similar nature as may be notified by the
Board. Which is transmitted or exported from India to
any place outside India by any means.
 The CBDT has specified the following information

Technology enabled products or services for this
purpose only:
 Back office Operations
 Call Centers
 Animation
 Data Processing
 Engineering & Design
 Human Resource Services
 Insurance Claim Processing
 Payroll
 Revenue Accounting.
 Should not be formed by Splitting /reconstruction of

Business.
 Should not be formed by Transfer of Old Machinery
 Sale proceeds of articles or things or computer
software exported out of India must be received in
India by the assessee in convertible foreign exchange
during the previous year or within a period of six
months from the end of relevant previous year.
 Assessee should furnish audit report in Form No 56F
along with the return of income.
 Deduction u/s 10A is not available if return of income
is not submitted on or before due date of submission
of return of income u/s 139(1) or in the return of
income deduction u/s 10A is not claimed.
 Amount of Deduction:
 Profits of the business * Export Turnover
of undertaking Total Turnover of the Business carried
on by the assessee.
 Export Turnover : It means consideration in respect of export
by the undertaking of articles or things or computer software
received in India by the assessee in convertible foreign
exchange within the prescribed period but does not include the
following:
 Freight
 Telecommunication Charges
 Insurance attributable to the delivery of the articles or things or
Computer software outside India.
 Expenses if any, incurred in foreign exchange in providing the
technical service outside India.
 Site Development : On site development of computer software
(including services for development of software outside India
shall be deemed to be export of computer software outside India.
 Loss of other undertakings: Profit for the business of
undertaking shall be calculated without adjusting losses &
unabsorbed depreciation of other undertaking. e.g if assessee
has four units (all are qualified for deduction u/s 10A ).Three
units have returned a profit during the course of assessment
year ,while one unit has returned a loss. The assessee is entitled
to a deduction in respect of the profits of the three eligible units
while the loss sustained by the fourth unit can be set off against
the normal business income.
 Brought Forward losses: Deduction under sec 10A will be
available in respect of profit of an eligible undertaking without
setting off of brought forward losses.
 Period of Deduction: For an undertaking which was initially
located in Free Trade Zone or export Processing Zone & is
subsequently located in a SEZ by the reason of conversion of
such Zones into a special economic Zone ,the deduction shall be
available for 10 years from the previous year in which the
undertaking begins to manufacture or produce such articles or
things or computer software in such free trade zone or export
processing zone.
 Amount of Deduction Special Provisions :The deduction
under section 10A in case of undertaking which begins to
manufacture or produce articles or things or computer software
during April 1,2002 & March 31,2005 in any SEZ shall be as
follows:
 It is available for first 10 A.Y
 First 5 years- 100% of profits & gains derived from the export of
such articles or things or computer software is deductible for a
period of 5 consecutive assessment year.
 Sixth & Seventh assessment year -50% of such profits & gains is
 Eighth ,ninth & tenth Year –For next 3 yrs, a further deduction
would be available to the extent of 50% of profits provided an
equivalent amount is debited to profit & loss account of the
previous year & credited to SEZ Re-investment allowance
Reserve Account .subject to the following condition to be
satisfied :
 The special Reserve Account should be utilized for the purpose
of acquiring new Plant & machinery.
 The new plant & machinery should be first put to use before the
expiry of 3 years from the end of the year in which the Special
Reserve Account was created.
 Until the acquisition of new plant & machinery the Special
Reserve Account can be utilized for the business purpose of the
undertaking but it can not be utilized for distribution of
dividends/profits or for remittance outside India as profits or for
creating an asset outside India
 Prescribed particulars should be submitted in respect of new
plant & machinery along with the return of income for the
previous year in which such plant & machinery was first put to
 If the special Reserve Account is misutilised then the deduction
should be taken back in the year in which the Special Reserve
Account is misutilised.
 If the special Reserve Account is not utilized for acquiring new
plant & machinery within three years as stated above then the
deduction should be taken back in the year immediately
following the period of three years.
 Consequences of amalgamation /demerger : If a company
which is entitled for deduction under sec 10A is amalgamated
/demerged with another company , the amalgamated company
can avail the benefit under sec 10A for unexpired period of a tax
holiday..This facility is available only when the transferor –
transferee company is Indian company.
 The A.O has power to recomputed profit in the following two
situation:
 Transfer between two business/units owned by the tax payer—
Tax payer carries on two or more business .At least one of them
is qualifies for deduction u/s 10A/10B or vice versa.
 From the business which is eligible for deduction u/s 10A/10B,
some goods are transferred to any other business carried on by
the taxpayer which is not eligible for deduction under
sec10A/10B or vice versa.
 The consideration for such transfer, which is recorded in the
books of account, is not equal to the market value of such goods
on the date of transfer.
 If the aforesaid conditions are satisfied, the A.O will recompute

