Tax Planning With Reference to New Business- Location

8/9/2019 Tax Planning With Reference to New Business- Location

1/20

Tax Planning With Reference toNew Business- Location of ABusiness

Dr Amit Kumar Sinha

[email protected]

[email protected]


2/20

Special Provisions in respect of newlyestablished undertakings in free trade zone

Sec. 10 AConditions:1. Must begin Manufacture or Prod. In free trade zone

during the prescribed duration

2. Should not be formed by splitting/ reconstruction

of business

3. Should not be formed by the transfer of oldmachinery

4. There must be repatriation of sale proceeds into

India5. Audit report should be furnish in form no 56F along

with the return of income

6. Return of income as per guidelines of sec. 139(1)


3/20

Explanations to condition 1

Location Year

Free trade Zone During the previous year relevant tothe assessment year 1981-82 or any

subsequent year.

Electronic hardwaretechnology park orsoftware technologypark

During the previous year relevant toassessment year 1994-95 or anysubsequent year

Special EconomicZone

During the previous year relevant toassessment year 2001-02 or anysubsequent year but before April, 12005


4/20

Amount of Deduction

Profit of the Business Undertaking x Export Turnover

Total turnover of the business


5/20


6/20

Amount of deduction special

provisionsDeduction U/S 10 A in case of undertaking which

begins production during 1/4/2002 to31/3/2005 in any SEZ:

First 5 years- 100% of Profit derived fromexport

6th & 7th Year- 50% of such profit

8th,9th & 10th Year- For this 3 years, a further

deduction would be available to the extent of50% of the profit and an equivalent amount isdebited to P&L a/c of the previous year andcredited to SEZ Re-investment AllowanceReserve Account


7/20

Consequences of

Amalgamation/DemergerWhere an undertaking of an Indian company is

transferred to another company under ascheme of amalgamation or demerger the

deduction U/S 10 A shall be allowable to in thehands of resulted company. However nodeduction shall be admissible under thissection to the amalgamating company for theprevious year in which amalgamation ordemerger take place


8/20

Case

Ritz softs Ltd. Is company registered in India andestablished in Noida Software Technology park in theyear 1998-99. its majority of the projects are inEuropean nations. In the 2007-08 the total salesrevenue generated by the company was Rs.50,00,000.while 80 per cent of the revenue has been generated

through the providing services inE

uropean countriesonly 20 percent of total revenue has been generatedthrough domestic sales. But due to some problems bythe date of 30th Sept. 2008 only Rs. 36,00,000 havebeen remitted in India in the foreign currencyconversion account. The companys Profit & Loss Accountis depicting the operating result as Rs. 5,00,000(Cr) forthe F.Y. 2007-08

Question-Discuss whether the company can enjoy TaxHoliday or not if yes, then under which section and up towhat amount company can claim deduction


9/20

Special Provisions in respect of newlyestablished Units in Special Economic zone

Sec. 10 AAConditions:

1. Assessee should be entrepreneur as per sec. 2(j) of SEZAct, 2005.

2. The unit should begins production or provide serviceduring the financial year 2005-06 or any subsequentyear.

3. Its not formed by the splitting up or reconstruction ofalready existing business

4. Should not be formed by the transfer of old machinery.However, it can be formed by transfer of old plant &machinery to the extent of 20%.

5. The Assessee must have export income

6. Audit report should be furnish in form no 56F along withthe return of income


10/20

Amount of Deduction




11/20

Period Of DeductionIf all the conditions are satisfied, the Assessee can

claim the deduction U/S 10 AA from his totalincome in following manner:

First 5 years- 100% of Profit derived from export 6thYear to 10th Year- 50% of such profit

11th year to 15th Year- For this 5 years, a furtherdeduction would be available to the extent of 50%of the profit and an equivalent amount is debited to

P&L a/c of the previous year and credited to SEZRe-investment Allowance Reserve Account


12/20

Special Provisions in respect of newly

established hundred per cent export-oriented undertakings {Sec. 10 B}

General

As per this section, a deduction of such profits and gains as

are derived by a 100% export-oriented unit from the export

articles or things or computer software for a period of 10

consecutive years beginning with the A.Y. relevant to the P.Yin which the undertaking begins to manufacture or produce

articles or things or computer software, as the case may be

shall be allowed from the total income of the assessee.


13/20

Conditions:1. It must be an approved hundred per cent export

oriented undertaking2. It must produce or manufacture articles or things

or computer software3. Its not formed by the splitting up or

reconstruction of already existing business4. Should not be formed by the transfer of old

machinery5. There must be repatriation of sale proceeds into

India6. Audit report should be furnish in form no 56G

along with the return of income7. Return of income as per guidelines of sec. 139(1


14/20

Amount of Deduction




15/20

Some Points to be kept in mind:

1.Period of tax holiday- same as in sec 10 A

2.Existing undertaking will get benefit forunexpired period-

same as in Sec. 10 A

3. Ban on enjoyment of other tax benefit- same assec 10 A

4. WDV of assets after tax holiday- same asSec 10 A

5. Consequences of Merger & Amalgamation-sameas Sec 10 A


16/20

Special Provision in respect of export ofartistic hand-made wooden articles

Section 10 BAGeneral:Subject to the provisions of this section, a

deduction of such profits and gains are derived

by an undertaking from the export of woodenhand-made artistic articles, shall be allowedfrom the total income of the assessee.

However, where in computing the total income ofthe undertaking for any A.Y., deduction U/S 10

A or Sec 10B has been claimed, theundertaking shall not be entitled to thededuction under this section


17/20

Conditions to claim deduction U/S Sec 10BA (this deduction is applicable from the

A.Y. 2004-05)1. It should manufacture eligible articles or things

2. It should be a new undertaking.

3. It should not be formed by transfer of old

machinery or plant previously used for anypurpose.

4. 90% sale should be in overseas market.

5. Employment of 20 or more workers

6. There must be repatriation of sale proceeds intoIndia

7. The Audit report should be furnish in Form No. 56H

8. The primary raw material should be wood andshouldn't be imported


18/20

Amount of Deduction



Period of DeductionThe aforesaid amount of profit is deductible for six

Assessment Years. i.e. A.Y. 2004-05 to 2009-10.


19/20

CaseThe Raunak Crafts Ltd. is engaged in manufacturing of wooden

hand made artistic goods. It has been established by Mr.Raunak Suri who came to India from Germany in theOctober 1994, and established his company which startmanufacturing in January 1995. At the time when he cameto India he brought a polishing machine from Germanywith himself against which he paid duty in India and

completed all the formalities. In the year 1995 he startedhis business with only 10 workers but from next F.Y. heincreased his workers strength to 25. Up to financial year1998-99 his total revenue consist of 70% export turnoverand rest from the domestic market. after that Mr. Raunakhad changed his marketing strategy and focused more on

International market and resulting right from the F.Y.1999-2000 he is able to earn more than 90% of histurnover from the export.

continued


20/20

case continued

for the year ending on 31st March 2008 Raunak Crafts Ltd.depicted the following P&L a/c-

Particulars Amount Particulars Amount

Cost of Goods sold 3500000 Sales turnover 8000000

Other Expenses 50000 Interest on Bankdeposit

500000

Net Profit 49500008500000 8500000

out of the sales turnover of Rs.8000000, sales in overseasmarket is 7500000 and sale in domestic market is Rs.500000.

out of the export of 7500000, amount remitted to India inconvertible foreign exchange till September 30, 2008 is Rs.6650000. it includes Rs. 50000 for freight charges.

Documents

Tax Planning With Reference to New Business- Location