the profits of the business qualified for deduction u/s 10A/10B as
if the transfer in either case had been made at the market value
of the goods on date of transfer.
Units in Special Economic Zone (Section 10AA)
 The assessee is an entrepreneur as defined in sec 2 (j) of SEZ
Act, 2005. He is a person who has been granted a letter of
approval by the Development Commissioner to set up a unit in
SEZ.
 The unit in SEZ begins to manufacture or produce article or
things or provide services during the financial year 2005-06 or
any subsequent year. Manufacture for this purpose means to
produce, make, fabricate, assemble or process or bring into
existence by hand or machine
 It is not formed by the splitting up or reconstruction of a business
already in existence.
 It is not formed by the transfer to new business, of old plant &
machinery.
 The assessee has income from export of articles or things or
from services from such unit. The assessee has exported goods
or provided services out of India from SEZ by land, sea, air or by
any other mode.
 Books of account of the taxpayer should be audited .The tax
 Deduction u/s 10AA is not available unless it is claimed in return
of income.
 Profits of the business * Export Turnover
of undertaking Total Turnover of the Business carried
on by the assessee.
 Deduction for First Five Assessment years:
 100% of the profit & gains derived from export of articles or
things or from services is deductible for a period of 5 consecutive
assessment years.
 Deduction for Sixth Assessment Year to Tenth Assessment Year:
 50% of profit & gains derived from export of articles or things or
from services is deductible for next 5 years.
 Deduction for Eleventh A.Y to Fifteenth A.Y:
 For the next 5 years ,a further deduction would be available to
the extent of 50% of the profit provided an equivalent amount is
debited to the profit & loss account of the previous year &
credited to Special Economic Zone Re-investment Allowance
Reserve Account (Above mentioned conditions should be
satisfied).
Hundred per cent export oriented Undertaking (10B)
 It must be an approved Hundred per cent export oriented
Undertaking.
 It must manufacture or produce any article or thing or computer
software. (Any computer programmes recorded on any disc,
tape, perforated media. ,Any electronic data or any product or
service of similar nature exported from India)
 It should not be formed by splitting/Reconstruction of Business.
 It should not be formed by transfer of old machinery
 There must be repatriation of sale proceeds into India.
 Audit Report should be submitted in Form No 56G.
 All other conditions mentioned above.
Hundred per cent export oriented Undertaking (10B)
 Subsequent conversion into export oriented undertaking:
There is an undertaking set up in Domestic Tarrif Area. It derives
profit from export of articles or things or computer software
manufactured or produced by it. It is subsequently converted into
export oriented undertaking .It shall be eligible for deduction u/s
10B, on getting approval as 100% EOU. The deduction shall be
available only for the remaining period of ten consecutive A.Y
Tea /Coffee/rubber Development Account Sec 33AB
The assessee must satisfy the following conditions.

 The assessee must be engaged in tea, coffee, rubber
plantation
 It must make a deposit in ―Special Account‖ i.e deposit
with National Bank for Agriculture & Rural
Development or any amount in accordance with a
scheme approved by the Tea Board or Coffee Board
or Rubber Board.
 The deposit should be deposited within 6 months from
the end of the previous year or before due date of
furnishing the return of income whichever is earlier.
 The accounts of assessee should be audited.(Audit
report in Form No 3AC)
Tea /Coffee/rubber Development Account Sec 33AB
 A sum equal to amounts deposited in special account

or
 40% of profit of such business computed under the
head ―profits & gains of business or profession ―
before making any deduction under section 33AB &
before adjusting brought forward business loss under
section 72.
Whichever is less.
 Amount can be withdrawn for the purpose of
Scheme:
 The amount standing to the credit of ―Special
Account‖ may be withdrawn only for the purpose
specified in approved Scheme. If the amount released
from the special account is not utilized in the same
previous year for the purpose for which it is released,
Consequences in the case of closure of
Business Sec 33AB
When the amount can be When the amount can

withdrawn & it is treated be withdrawn & it is not
as taxable profit treated as income.
1.Closure of Business 1.Death of the taxpayer
2.Dissolution of firm 2.Partition of HUF
3.Liquidation of company.
Consequences if the new asset is transferred within 8
years.
• The deduction allowed under this section shall be withdrawn if
the asset acquired out of the money withdrawn from the
special account is sold or otherwise transferred.
To whom it is Transfer within 8 yrs Transfer after 8
transferred from the end of the years.
previous year in
which asset is
transferred.
Transfer to the Deduction will not be Deduction will not be
Central Gov,a State withdrawn withdrawn
Go,a local
authority,a
Statutory
Corporation
Transfer in a Deduction will not be Deduction will not be
scheme of withdrawn withdrawn
succession of a firm
by company
Transfer in any Deduction will be Deduction will not be
Site Restoration Fund Sec 33ABA
 The Assessee must satisfy the following condition to claim
deduction u/s 33ABA.
 The assessee must be engaged in production of petroleum
/natural gas in India.
 The assessee has an agreement with the Central
Government
 It must make a deposit in ―Special account‖.
 The deposit should be made within specified time limit
 The accounts of the assessee should be audited.
 The taxpayer is engaged in the business of the prospecting
for or extraction or production of ,petroleum or natural gas or
both in India .
 The Central Government has entered into an agreement with
the taxpayer for such business.
 It must deposit with SBI any amount in an account (herein

after referred to as ―Special account‖) maintained by the
assessee with that bank . (a scheme approved by GOI in the
Ministry of Petroleum & natural Gas).
 Deposit any amount in an account (referred to as site
restoration account) opened by the assessee in accordance
with scheme framed by GOI.
 The aforesaid amount shall be deposited before the end of
the previous year.
 Books of account of the tax payer should be audited Form No
3AD
 A sum equal to amount deposited or
 20% of the profit of such business computed under head
―Profits & Gains of Business or profession ―before making any
deduction u/s 33ABA & before adjusting brought forward
business loss u/s 72.whichever is less.
Amount can be withdrawn for the purpose of the Scheme –A

depositor shall be entitled to withdraw from the amt standing
to the credit of the account only such amt as is necessary to
meet any expenditure to be incurred by him on the expiry or
the termination of the agreement or relinquishment of part of
the contract area,towards removal of all equipments &
installation.
 Consequences of non-utilisation If the amount released or

withdrawn in a year is not utilised in the same previous year
for the purpose for which it is released ,the amt not so utilised
will be treated as taxable profits of that year & taxed
accordingly.
 Consequences in the case of closure of the business:where
any amt is withdrawn from Site Restoration Account on the
closure of the business ,then such income is chargeable to
tax.
 Consequences if the new asset is transferred within 8 years.
Expenditure on Scientific Research Sec 35
 Scientific Research means any activities for the

extension of knowledge in the fields of natural or applied
sciences including agriculture,animal husbandary or
fisheries. With a view to accelerating scientific research
,sec 35 provides tax incentives.
 Revenue Expenditure incurred by an assessee who
himself carries on Scientific Research Sec 35 (1) –
Where assesse himself carries on scientific research &
incurs the revenue expenditure during the previous year
,deduction is allowed for such research .
 Capital expenditure incurred by an assessee who
himself carries on scientific research Sec 35(2) –
Conditions to be satisfied
 (i) expenditure has been incurred during the year.
 (ii) that it is of capital nature
 The following are some of the examples of capital

expenses deductible u/s 35
 Expenditure on the purchase of plants & equipments
for laboratory & on purchase of construction of a
building for conducting research.
 Expenditure on the purchase of air-conditioners for
laboratory.
 Expenses on purchase of cars & buses which are
used to transport employees engaged in the scientific
research.The expenditure should be allowed
fully.(Expenditure on Land is not deductible.)
 Sec 35(1)(ii)(iii)-where the assessee makes

contribution to the following institution for this purpose
,a weighted deduction is allowed as follows.
To whom contribution can be given Weighted

Deduction
An approved research association which 175%
has ,as its object ,undertaking of scientific
research related or unrelated to the
business of assessee.
An approved university,college,or other 175%
institution for the use of scientific research
related or unrelated to the business.
An approved university,college,or other 125%
institution for the use of research in social
sciences or statistical research
Contribution to National Laboratory Sec 35 (2AA)
 The following condition should be satisfied:

1. The payment is made to –
a. National Laboratory or
b. University or
c. Indian Institute of Technology
 The above payment is made under specific direction that
it should be used by the aforesaid person for
undertaking a scientific research programme approved
by the prescribed authority.
 If the aforesaid condition are satisfied the taxpayer is
eligible for weighted deduction which is equal to 200%
Amortization of Telecom licence fees (Sec 35 ABB)
 Deduction under section 35ABB is available if
following conditions are satisfied.
 The expenditure is capital in nature.
 It is incurred for acquiring any right to operate
telecommunication services.
 The expenditure is incurred either before the
commencement of business or thereafter at any
time during any previous year.
 The payment for which has actually been made.
 Amount of deduction: The payment will be allowed
as deduction in equal installments over the period
starting from the year in which such payment has
been made & ending in the year in which the license
comes to an end. It may be noted that the deduction
starts from the year in which actual payment of
expenditure is made irrespective of the previous year
in which the liability for the expenditure is incurred
according to the method of accounting regularly
employed by the assessee.
Profit or Loss on Sale of telecom license:

Different Situation Tax Treatment
Entire telecom license is transferred
1.When sale consideration is less than WDV minus sale consideration is allowed as
WDV deduction under section 35ABB in the year of
sale.
2.When sale consideration is more than WDV The excess of sale consideration over
WDV is taxable business income in the
year of sale(Subject to rule)
When a part of telecom license is
transferred
1.When sale consideration is less than WDV WDV minus sale consideration will be
allowed as deduction over the unexpired
period.
2.When sale consideration is more than WDV WDV minus sale consideration will be
allowed as deduction over the unexpired
period.
Depreciation u/s 32 is not available:

 Where a deduction for any previous year is claimed &
allowed under section 35ABB,then no deduction of the same
expenditure shall be allowed under section 32 for the same
previous year or any subsequent previous year.
Amortization of preliminary Expenses Sec 35 D
Deduction is available in case of Indian Company or resident

non-corporate assessee. Examples are:
 Legal charges for drafting any agreement between the
assessee & any other person relating to the setting up of the
business of the assessee.
 Legal charges for drafting the memorandum & articles of
association if the tax payer is a company.
 Printing expenses of memorandum & articles of association
of company.
 Registration fees of the company.
 Expenses in connection with the public issue of share or
debentures of company ,underwriting commission,brokerage
& charges for drafting ,printing,typing,advertisment of
prospectus.
Amortization of preliminary Expenses Sec 35 D
The expenditure can not exceed the following:

In case of corporate Assessee In case of non-corporate assessee
5% of cost of project or 5% of cost of project
5% of capital employed whichever is
more
One fifth of the qualifying expenditure is allowable as
deduction in each of the five successive years beginning
with the year in which business commences
Recovery against any Deduction u/s 41(1)
 If in any of the earlier years a deduction was allowed to the

tax payer in the respect of loss,expenditure &
 During the current previous year the tax payer-
a. Has obtained a refund of such trading liability
b. Has obtained some benefit in respect of such trading liability
by way of remission or cessation thereof.
If both conditions are satisfied ,the amt obtained by such person
shall be deemed to be profits & gains from business or
profession.
Maintenance of accounts by certain persons Sec 44AA
 “Specified Profession” For the purpose of Sec 44AA &

rule 6F legal,medical,engineering
,architectural,accountancy,technical consultancy,or interior
decoration ,film artist,company secretary,are ―specified
Profession‖.
 “Non-Specified Profession” A non-specified profession
other than a “specified profession” mentioned above.
 “Specified Profession” For the purpose of Sec 44AA &

rule 6F legal,medical,engineering
,architectural,accountancy,technical consultancy,or interior
decoration ,film artist,company secretary,are ―specified
Profession‖.
 “Non-Specified Profession” A non-specified profession
other than a “specified profession” mentioned above.
Category Taxpayer who come under Requirement of maintenance of

this category books of accounts
A Persons carrying on ―Specified Persons coming under this category

Profession‖ if their gross are required to maintain such ―books
receipts in the profession do not of account & other document‖ as
exceed Rs 1,50,000 in any of may enable the AO to compute their
the three years immediately taxable income. The Board has not
preceding the previous year (or prescribed specified books of
where the profession is newly account which should be maintained
set up in the previous year,his for the persons falling under this
gross total receipts in the category.
profession for that year are not
likely to exceed the said
amount).

B Persons carrying on ―specified Persons coming in this category are

profession‖ if their gross required to maintain such books of
receipts in the profession accounts as are prescribed by rule
exceed Rs 1,50,000 in all the 6F
three years immediately
preceeding the previous year(or
where the profession has been
newly set up in the previous
year ,his gross total receipt in
the profession for that year are
likely to exceed the said
amount)

C Persons carrying on a ―non- Persons coming under this category

specified profession‖. It also are not required to maintain any
includes persons carrying on books of account.
any business if their income
from such profession or
business does not exceed Rs
1,20,000 & total sales/turnover
or gross receipt thereof are not
in excess of Rs 10,00,000 in all
the three years immediately
preceeding the previous year .

D Persons carrying on a ―non- Persons falling under this category

specified profession‖.It also are required to maintain such books
includes persons carrying on of accounts & other documents as
any business if their income may enable the AO to compute their
from such profession or taxable income under IT Act.
business exceeds Rs 1,20,000
or the total sales,turnover,gross
receipts are in the excess of Rs
10,00,000 in any of three years
immediately preceeding the
previous year.
Specified Books of account Sec 44AA
 The Board has specified certain books of account under rule

6F for the professional falling under Category B. The
prescribed books are as follows.
 A cash book (record of all cash receipts & payments, kept &
maintained from day to day & giving the cash balance in hand
of each day or at the end of a specified period not exceeding
a month)
 A journal, if the accounts are maintained according to the
merchantile system of accounting
 A ledger
 Carbon copies of bills exceeding Rs 25 issued by the person
& carbon copies otherwise serially numbered receipts issued
by the person.
Specified Books of account Sec44AA
 Apart from this, person carrying on medical profession is

required to keep the following additional books
 A daily case register in Form No 3C showing date ,patient’s
name,nature of professional services rendered ,fees
received& date of receipt.
 An inventory under broad head ,as on the first & last days of
previous year,of stock of drugs ,medicines & other
consumable accessories used for the purpose of his
profession
Audit of certain persons (Sec 44AB)
 The following persons are required to get their accounts

compulsorily audited by a Chartered Accountant.
 A person carrying on the business if total sales, turnover or
gross receipt in business for the previous year relevant to the
assessment year exceed or exceeds Rs 60 lakhs.
 A person carrying on profession if gross receipts in profession
for the previous year relevant to the assessment year exceed
Rs 15 lakhs.
Due Date for getting books audited/submission of audit
Report & Form No
Different Tax Payers Audit Statement Due Date for Due Date
Form No Particulars getting books for
audited Submission
of audit
report
In case of person who 3CA 3CD Sept 30th of Sept 30th of the
carries on businesss or the A.Y A.Y
profession & who is
required by or under any
law to get his accounts
audited
In case of a person who 3 CB 3CD Sept 30th of Sept 30th of
carries on a business or the A.Y the A.Y
profession but not being
a person referred above.
Due Date for getting books audited/submission of audit
Report & Form No
 If any person fails to get his accounts audited or to furnish a
report of such audit as required under the aforesaid provision,
AO may impose penalty .The penalty can be a sum equal to
one half percentage of total sales, turnover or gross receipts
subject to maximum of Rs 1 lakhs.
 If income is exempt under section 10 to 13A,then audit under
section 44AB is not required.If however income is chargeable
to tax ,audit under section 44AB is applicable.(when turnover
is above Rs 40 lakhs or gross receipts is above Rs 10 lakhs)
even if in a particular year no tax is payable.
Computation of income on estimated basis in the case of
taxpayers engaged in certain business (Sec 44 AD)
Conditions:
 The assessee should be an eligible assessee .Eligible
assessee for this purpose is a resident individual,a resident
HUF or resident partnership firm
 The assessee has not claimed any deduction under section
10A,10AA,10B,10BA,80HH,80RRB.
 The assessee should be engaged in any business (whether it
is retail trading or wholesale trading or civil construction )
except the business of plying,hiring ,or leasing goods
carriages referred to in section 44AE.
 Total turnover /gross receipt in the P.Y should not exceed Rs
60 lakhs.
Consequences if the above conditions are satisfied
 If the above conditions are satisfied ,income from eligible business is
estimated at 8% of the gross receipt or total turnover.
 All deductions under section 30 to 38,including depreciation & unabsorbed
depreciation, are deemed to have been already allowed & no further
deduction is allowed under these section. In case of firm ,the normal
deduction in respect of salary & interest to partners under section 40(b)
shall be allowed.Also it will be assumed that disallowance if any under
section 40,40A,43B has been considered.
 An assessee opting for the above scheme shall be exempted from the
payment of advance tax related to such business.
 An assessee opting for the above scheme shall be exempted from
maintenance of books of account related to such business as required
under section 44AA.
 An individual/HUF opting for the above scheme can submit his return of
income in ITR -4S (which is simplified return form Sugam)
Consequences if the above conditions are satisfied
 If the above conditions are satisfied ,income from eligible business is
estimated at 8% of the gross receipt or total turnover.
 All deductions under section 30 to 38,including depreciation & unabsorbed
depreciation, are deemed to have been already allowed & no further
deduction is allowed under these section. In case of firm ,the normal
deduction in respect of salary & interest to partners under section 40(b)
shall be allowed.Also it will be assumed that disallowance if any under
section 40,40A,43B has been considered.
 An assessee opting for the above scheme shall be exempted from the
payment of advance tax related to such business.
 An assessee opting for the above scheme shall be exempted from
maintenance of books of account related to such business as required
under section 44AA.
 An individual/HUF opting for the above scheme can submit his return of
income in ITR -4S (which is simplified return form Sugam)
Computation of income on estimated basis in the case of taxpayers engaged
in business of plying,leasing or hiring trucks (Sec 44 AE)
 The tax payer may be an

Individual,HUF,AOP,BOI,firm,company,co-operative society or
any other person.
 Taxpayer is engaged in the business of plying, hiring,or
leasing goods carriage.
 Taxpayer owes not more than 10 goods carriages at any time
during the previous year.
 All other condition are the same as per Sec 44AD.
Computation of income on estimated basis in the case of taxpayers engaged
in business of plying,leasing or hiring trucks (Sec 44 AE)
 Income to be calculated on estimated Basis:
Types of goods carriage Estimated income

Heavy goods vehicle Rs 5000 for every month
during which the goods
carriage is owned by the
taxpayer.
Other than Heavy Goods Rs 4500 for every month
Vehicle. during which the goods
carriage is owned by the
taxpayer.
Deduction from Gross Total Income
 80G Donations to Charitable institutions & Funds
 80GGA Donation for Scientific research or rural
development.
 80GGB Contribution to political parties
 80 IA Profits & Gains from Industrial undertaking
engaged in infrastructure activity
80 IAB Profits & Gains from Industrial undertaking
engaged in Special Economic Zone.
80 IB Profits & Gains from Industrial undertaking
other than infrastructure development undertaking
 80 IC Profits & gains from undertaking in certain States.
 80 ID Profits of hotels & Convention Centers.
 80 JJA Profits & Gains Business of collecting & Processing
biodegradable waste.
 80JJAA Employment of New Workmen
 80 LA Income of offshore Banking Units
80 GGA Donation for Scientific research or rural development.
 An Assessee (other than an assessee whose gross total income
includes income chargeable under the head ― Profits & gains of
business or profession ) is entitled to deduction .
 Sum paid to a scientific research association, or to a university,
college, or other institution as approved.
 Including social science or statistical research.
 Sum paid for training persons for rural development programme.
 Sums paid to National Fund for rural development set up and
notified by central government
 Sum paid to a public sector company,local authority or an approved
association or institution for carrying out any eligible project or
scheme ,referred to in sec 35 AC
 Sums paid to the notified National urban poverty eradication fund
80GGB Contribution to political parties or electoral trust
by companies
 In computing the total income of an Indian

Company,any sum contributed by it to any
political party or electoral trust is deductible.
 Expenditure by way of advertisment to a
magazine owned by a political party is
deductible u/s 80GGB.
80GGB: deduction in respect of contributions given by
companies to political parties or electoral trust
 In respect of contribution to political parties.
 W.e.f. A.Y. 2012-13, contribution to Electoral Trust

also eligible for deduction.
 Indian companies = 100% of sum contributed
 Political parties should be registered with the

Election commission of India.
80 IA Profits & Gains from Industrial Undertaking
engaged in the infrastructure Development.
Deduction under sec 80 IA is available only to the

following business carried on by the undertaking.
Case 1 Provision of Infrastructure facility
Case 2 Telecommunication Services
Case 3 Industrial Parks
Case 4 Power generation,transmission & distribution
Case 5 Undertaking set up for reconstruction of a power unit
 An undertaking providing infrastructure facility must satisfy
the following conditions-
 It should provide infrastructure facility
 It should be owned by an Indian Company
 There should be an agreement with the central
Government
 It should start operation on or after April 1,1995
 Deduction should be claimed in the return of income &
return of income should be submitted on or before the due
date of submission of return of income.
 Power of AO to recompute the profit in following condition:
 The taxpayer carries on two or more business ,at least one
of them is qualified for deduction under section 80 IA/80IB.
 From the Business which is eligible for deduction under
section 80IA/80IB ,some goods are transferred to any
other business carried on by the taxpayer Which is not
eligible for deduction under section 80 IA/80IB or vice
versa
 The consideration for such transfer ,which is recorded in
the books of account ,is not equal to market value of such
goods on the date of transfer.
 When the aforesaid conditions are satisfied ,AO will
recomputed profits of the business qualified for deduction
under section 80IA/80IB as if the transfer in either case
had been made at the market value of the goods on the
date of transfer.
 Consequences of Merger/Amalgamation: If company
which is entitled for deduction under section 80 IA is
amalgamated/demerged with another company ,the
resulting company can avail benefit under section 80 IA for
the unexpired period of tax liability provided the transferor
& transfree company is Indian Company.
 Infrastructure facility means:
 A road including toll road ,bridge or a rail system
 A highway project including housing or other activities
being an integral part of the highway project
 A water supply project, water treatment system, irrigation
project, sanitation & sewerage system or solid waste
management system
 A port ,airport, inland waterway or inland port
 Amount of Deduction: 100 % of the profit is deductible
for the first 10 years commencing from the initial A.Y. In
case of highway projects, only that part of profit which is
transferred to a special reserve account is eligible profit.
 The enterprise has an option to choose initial A.Y . It can
be any year within a period of 15 years (20 years in case
of highway project/road/water treatment etc.) from the year
in the enterprise begins operating/maintaining
infrastructure facility.
 However the benefit of deduction is available only for 10
consecutive years from the A.Y in which the enterprise
begins operating/maintaining the infrastructure facility
 Audit Report: The deduction under section 80 IA is
available only if the accounts of the undertaking have been
audited by a Chartered Accountant & Audit Report in Form
No 10 CCB is furnished along with the return of income.
engaged in the Telecommunication Services
 An undertaking providing above services has to satisfy the
following condition:
 It should be new undertaking
 It should not be formed by transfer of old plant &
machinery
 It should start providing services after March 31,1995 but
before March 31,2005.
―Domestic Satellite‖ for this purpose means a satellite owned
& operated by an Indian company for providing
telecommunication service.
engaged in the Telecommunication Services
Amt of Deduction in case of Telecommunication
Service
Enterprise % of profit Deductible Period of deduction
commencing from initial
A.Y
Owned by a 100 First 5 Years
company or
any other 30 Next 5 years
person
engaged in the Special Economic Zone or Industrial
Park
 An undertaking which develops & operates industrial park
or SEZ must satisfy the following condition to avail benefit
of Section 80IA
 It develops ,operates &maintains & operate an industrial
park or a SEZ
 The industrial park must start operating during April 1,1997
& March 31,2011 or the SEZ must start operating during
April 1,1997 & March 31,2005.
 If all the aforesaid conditions are satisfied then 100% of
the profit is deductible for 10 years commencing from
initial assessment years.
engaged in the power generation/distribution
The following condition should be satisfies:
 It should be new undertaking
 It is set up in any part of India for generation /distribution of
power.
machinery.
date of submission of return of income
engaged in the reconstruction of power units
Following conditions should be satisfies.
 It should be owned by an Indian company & set up for
reconstruction or revival of power generating plant.
 It should be formed before November 30,2005 with the
majority equity participation by public sector companies.
 Such undertaking begins to generate or transmit or
distribute power before March 31,2011.
date of submission of return of income
80 IAB Profits & Gains from Industrial Undertaking or enterprise
engaged in development of Special Economic Zone
 The following condition should be satisfied
 The taxpayer is a developer of Special economic Zone
 The Gross Total Income of the tax payer includes profits &
gains derived by an undertaking from any business of
developing a Special economic Zone.
 Such Special economic Zone is notified on or after April
1,2005
 The books of account of the taxpayer are audited.
 Amount of Deduction: Tax payer can claim 100%
deduction for 10 consecutive assessment years.The
deduction may be claimed ,at the option of the taxpayer,
for any 10 consecutive assessment years out of 15 years
beginning from the year in which the SEZ has been
notified by the Central Government.
80 IB Deduction in respect of profits & Gains from certain
industrial undertaking other than infrastructure development
Deduction under section 80IB is available to different

industrial undertakings as follows:
 Business of an industrial undertaking
 Operation of Ship
 Industrial Research
 Production of Mineral oil
 Developing & Building housing projects
 The business of processing ,preservation & packaging of
fruits or vegetables or integrated ,handling ,storage &
transportation of food grain units
 Convention Centre
 Operating & maintaining a hospital in rural area.
 Hospitals located in certain areas.
 It should be a new undertaking

machinery
 It should manufacture or produce articles other than non-
priority sector items
 Manufacture or production should be started within a
stipulated time limit.
 It should employ 10/20 workers.
 Recomputation of profit by Assessing Officer
 Consequences of Merger /Amalgamation
 Amount Of Deduction:
 Operation of Ship 30% of profit is deductible for the first 10
years.
 Industrial Research If the company is approved by the
prescribed authority at any time before April 1,1999 100%
of profit for 5 years beginning with the initial A.Y. If the
company is approved by the prescribed authority after
March 31,2000 but before April 1,2007 100% of profit from
such business for 10 years beginning with the initial A.Y
 Mineral Oils:100% of profit is deductible for the first 7
years commencing with the year in which the undertaking
commences commercial production of mineral oil or
refining of mineral oil.
 In case of business of processing, preservation &
packaging of fruits or vegetables 100% deductible for 5
years & 30% for next 5 years.
 Hospitals located in certain areas ,100% profits of

business shall be deductible for a period of 5 A.Y.
 Developing & building Housing Project:100 % of profit
derived from such project is deductible.
Deduction in respect of profits & gains of certain
undertakings in certain special category of States. Section
80IC
An industrial undertaking must satisfy the following
conditions:
 Should not have been formed by splitting up or
reconstruction of a business already in existence
.
 Not formed by transfer of old plant & machinery
 Industrial undertaking should be set up in
Sikkim,Himachal Pradesh,Northen Eastern
State.
 Industrial undertaking should manufacture
/produce specified goods/articles.
 The books of account should be audited & audit
report in Form No 10CCB should be submitted.
Deduction in respect of profits & gains of certain
undertakings in certain special category of States. Section
80IC
 Sikkim -- 100% of profits & gains of the
industrial undertaking for 10 years commencing
from initial assessment years.
 H.P/Uttaranchal--- 100% of profits & gains of the
Industrial undertaking for the first 5 years & 25%
for the next five years.
 North Eastern State--- 100% of profits & gains
of the industrial undertaking for 10 years
commencing from initial assessment years.
Deduction in respect case of hotels & Convention Centre
Sec 80ID
 The tax payer engaged in the business of hotel

located in a specified area
(Delhi,Faridabad,Gurgaon,Ghaziabad,Agra,Jalg
oan,etc)Alternatively,the tax payer is engaged in
the business of building ,owning & operating a
convention centre located in specified
area.Convention Centre means a completely
centrally air-conditioned building of a minimum
25000 sq.ft equiped with modern public address
system,LCD projector to be used for holding
conferences & seminars.
Deduction in respect case of hotels & Convention
Centre Sec 80ID
 Should not have been formed by splitting up or

reconstruction of a business already in existence
.
 Not formed by transfer of old plant & machinery
 100% of profits & gains derived from the
aforesaid business is deductible for five
consecutive assessment years.
 Audit report in Form No 10CCBBA should be
submitted on or before the due date of
submission of return of income.
profits & gains from the business of collecting &
processing of Bio-degradable waste Sec 80JJA
 This section is applicable where the gross total

income of an assessee includes any profit &
gains derived from the business of collecting
,processing or treating of biodegradable waste
for generating power or producing bio-fertilizer,or
other biological agents or for producing bio-gas.
 The whole of the profits & gains of the above
activities shall be deductible for a period of five
consecutive assessment year relevant to the
previous year in which such business
commences.
Deduction in respect of employment of new
workmen Sec 80JJAA
 Following condition should be satisfied.

 The tax payer is an Indian Company
 Income of tax payer includes any profits & gains derived
from any industrial undertaking engaged in the
manufacture or production of article or thing.
 The industrial undertaking is not formed by splitting up or
reconstruction of an existing undertaking or amalgamation
with another industrial undertaking.
 The assessee furnishes along with the return of income
the report of a Chartered Accountant in Form No 10DA.
 Deduction should be claimed in the return of income.
workmen Sec 80JJAA
 Amount of Deduction: The amount of deduction is equal

to 30% of additional wages paid to new regular workmen
employed by the assessee in the previous year.The
deduction is available for three assessment years
including the assessment year relevant for previous year
in which such employment is provided.
 For the aforesaid purpose workmen means any person
employed in any industry to do any
manual,unskilled,skilled,technical, clerical or supervisory
work but does not include the following
 A person who is in the Air-force,Military or Navy or in
Police Service.
 A person who is employed in Managerial or administrative
capacity
 A person who is employed in supervisory capacity & draw
wages exceeding Rs 1600 per month.
workmen Sec 80JJAA
 Regular workman ― does not include the

following
 A casual workmen
 A workman employed for contract labour or
 Any other workman employed for a period of
less than 300 days during the previous year.
 30% of the additional wages paid to new regular
workmen . Such deduction is available for a
period of 3 years from the year of provision of
employment.
workmen Sec 80JJAA
Meaning of Additional Wages:

 In case of new Undertaking :It means wages
paid to new ―regular workmen ― in excess of 100
―workmen‖ employed during the year.
 In the case of existing undertaking: It means
wages paid to new ―regular workmen ― in excess
of 100 ―workmen‖ employed during the
year.Additional wages shall be nil if the increase
in number of ―regular workmen‖ employed during
the year is less than 10% of existing number of
―workmen‖ employed in the undertaking as on
last day of the preceding year.
workmen Sec 80JJAA
Employees
 Category are categorised
Nature of employment under following
Acategories.
Employees employed in managerial
capacity,drawing salary exceeding Rs 1600 per
month.
B It includes casual workmen employed through
contract labour (not coming under A)
C Other workmen if employed for less than 300
days during the previous year ( not coming under
A & B)
D Other workmen (not coming under A & B) if
employed for 300 days or more than 300 days
during the previous year.
Deduction in respect of certain income of Offshore Banking
Units & International Financial Services Centre ( Section
80LA)
 The following condition should be satisfied

 The assessee is a scheduled bank & having an
offshare banking unit in a special economic
zone.or
 A foreign bank & having an offshare banking unit
in a special economic zone or
 A unit of International Financial Services Centre.
 The report from Chartered Accountant in Form
No 10CCF certifying that the deduction has been
correctly claimed in accordance with the
provision
 A copy of permission obtained under Banking
Regulation Act should be submitted along with
the return of income.
Deduction in respect of certain income of Offshore Banking
Units & International Financial Services Centre ( Section
80LA)
 If the above conditions are satisfied ,then 100%

of the aforesaid income is deductible for 5
consecutive assessment years beginning with
the assessment year relevant to the previous
year. For next 5 years,50% of such income
would be deductible.
Computation of income & Tax Liability of
company
 First ascertain income under the different heads of

income
 Current & brought forward losses should be adjusted

according to the provision of section 70 to 80.
 Total of income so computed under the different
heads is Gross Total Income.
 From the gross total income so computed ,the

following deductions are permissible under Sec 80 C
to 80U.
Tax Liability of company under the Normal Provision
 (1)Find out the total income under normal

provision.
 (2)Find out the income tax at the rate of 30%
(40% in case of foreign co.)
 (3) Add Surcharge at the rate given below if net
income exceeds Rs 1 crore.
Domestic Co 5%
Foreign Co 2%
 (4) Find out (2) + (3)

 (5) Add education cess at the rate of 2% &
SHEC @ 1%
 (6) Deduct tax rebate or tax credit u/s
86,90,90A,91
Tax Liability of company under Minimum Alternate Tax
 (8) find out book profit

 (9)Find out 18.5% of book Profit
 (10) Add Surcharge at the rate given below if net
income exceeds Rs 1 crore.
Domestic Co 5%
Foreign Co 2%
 (11) Find out (9) + (10)
 (12) Add EC @2% & SHEC 1%
 (13) Find out (11) + (12)
 Tax Liability of a company is (7) or (13)
whichever is more .
 MAT applicable to SEZ units from A.Y 2012-13
onwards.
Minimum Alternate Tax Sec 115 JB
 The extra tax which the company has to pay

because of MAT ( Step 13 minus step 7) will be
available for ―tax credit‖u/s 115 JAA. Tax credit
can be set off against future tax liability of the
company .It is available only in that year in which
tax computed at Step 7 is more than tax
computed at step 13.
How to compute the Book Profit
 Net profit as shown in Profit & Loss A/C
prepared in accordance with the provisions of
Part II & III of VI Schedule to Companies Act ) is
to be increased by the following amounts if
debited to profit & Loss account.
 Income tax paid or payable & the provisions
thereof. Interest under IT Act, dividend tax under
sec 115-O .No adjustment is required in respect
of the following taxes Securities Transaction
Tax,Banking cash transaction tax, commodities
transaction tax,wealth tax,gift tax, fringe benefit
tax,indirect taxes,penalties/fine under IT act.
 Amounts carried to any reserves by whatever
name called
 Amounts set aside to provisions made for
meeting liabilities other than ascertain liabilities.
 Amounts by way of provision for losses of
subsidiary companies
 Amount of dividend paid or proposed.
 Amount of expenditure relatable to any exempt
income
 Amount of depreciation
 Amount of deferred tax & provisions thereof &
amounts set aside as provision for value of
diminution in value of any asset.
 Net Profit as shown in the P & L is to be reduced
by the following.
 Amount withdrawn from reserves or provisions if
any such amount is credited to the profit & loss
account
 Income exempt from tax
 Depreciation (other than revaluation of asset)
 Amount withdrawn from revaluation reserve
credited to profit & loss account to the extent it
does not exceed the amount of depreciation on
account of revaluation of asset.
 Amount of loss(before depreciation)brought
forward or unabsorbed depreciation whichever is
less as per books of accounts.
 Profit of sick industrial unit
 The amount of deferred tax, if any such amount
is credited to the profit & loss account.
MAT
 Every company to which section 115JB applies
shall furnish a report (Form No 29 B) from
Chartered Accountant certifying that the book
profit has been computed in accordance with the
provisions of section 115JB.The report should be
submitted along with the return of income.
 MAT can be carried forward for 10 assessment

year.Tax credit is allowed even if the tax paid
was late. ( see Question No 1)

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Company Sec 2(17)

Company is defined to mean following:

 Any body corporate incorporated under the laws of a

 Any institution , association or a body whether

 Any institution, association or a body whether

 Indian Company will automatically be considered as a

 In order to become domestic company it is essential

 Foreign Company means a company which is not a

 It means a Company which is mainly engaged in the

 Business includes trade, commerce or manufacture

Profit and Loss account:

Net profit as per P&L account xxxx

 The process of setting off of losses & their carry

Step 1 Inter-source adjustment under the same head

 If the net result for any assessment year ,in respect of

 Loss from a non-speculation business can be set off

 Short term capital loss can be set off against any

 Under the head “ Income from other Sources” loss

 If income from a particular source is exempt from

 If there is income from one source & loss from

Speculativ Non- Speculati Non- Speculati Non-

A 140000 160000 150000

B (-) 50000 (-) (-)60000

 In this case , loss from speculative business can be

 Long term capital loss can be set off only against

The provisions of sec 71 are given below.

Where the net result of computation made for any

 No order of priority is given in the Act. One should try

 A loss has to first adjusted against available income

 If tax payer has the following income/loss:

 In this case ,after adjusting business loss of Rs

 Where income from a particular source is exempt

 When the net result of computation for any assessment

 Speculative transaction means a transaction in

 Loss in a speculation business can be carried

 Such loss can be carried forward for 4 assessment

 Long Term capital loss can be set off only against

 Short Term capital loss can be set off against short

 Such loss can be carried forward for eight

 Such loss can not be carried forward unless return is

 During the previous year 2011-12,X has long term

 Losses incurred by owner of race horses in the

 Such unabsorbed loss can be carried forward to a

 In the case of Y, the brought forward loss from the

 Undertaking established in Free Trade Zone :

 Free Trade Zones are Kandla, Santacruez, Falta,

 The CBDT has specified the following information

 Should not be formed by Splitting /reconstruction of

 If the aforesaid conditions are satisfied, the A.O will recompute

The assessee must satisfy the following conditions.

 A sum equal to amounts deposited in special account

When the amount can be When the amount can

 It must deposit with SBI any amount in an account (herein

Amount can be withdrawn for the purpose of the Scheme –A

 Consequences of non-utilisation If the amount released or

 Scientific Research means any activities for the

 The following are some of the examples of capital

 Sec 35(1)(ii)(iii)-where the assessee makes

To whom contribution can be given Weighted

 The following condition should be satisfied:

Profit or Loss on Sale of telecom license:

Depreciation u/s 32 is not available: