COROPORATE TAX PLANNING AND

MANAGEMENT

A Project Submitted to
University of Mumbai for partial completion of the degree of
Master in Commerce
Under the Faculty of Commerce

By
NEHA SHIVDAYAL GUPTA

Under the Guidance of

Ms. Hetal Utmani

(S.E.S.)SWAMI HANSMUNI MAHARAJ DEGREE COLLEGE OF COMMERCE

Netaji Chowk, Opposite Dena Bank,

Ulhasnagar - 421004

February 2021.
 INDEX
SR.NO TOPIC PAGE.NO
1 INTRODUCTION
CORPORATE TAX
TAX EVASION
TAX AVOIDANCE
TAX PLANNING
DIVIDEND TAX

2 COMPUTATION OF TOTAL INCOME OF

COMPANIES

3 COMPUTATION OF TAX LIABILITY OF

COMPANIES

4 TAX PLANNING FOR NEW BUSINESS

LOCATION,NATURE AND SIZE OF BUSINESS
FORM OF BUSINESS

5 TAX PLANNING AND FINANCIAL

MANAGEMENT DECISIONS
TAX PLANNING RELATING TO CAPITAL
STRUCTURE DECISION
DIVIDEND POLICY
INTER-CORPORATE DIVIDENDS AND BONUS
SHARES

6 TAX PLANNING AND

MANAGERIALDECISION
TAX PLANNING WITH RESPECT TO OWN OR
LEASE
SALE OF ASSET USED FOR SCIENTIFIC
RESEARCH
MAKE OR BUY DECISION
RAPAIR, REPLACE, RENEWAL OR
RENOVATION OF AN ASSET
SHUT DOWN OR CONTINUE DECISION

7 SPECIAL TAX PROVISION

TAX PROVISION IN RESPECT OF FREE
 TRADE ZONE
TAX PROVISION IN RESPECT OF
INFRASTRUCTURE DEVELOPMENT
TAX PROVISION IN RESPECT OF
BACKWARD AREAS
TAX PROVISION IN RESPECT OF TAX
INCENTIVES
PURCHASE BY INSTALMENT

8 AMALGAMATIONAN
DEMERGER

9 TAX DEDUCTION AT SOURCE

TAX COLLECTION AT SOURCE

10 ADVANCE PAYMENT OF TAX

11 CONCLUSION

(S.E.S.) SWAMI HANSMUSNI MAHARAJ DEGREE COLLEGE

OF COMMERCE.

Netaji Chowk, Opposite Dena Bank,

Ulhasnagar – 421004.

Certificate
This is to certify that Ms/Mr has worked and duly completed her/his
Project Work for the degree of Master in Commerce under the Faculty of
Commerce in the subject of __________________ and her/his project is
entitled, “ Corporate Tax Planning And Management” under my
supervision.
I further certify that the entire work has been done by the learner under
my guidance and that no part of it has been submitted previously for any
Degree or Diploma of any University.
It is her/ his own work and facts reported by her/his personal findings and
investigations.

Seal of the College

Name and Signature of
Guiding Teacher

Date of submission

Declaration by learner

I the undersigned Miss Neha shivdayal gupta here by, declare that the
work embodied in this project work titled “ Corporate tax planning
And Management ”, forms my own contribution to the research work
carried out under the guidance of Miss Hetal Utmani is a result of my
own research work and has not been previously submitted to any other
University for any other Degree/ Diploma to this or any other University
Wherever reference has been made to previous works of others, it has
been clearly indicated as such and included in the bibliography.
I, here by further declare that all information of this document has been
obtained and presented in accordance with academic rules and ethical
conduct.

Name and Signature of the learner

Certified by
Name and signature of the Guiding Teacher

Acknowledgment

To list who all have helped me is difficult because they are so numerous
and the depth is so enormous.
I would like to acknowledge the following as being idealistic channels
and fresh dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me

chance to do this project.

I would like to thank my Principal, Dr. Kiran Chimnani for providing

the necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator Miss Komal

Bodhwani, for her moral support and guidance.

I would also like to express my sincere gratitude towards my project

guide Miss Hetal Uttami whose guidance and care made the project
successful.

I would like to thank my College Library, for having provided various

reference books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or
indirectly helped me in the completion of the project especially my
Parents and Peers who supported me throughout my project.
CORPORATE TAX PLANNING AND MANAGEMENT

 INTRODUCTION
1. CORPORATION TAX
A corporate tax, also called corporation tax or company tax, is a direct
tax imposed by a jurisdiction on the income or capital of corporations or analogous
legal entities. Many countries impose such taxes at the national level, and a similar tax
may be imposed at state or local levels. The taxes may also be referred to as income
tax or capital tax. Partnerships are generally not taxed at the entity level. A country's
corporate tax may apply to:
 corporations incorporated in the country,
 corporations doing business in the country on income from that country,
 foreign corporations who have a permanent establishment in the country, or
 corporations deemed to be resident for tax purposes in the country.
Company income subject to tax is often determined much like taxable income for
individual taxpayers. Generally, the tax is imposed on net profits. In some
jurisdictions, rules for taxing companies may differ significantly from rules for taxing
individuals. Certain corporate acts, like reorganizations, may not be taxed. Some
types of entities may be exempt from tax.
Countries may tax corporations on its net profit and may also tax shareholders when
the corporation pays a dividend. Where dividends are taxed, a corporation may be
required to withhold tax before the dividend is distributed.

2. TAX EVASION
Tax evasion is the illegal evasion of taxes by individuals, corporations, and trusts. Tax evasion
often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax
authorities to reduce their tax liability, and it includes dishonest tax reporting, such as declaring
less income, profits or gains than the amounts actually earned, or overstating deductions.
Tax evasion is an activity commonly associated with the informal economy.[1] One measure of the
extent of tax evasion (the "tax gap") is the amount of unreported income, which is the difference
between the amount of income that should be reported to the tax authorities and the actual amount
reported.
In contrast, tax avoidance is the legal use of tax laws to reduce one's tax burden. Both tax evasion
and tax avoidance can be viewed as forms of tax noncompliance, as they describe a range of
activities that intend to subvert a state's tax system, but such classification of tax avoidance is
disputable since avoidance is lawful in self-creating systems.

3. TAX AVOIDANCE
Tax avoidance is the legal usage of the tax regime in a single territory to one's own
advantage to reduce the amount of tax that is payable by means that are within the
law. A tax shelter is one type of tax avoidance, and tax havens are jurisdictions that
facilitate reduced taxes.
Forms of tax avoidance that use tax laws in ways not intended by governments may
be considered legal but are almost never considered moral in the court of public
opinion and rarely in journalism. Many corporations and businesses that take part in
the practice experience a backlash from their active customers or online. Conversely,
benefitting from tax laws in ways that were intended by governments is sometimes
referred to as tax planning.[2] The World Bank's World Development Report 2019 on
the future of work supports increased government efforts to curb tax avoidance as part
of a new social contract focused on human capital investments and expanded social
protection.
"Tax mitigation", "tax aggressive", "aggressive tax avoidance" or "tax neutral"
schemes generally refer to multiterritory schemes that fall into the grey area between
common and well-accepted tax avoidance, such as purchasing municipal bonds in the
United States, and tax evasion but are widely viewed as unethical, especially if they
are involved in profit-shifting from high-tax to low-tax territories and territories
recognised as tax havens.[3] Since 1995, trillions of dollars have been transferred
from OECD and developing countries into tax havens using these schemes.[4]
Laws known as a General Anti-Avoidance Rule (GAAR) statutes, which prohibit
"aggressive" tax avoidance, have been passed in several countries and regions
including Canada, Australia, New Zealand, South Africa, Norway, Hong Kong and
the United Kingdom.[5][6] In addition, judicial doctrines have accomplished the similar
purpose, notably in the United States through the "business purpose" and "economic
substance" doctrines established in Gregory v. Helvering and in the United Kingdom
through the Ramsay case. The specifics may vary according to jurisdiction, but such
rules invalidate tax avoidance that is technically legal but not for a business purpose
or is in violation of the spirit of the tax code.[7]
The term "avoidance" has also been used in the tax regulations[examples and source needed] of
some jurisdictions to distinguish tax avoidance foreseen by the legislators from tax
avoidance exploiting loopholes in the law such as like-kind exchanges.[8][9][correct example
needed]
 The US Supreme Court has stated, "The legal right of an individual to decrease
the amount of what would otherwise be his taxes or altogether avoid them, by means
which the law permits, cannot be doubted".
Tax evasion, on the other hand, is the general term for efforts by individuals,
corporations, trusts and other entities to evade taxes by illegal means. Both tax
evasion and some forms of tax avoidance can be viewed as forms of tax
noncompliance, as they describe a range of activities that are unfavourable to a state's
tax system.

4. TAX PLANNING
Tax planning is the process of analysing a financial plan or a situation from a tax
perspective. The objective of tax planning is to make sure there is tax efficiency. With
the help of tax planning, one can ensure that all elements of a financial plan can
function together with maximum tax-efficiency. Tax planning is a significant
component of a financial plan. Reducing tax liability and increasing the ability to
make contributions towards retirement plans are critical for success.
Tax planning comprises various considerations. Considerations such as size, the
timing of income, timing of purchases, and planning are concerned with other kinds
of expenditures. Also, the chosen investments and the various retirement plans should
go hand-in-hand with the tax filing status as well as the deductions in order to create
the best possible outcome.
Understanding Tax Planning
Tax planning plays an important role in the financial growth story of every individual
as tax payments are compulsory for all individuals who fall under the IT bracket.
With tax planning, one will be able to streamline his/her tax payments such that he or
she will receive considerable returns over a specific period of time involving
minimum risk. Also, effective tax planning will help in reducing a person's tax
liability.
Tax planning can be classified into the following:
1. Permissive tax planning: Tax planning which falls under the framework of
the law.
2. Purposive tax planning: Tax planning with a specific objective.
3. Long-range/short-range tax planning: Planning executed at the beginning
and towards the end of the fiscal year.
Highlights of tax planning:
 1. Tax planning is the process of analysing finances from a tax angle, with an
aim to ensure maximum tax efficiency.
2. Considerations concerning tax planning will include timing of income, timing
of purchases, planning for expenditures, and size.
3. Tax planning is vital for small as well as large businesses since it will be
helpful for achieving business-related goals.

4. DIVIDEND TAX
A dividend tax is a tax imposed by a jurisdiction on dividends paid by a corporation
to its shareholders (stockholders). The primary tax liability is that of the shareholder,
though a tax obligation may also be imposed on the corporation in the form of
a withholding tax. In some cases the withholding tax may be the extent of the tax
liability in relation to the dividend. A dividend tax is in addition to any tax imposed
directly on the corporation on its profits. Some jurisdictions do not tax dividends.
To avoid a dividend tax being levied, a corporation may distribute surplus funds to
shareholders by way of a share buy-back. These, however, are normally treated as
capital gains, but may offer tax benefits when the tax rate on capital gains is lower
than the tax rate on dividends. Another potential strategy is to for a corporation not to
distribute surplus funds to shareholders, who benefit from an increase in the value of
their shareholding. These may also be subject to capital gain rules. Some private
companies may transfer funds to controlling shareholders by way of loans, whether
interest-bearing or not, instead of by way of a formal dividend, but many jurisdictions
have rules that tax the practice as a dividend for tax purposes, called a “deemed
dividend

 COMPUTATION OF TOTAL INCOME OF COMPANIES

Corporate Tax relates to the taxation of companies in India. For the purpose of
taxation laws, a Company means:
 An Indian company, or a corporate body incorporated inside or outside India.
  Any institution, association or body whether incorporated or not, and whether
domestic or non-resident, which is declared as a company by the Central
Board of Direct Taxes (CBDT).
Income Of A Company
Before we head on to talking about what the rates of taxation for companies are, let’s
take a look at what makes up the ‘income’ of a company. Generally, the income of a
company falls under any of the following 4 heads of income:
 Profits or gains from the business.
 Income from property, whether it is housing, commercial, self-occupied or let-
out. If the property is used in the company’s business operations, it does not
fall under this head.
 Capital gains.
 Income from other sources including winnings from lotteries, races, and
interest on securities.
The resultant figure is set off against any carried forward profits/loss which is then
subject to deductions that are available under relevant headings. This net income is
liable to income tax.
Domestic Company And Corporate Tax
A domestic company is a company formed and registered under the Companies Act
1956 or any other company which is liable to income tax. It can be either a private or
public company. Here are some of the highlights of corporate taxation for domestic
companies in India.
 Domestic companies are subject to a flat rate of 30% as a corporate tax on
their earnings.
 If the company has a turnover of Rs. 1 crore or more, 5% surcharge is levied
on the tax paid by the company.
 3% education cess is also payable.
 Tax is levied on the global earnings of a domestic company, i.e. income from
all sources is taxable.
Foreign Companies And Corporate Tax
For the purpose of corporate taxation, a company whose control and management lies
wholly outside India is a foreign company. It must also be noted that such companies
should not have made arrangements to pay dividends within India. The taxation of
foreign companies is not as straight-forward as that of a domestic company.
Taxation of foreign companies also depends on the taxation agreements between India
and the country of the company. The withholding tax requirements, the DTAA, and
other agreements should be kept in mind.
Just a few months before the recent Union Budget, there was a lot of talk of the
corporate tax rate being reduced from the flat 30% to 25% for domestic companies?
Well, that did not happen, however, 30% is on par with most other countries in the
world.
TAXATION OF CORPORATE SECTOR
Company whether Indian or foreign is liable to taxation, under the Income Tax
Act,1961. Corporation tax is a tax which is levied on the incomes of registered
companies and corporations.
A Company means:-
 Any Indian company, or
 Any corporate body, incorporated by or under the laws of a country outside
India, or
 Any institution, association or a body which was assessed as a company for
any assessment year under the Income Tax Act,1922 or was assessed under
this Act as a company for any assessment year commencing on or before April
1, 1970, or
 Any institution, association, or body, whether incorporated or not and whether
Indian or Non-Indian, which is declared by a general or special order of the
Central Board of Direct Taxes to be a company.
Companies in India, whether public or private are governed subject to the Companies
Act, 1956 and of 2013. The registrar of companies and the company law board
administers the provisions of the Act. However, for the purpose of taxation,
companies are broadly classified as:-
Domestic company [Section 2(22A) of 1956 Act]:- means an Indian company (i.e. a
company formed and registered under the Companies Act,1956) or any other
company which, in respect of its income liable to tax, under the Income Tax Act, has
made the prescribed arrangement for declaration and payments within India, of the
dividends payable out of such income. A domestic company may be a public
company or a private company.
Foreign company [Section 2(23A)]:- means a company whose control and
management are situated wholly outside India, and which has not made the prescribed
arrangements for declaration and payment of dividends within India.
  COMPUTATION OF TAX LIABILITY OF COMPANIES

Ascertain the ‘total income’ of the company by aggregating incomes falling under
following four heads:-
1. Income from House Property, whether residential or commercial, let-out or
self-occupied. However, house property used for purpose of company’s
business does not fall under this head.
2. Profits and Gains of Business or Profession.
3. Capital Gains.
4. Income from other sources including interest on securities, winnings from
lotteries, races, puzzles, etc.
Also, the income of other persons may be included in the income of the company.
But, income under the head ‘Salary’ is not included under the company.
To the total income so obtained, ‘current and brought forward losses’ should be
adjusted for set off in subsequent assessment years to arrive at the gross total Income.
Thus the total income so computed is the ‘gross total income’. The ‘set off ‘ means,
adjustment of certain losses against the incomes under other sources/heads (Section
79). This section applies to all losses including losses under the head ‘Capital Gains’.
Unabsorbed depreciation may be carried-forward for set-off indefinitely. But
carryback of losses or depreciation is not permitted. However, business losses can be
carried forward for eight consecutive financial years and can be set off against the
profits of subsequent years.
From the gross total income, prescribed ‘deductions’ under Chapter VI A are made to
get the ‘net income’.
Generally, all expenses incurred for business purposes are deductible from taxable
income, given that the expenses must be wholly and exclusively incurred for business
purposes and also that the expenses must be incurred/paid during the previous year
and supported by relevant papers and records. But expenses of personal or of capital
nature are not deductible.
Capital expenditure is deductible only through depreciation or as the basis of property
in determining capital gains/losses. Deductions shall also be allowed in respect of
depreciation, as per Section 32 of Income Tax Act, of tangible assets such as
machinery, buildings, etc and non-tangible assets such as know-how, patents, etc,
which are owned by the assessee and used for the purpose of the business/profession.

Depreciation is deducted from the written-down value of the block of assets

mentioned under Section 43 of the Act. However, where an asset is acquired by the
assessee during the previous year and is put to use for business/profession purpose for
a period of fewer than 180 days, the deduction in respect of such assets shall be
restricted to 50% of the normal value prescribed for all block of assets.
But no deduction shall be allowed in respect of any expenditure incurred in relation to
income which does not form part of total income.
Tax liability is computed on the ‘net income’ that is chargeable to tax. It is done either
on an accrual basis or on receipt basis (whichever is earlier). However, if an income is
taxed on an accrual basis, it shall not be taxed on receipt basis.
From the tax so computed, tax rebates or tax credit are deduction.
DIFFERENT KINDS OF TAXES RELATING TO A COMPANY
Direct Taxes
In the case of direct taxes (income tax, wealth tax, etc.), the burden directly falls on
the taxpayer.
Income tax
According to Income Tax Act 1961, every person, who is an assessee and whose total
income exceeds the maximum exemption limit, shall be chargeable to the income tax
at the rate or rates prescribed in the Finance Act. Such income tax shall be paid on the
total income of the previous year in the relevant assessment year.

Assessee means a person by whom (any tax) or any other sum of money is payable
under the Income Tax Act, and includes –
(a) Every person in respect of whom any proceeding under the Income Tax Act has
been taken for the assessment of his income (or assessment of fringe benefits) or of
the income of any other person in respect of which he is assessable, or of the loss
sustained by him or by such other person, or of the amount of refund due to him or to
such other person;
(b) Every person who is deemed to be an assessee under any provisions of the Income
Tax Act;
(c) Every person who is deemed to be an assessee in default under any provision of
the Income Tax Act.
Income tax is an annual tax imposed separately for each assessment year (also called
the tax year). Assessment year commences from 1st April and ends on the next 31st
March.
The total income of an individual is determined on the basis of his residential status in
India. For tax purposes, an individual may be resident, nonresident or not ordinarily
resident.
Definition of a company
A company has been defined as a juristic person having an independent and separate
legal entity from its shareholders. Income of the company is computed and assessed
separately in the hands of the company. However, the income of the company, which
is distributed to its shareholders as a dividend, is assessed in their individual hands.
Such distribution of income is not treated as expenditure in the hands of the company;
the income so distributed is an appropriation of the profits of the company.
Residence of a company
 A company is said to be a resident in India during the relevant previous year
if:
 It is an Indian company.
 If it is not an Indian company but, the control and the management of
its affairs are situated wholly in India.
 A company is said to be non-resident in India if it is not an Indian company
and some part of the control and management of its affairs is situated outside
India.
Corporate Sector Tax
The taxability of a company’s income depends on its domicile. Indian companies are
taxable in India on their worldwide income. Foreign companies are taxable on income
that arises out of their Indian operations, or, in certain cases, income that is deemed to
arise in India.
Royalty, interest, gains from the sale of capital assets located in India (including gains
from the sale of shares in an Indian company), dividends from Indian companies and
fees for technical services are all treated as income arising in India.

 COMPUTATIONOF TAX LIABILITY OF COMPANIES

Corporate Tax relates to the taxation of companies in India. For the purpose of
taxation laws, a Company means:
 An Indian company, or a corporate body incorporated inside or outside India.
 Any institution, association or body whether incorporated or not, and whether
domestic or non-resident, which is declared as a company by the Central
Board of Direct Taxes (CBDT).
Income Of A Company
Before we head on to talking about what the rates of taxation for companies are, let’s
take a look at what makes up the ‘income’ of a company. Generally, the income of a
company falls under any of the following 4 heads of income:
 Profits or gains from the business.
 Income from property, whether it is housing, commercial, self-occupied or let-
out. If the property is used in the company’s business operations, it does not
fall under this head.
 Capital gains.
 Income from other sources including winnings from lotteries, races, and
interest on securities.
The resultant figure is set off against any carried forward profits/loss which is then
subject to deductions that are available under relevant headings. This net income is
liable to income tax.
Domestic Company And Corporate Tax
A domestic company is a company formed and registered under the Companies Act
1956 or any other company which is liable to income tax. It can be either a private or
public company. Here are some of the highlights of corporate taxation for domestic
companies in India.
 Domestic companies are subject to a flat rate of 30% as a corporate tax on
their earnings.
  If the company has a turnover of Rs. 1 crore or more, 5% surcharge is levied
on the tax paid by the company.
 3% education cess is also payable.
 Tax is levied on the global earnings of a domestic company, i.e. income from
all sources is taxable.
Foreign Companies And Corporate Tax
For the purpose of corporate taxation, a company whose control and management lies
wholly outside India is a foreign company. It must also be noted that such companies
should not have made arrangements to pay dividends within India. The taxation of
foreign companies is not as straight-forward as that of a domestic company.
Taxation of foreign companies also depends on the taxation agreements between India
and the country of the company. The withholding tax requirements, the DTAA, and
other agreements should be kept in mind.
Just a few months before the recent Union Budget, there was a lot of talk of the
corporate tax rate being reduced from the flat 30% to 25% for domestic companies?
Well, that did not happen, however, 30% is on par with most other countries in the
world.
TAXATION OF CORPORATE SECTOR
Company whether Indian or foreign is liable to taxation, under the Income Tax
Act,1961. Corporation tax is a tax which is levied on the incomes of registered
companies and corporations.
A Company means:-
 Any Indian company, or
 Any corporate body, incorporated by or under the laws of a country outside
India, or
 Any institution, association or a body which was assessed as a company for
any assessment year under the Income Tax Act,1922 or was assessed under
this Act as a company for any assessment year commencing on or before April
1, 1970, or
 Any institution, association, or body, whether incorporated or not and whether
Indian or Non-Indian, which is declared by a general or special order of the
Central Board of Direct Taxes to be a company.
Companies in India, whether public or private are governed subject to the Companies
Act, 1956 and of 2013. The registrar of companies and the company law board
administers the provisions of the Act. However, for the purpose of taxation,
companies are broadly classified as:-
Domestic company [Section 2(22A) of 1956 Act]:- means an Indian company (i.e. a
company formed and registered under the Companies Act,1956) or any other
company which, in respect of its income liable to tax, under the Income Tax Act, has
made the prescribed arrangement for declaration and payments within India, of the
dividends payable out of such income. A domestic company may be a public
company or a private company.[i]
Foreign company [Section 2(23A)]:- means a company whose control and
management are situated wholly outside India, and which has not made the prescribed
arrangements for declaration and payment of dividends within India.

COMPUTATION OF TAXABLE INCOME OF A COMPANY 

Ascertain the ‘total income’ of the company by aggregating incomes falling under
following four heads:-
1. Income from House Property, whether residential or commercial, let-out or
self-occupied. However, house property used for purpose of company’s
business does not fall under this head.
2. Profits and Gains of Business or Profession.
3. Capital Gains.
4. Income from other sources including interest on securities, winnings from
lotteries, races, puzzles, etc.
Also, the income of other persons may be included in the income of the company.
But, income under the head ‘Salary’ is not included under the company.
To the total income so obtained, ‘current and brought forward losses’ should be
adjusted for set off in subsequent assessment years to arrive at the gross total Income.
Thus the total income so computed is the ‘gross total income’. The ‘set off ‘ means,
adjustment of certain losses against the incomes under other sources/heads (Section
79). This section applies to all losses including losses under the head ‘Capital Gains’.
Unabsorbed depreciation may be carried-forward for set-off indefinitely. But
carryback of losses or depreciation is not permitted. However, business losses can be
carried forward for eight consecutive financial years and can be set off against the
profits of subsequent years.
From the gross total income, prescribed ‘deductions’ under Chapter VI A are made to
get the ‘net income’.
Generally, all expenses incurred for business purposes are deductible from taxable
income, given that the expenses must be wholly and exclusively incurred for business
purposes and also that the expenses must be incurred/paid during the previous year
and supported by relevant papers and records. But expenses of personal or of capital
nature are not deductible.[iii]
Capital expenditure is deductible only through depreciation or as the basis of property
in determining capital gains/losses. Deductions shall also be allowed in respect of
depreciation, as per Section 32 of Income Tax Act, of tangible assets such as
machinery, buildings, etc and non-tangible assets such as know-how, patents, etc,
which are owned by the assessee and used for the purpose of the business/profession.
TAX PLANNING FOR NEW BUSINESS
Tax Planning is an exercise undertaken to minimize tax liability through the best use
of all available exemptions, deductions, rebates and reliefs to reduce income. Tax
planning can be defined as an arrangement of one’s financial and business affairs by
taking legitimately in full benefit of all deductions, exemptions, allowances, reliefs
and rebates so that tax liability reduces to minimum. In other words, all arrangements
by which the tax is saved by ways and means which comply with the legal obligations
and requirements and are not colourable devices or tactics to meet the letters of law
but not the spirit behind these, would constitute tax planning. The Hon’ble Supreme
Court in McDowell & Co. v. CTO (1985) 154 ITR 148 has observed that “tax
planning may be legitimate provided it is within the framework of the law. Colourable
devices cannot be part of tax planning and it is wrong to encourage or entertain the
belief that it is honourable to avoid payment of tax by resorting to dubious methods.”
Actually the allowances, deductions, exemptions, rebates and reliefs were given as per
legal regulations to achieve social and economic goals. For instance deductions as per
80C for individuals and HUF aim to encourage saving and investment habits for the
economic prosperity of the country. Example of tax planning: where a person buys
machinery instead of hiring it, he is availing the benefit of depreciation. It is his
exclusive right either to buy or TAX PRACTICES TAX PLANNING TAX
EVASION TAX AVIODANCE School of distance education Tax Planning and
Management Page 6 lease it. In the same manner to choice the form of organization,
capital structure, buys or make products are the assessee’s exclusive right. One may
look for various incentives in the above said transactions provided in Income Tax Act,
for reduction of tax liability. All this transactions involves tax planning. TAX
EVASION It refers to a situation where a person tries to reduce his tax liability by
deliberately suppressing the income or by inflating the expenditure showing the
income lower than the actual income and resorting to various types of deliberate
manipulations. An assessee guilty of tax evasion is punishable under the relevant
laws. Under direct tax laws provisions have been made for imposition of heavy
penalty and institution of prosecution proceeding against tax evaders. The tax evaders
reduce his taxable income by one or more of the following steps: (a) Non-disclosure
of capital gains on sale of asset. (b) Non-disclosure of income from ‘Binami
transactions’. (c) Willfully unrecording or partial recording of incomes. Eg: sales,
rent, fees, etc. (d) Charging personal expenses as business expenses. Eg: car expenses,
telephone expenses, medical expenses incurred for self or family recorded in business
books. (e) Submission of bogus receipts for charitable donations under section 80 G.

1. LOCATION, NATURE AND SIZE OF BUSINESS

1. Business Size and Location PowerPoint Templates Page 1

Concept: Size of business refers to the scale of operations and it is important
because it affects the cost operations and inputs required. • Total Assets •
Capital Required • Number of workers employed • Capacity of plants •
Quantity of materials PowerPoint Templates Page 2
2.  Factors Affecting Size of Business 1. Type of industry 2. Nature and variety
of product 3. Size of the market 4. Capital requirements 5. Ability and policy
of owners 6. Cost of transport PowerPoint Templates Page 3
3.  Factors affecting Location Decisions 1. Availability of raw materials 2.
Proximity to the market 3. Labour supply 4. Transportation and
Communication 5. Power and fuel 6. Climate and topography 7. Momentum
of an early start 8. Supply of capital 9. Government policy 10.Strategic
considerations 11.Miscellaneous Powerpoint Templates Page 4
4.  Urban Location Advantages Disadvantages Good transport & communication
High cost of land and building Availabilty of skilled Labour High wage rates
Easy availability of power High taxes Good drainage system Over crowding
Well developed markets Strict legal restrictions Health, education, other
amenities Strong trade unions Pollution Powerpoint Templates Page 5
5.  Rural Location Advantages Disadvantages Easy availability of land Shortage
of skilled labourLow cost of land & buildings Poor transport and
communicationLow wage rates Irregular power supply Abundant supply of
unskilled Inadequate banking, insurance Labour and postal services Pollution
free environment Absence of basic amenities No over crowding Tax
Incentives Powerpoint Templates Page 6
6.  Need for Government PolicyBalanced Regional Development1. To reduce
regional disparities2. To provide employment opportunities3. To ensure
optimum utilization of local resources4. To improve living standards in
backward areas5. To avoid social problems like slum, overcrowding.6. To
safeguard industries against external attacks Powerpoint Templates Page 7
7.  Policy measures by Government Positive Approach – Encouraging the setting
of Industries in backward areas to achieve balanced Regional development
.Negative Approach – Restraining further concentration Industries in already
developed areas. Powerpoint Templates Page 8
8. Industrial Estate An institutional arrangement for building up basic
infrastructure and common service facilities for development of industrial
units .Hence, it’s a planned clustering of industrial units Offering standard
factory accommodation and variety of Services and facilities to occupants.
Powerpoint Templates 
 2. FORM OF BUSINESS ORGANISATION
Everything you need to know about the forms of business organisation. Most
production and distribution activities are carried out by millions of people in different
parts of the country by constituting various kinds of organizations.
These organizations are based on some form of ownership. This choice affects a
number of managerial and financial issues, including the amount of taxes the
entrepreneur would have to pay, whether the entrepreneur may be personally sued
for unpaid business bills, and whether the venture will die automatically with the
demise of the entrepreneur.
1. Sole Proprietorship 2. Partnership Firm 3. Limited Liability Partnership (LLP) 4.
Joint Stock Company 5. One Person Company (OPC) 6. Private Company 7. Public
Limited Company 8. Company Form of Organization 9. Co-Operatives.
Additionally, learn about the advantages and disadvantages of each form of business
organisation.

Forms of Business Organization:

1. Sole Proprietorship:
Sole proprietorship or individual entrepreneurship is a business concern owned and
operated by one person. The sole proprietor is a person who carries on business
exclusively by and for himself. He alone contributes the capital and skills and is
solely responsible for the results of the enterprise. In fact sole proprietor is the
supreme judge of all matters pertaining to his business subject only to the general
laws of the land and to such special legislation as may affect his particular business. 1.
Sole Proprietorship 2. Partnership Firm 3. Limited Liability Partnership (LLP) 4. Joint
Stock Company 5. One Person Company (OPC) 6. Private Company 7. Public
Limited Company 8. Company Form of Organization 9. Co-Operatives.
Additionally, learn about the advantages and disadvantages of each form of business
organization.
Advantages:
(a) Simplicity – It is very easy to establish and dissolve a sole proprietorship. No
documents are required and no legal, formalities are involved. Any person competent
to enter into a contract can start it. However, in some cases, i.e., of a chemist shop, a
municipal license has to be obtained. You can start business from your own home.
(b) Quick Decisions – The entrepreneur need not consult anybody in deciding his
business affairs. Therefore, he can take on the spot decisions to exploit opportunities
from time to time. He is his own boss.
(c) High Secrecy – The proprietor has not to publish his accounts and the business
secrets are known to him alone. Maintenance of secrets guards him from competitors.
(d) Direct Motivation – There is a direct relationship between efforts and rewards.
Nobody shares the profits of business. Therefore, the entrepreneur has sufficient
incentive to work hard.
(e) Personal Touch – The proprietor can maintain personal contacts with his
employees and clients. Such contacts help in the growth of the enterprise.
(f) Flexibility – In the absence of Government control, there is complete freedom of
action. There is no scope for difference of opinion and no problem of co-ordination.

Disadvantages:
(a) Limited Funds – A proprietor can raise limited financial resources. As a result the
size of business remains small. There is limited scope for growth and expansion.
Economies of scale are not available

(b) Limited Skills – Proprietorship is a one man show and one man cannot be an
expert in all areas (production, marketing, financing, personnel etc.) of business.
There is no scope for specialisation and the decisions may not be balanced.

(c) Unlimited Liability – The liability of the proprietor is unlimited. In case of loss his
private assets can also be used to pay off creditors. This discourages expansion of the
enterprise.
2. Partnership Firm:
As a business enterprise expands beyond the capacity of a single person, a group of
persons have to join hands together and supply the necessary capital and skills.
Partnership firm thus grew out of the limitations of one man business. Need to arrange
more capital, provide better skills and avail of specialisation led to the growth to
partnership form of organisation.
According to Section 4 of the Partnership Act, 1932 partnership is “the relation
between persons who have agreed to share the profits of a business carried on by all
or anyone of them acting for all”. In other words, a partnership is an agreement
among two or more persons to carry on jointly a lawful business and to share the
profits arising there from. Persons who enter into such agreement are known
individually as ‘partners’ and collectively as ‘firm’.
Characteristics of Partnership:
i. Association of two or more persons — maximum 10 in banking business and 20 in
non-banking business
ii. Contractual relationship—written or oral agreement among the partners
iii. Existence of a lawful business
iv. Sharing of profits and losses
v. Mutual agency among partners
vi. No separate legal entity of the firm
vii. Unlimited liability
viii. Restriction on transfer of interest
ix. Utmost good faith.

Formation of Partnership:
A partnership firm can be formed through an agreement among two or more persons.
The agreement may be oral or in writing. But it is desirable that all terms and
conditions of partnership are put in writing so as to avoid any misunderstanding and
disputes among the partners. Such a written agreement among partners is known as
Partnership Deed. It must be signed by all the partners and should be properly
stamped. It can be altered with the mutual consent of all the partners.

A partnership deed usually contains the following details:

i. Name of the firm.
ii. Names and address of all the partners.
iii. Nature of the firm’s business.
iv. Date of the agreement.
v. Principal place of the firm’s business.
vi. Duration of partnership, if any.
vii. Amount of capital contributed by each partner.
viii. The proportion in which the profits and losses are to be shared.

Registration of Firms:
The Partnership Act, 1932 provides for the registration of firms with the Registrar of
Firms appointed by the Government. The registration of a partnership firm is not
compulsory. But an unregistered firm suffers from certain disabilities. Therefore,
registration of a partnership is desirable.

Procedure for Registration:

A partnership firm can be registered at any time by filing a statement in the prescribed
form. The form should be duly signed by all the partners. It should be sent to the
Registrar of Firms along with the prescribed fee.

The statement should contain the following particulars:

1. Name of the firm.
2. Principal place of its business.
3. Name of other places where the firm is carrying on business.
4. Names in full and permanent addresses of all the partners.
5. Date of commencement of the firm’s business and the dates on which each partner
joined the firm.

Merits of Partnership:

The partnership form of business ownership enjoys the following

advantages:

1. Ease of Formation:
A partnership is easy to form as no cumbersome legal formalities are involved. An
agreement is necessary and the procedure for registration is very simple. Similarly, a
partnership can be dissolved easily at any time without undergoing legal formalities.
Registration of the firm is not essential and the partnership agreement need not
essentially be in writing.

2. Larger Financial Resources:

As a number of persons or partners contribute to the capital of the firm, it is possible
to collect larger financial resources than is possible in sole proprietorship.
Creditworthiness of the firm is also higher because every partner is personally and
jointly liable for the debts of the business. There is greater scope for expansion or
growth of business.

3. Specialisation and Balanced Approach:

The partnership form enables the pooling of abilities and judgment of several persons.
Combined abilities and judgment result in more efficient management of the business.
Partners with complementary skills may be chosen to avail of the benefits of
specialisation. Judicious choice of partners with diversified skills ensures balanced
decisions. Partners meet and discuss the problems of business frequently so that
decisions can be taken quickly.

4. Flexibility of Operations:
Though not as versatile as proprietorship, a partnership firm enjoys sufficient
flexibility in its day-to-day operations. The nature and place of business can be
changed whenever the partners desire. The agreement can be altered and new partners
can be admitted whenever necessary. Partnership is free from statutory control by the
Government except the general law of the land.

Demerits of Partnership:

1. Unlimited Liability:
Every partner is jointly and severally liable for the entire debts of the firm. He has to
suffer not only for his own mistakes but also for the lapses and dishonesty of other
partners. This may curb entrepreneurial spirit as partners may hesitate to venture into
new lines of business for fear of losses. Private property of partners is not safe against
the risks of business.

2. Limited Resources:
The amount of financial resources in partnership is limited to the contributions made
by the partners. The number of partners cannot exceed 10 in banking business and 20
in other types of business. Therefore, partnership form of ownership is not suited to
undertake business involving huge investment of capital.

3. Risk of Implied Agency:

The acts of a partner are binding on the firm as well as on other partners. An
incompetent or dishonest partner may bring disaster for all due to his acts of
commission or omission. That is why the saying is that choosing a business partner is
as important as choosing a partner in life.

4. Lack of Harmony:
The success of partnership depends upon mutual understanding and cooperation
among the partners. Continued disagreement and bickering among the partners may
paralyse the business or may result in its untimely death. Lack of a central authority
may affect the efficiency of the firm. Decisions may get delayed.
4. Joint Stock Company:
With the growing needs of modern business, collection of vast financial and
managerial resources became necessary. Proprietorship and partnership forms of
ownership failed to meet these needs due to their limitations, e.g., unlimited liability,
lack of continuity and limited resources.
The company form of business organisation was evolved to overcome these
limitations. Joint stock company has become the dominant form of ownership for
large scale enterprises because it enables collection of vast financial and managerial
resources with provision for limited liability and continuity of operations.
A joint stock company is an incorporated and voluntary association of individuals
with a distinctive name, perpetual succession, limited liability and common seal, and
usually having a joint capital divided into transferable shares of a fixed value.
Chief Justice John Marshall of U.S.A defined a company in the famous Dartmouth
College case as “an artificial being, invisible, intangible and existing only in
contemplation of law; being the mere creature of law it possesses only those
properties which the charter of its creation confers upon it, either expressly or as
incidental to its very existence; and the most important of which are immortality and
individuality.
“Thus, a company is an artificial legal person having an independent legal entity.

Merits of Company Organisation:

The company form of business ownership has become very popular

in modern business on account of its several advantages:

1. Limited Liability:
Shareholders of a company are liable only to the extent of the face value of shares
held by them. Their private property cannot be attached to pay the debts of the
company. Thus, the risk is limited and known. This encourages people to invest their
money in corporate securities and, therefore, contributes to the growth of the company
form of ownership.

2. Large Financial Resources:

Company form of ownership enables the collection of huge financial resources. The
capital of a company is divided into shares of small denominations so that people with
small means can also buy them. Benefits of limited liability and transferability of
shares attract investors. Different types of securities may be issued to attract various
types of investors. There is no limit on the number of members in a public company.
3. Continuity:
A company enjoys uninterrupted business life. As a body corporate, it continues to
exist even if all its members die or desert it. On account of its stable nature, a
company is best suited for such types of business which require long periods of time
to mature and develop.

4. Transferability of Shares:
A member of a public limited company can freely transfer his shares without the
consent of other members. Shares of public companies are generally listed on a stock
exchange so that people can easily buy and sell them. Facility of transfer of shares
makes investment in company liquid and encourages investment of public savings
into the corporate sector.
5. Professional Management:
Due to its large financial resources and continuity, a company can avail of the
services of expert professional managers. Employment of professional managers
having managerial skills and little financial stake results in higher efficiency and more
adventurous management. Benefits of specialization and bold management can be
secured.

Demerits of Company:

A company suffers from the following limitations:

1. Difficulty of Formation:
It is very difficult and expensive to form a company. A number of documents have to
be prepared and filed with the Registrar of Companies. Services of experts are
required to prepare these documents. It is very time-consuming and inconvenient to
obtain approvals and sanctions from different authorities for the establishment of a
company. The time and cost involved in fulfilling legal formalities discourage many
people from adopting the company form of ownership. It is also difficult to wind up a
company.
2. Excessive Government Control:
A company is subject to elaborate statutory regulations in its day-to-day operations. It
has to submit periodical reports. Audit and publication of accounts is obligatory. The
objects and capital of the company can be changed only after fulfilling the prescribed
legal formalities. These rules and regulations reduce the efficiency and flexibility of
operations. A lot of precious time, effort and money have to be spent in complying
with the innumerable legal formalities and irksome statutory regulations.

3. Lack of Motivation and Personal Touch:

There is divorce between ownership and management in a large public company. The
affairs of the company are managed by the professional and salaried managers who do
not have personal involvement and stake in the company. Absentee ownership and
impersonal management result in lack of initiative and responsibility. Incentive for
hard work and efficiency is low. Personal contact with employees and customers is
not possible.

4. Oligarchic Management:
In theory the management of a company is supposed to be democratic but in actual
practice company becomes an oligarchy (rule by a few). A company is managed by a
small number of people who are able to perpetuate their reign year after year due to
lack of interest, information and unity on the part of shareholders. The interests of
small and minority shareholders are not well protected. They never get representation
on the Board of Directors and feel oppressed.

5 .One Person Company (OPC):

According to The Companies Act, 2013 of India “One Person Company is a company
registered under the proposed Companies Act with just one member and shall have
‘(OPC)’ added in brackets to its name.” The Memorandum of such a company shall
indicate the name of the person.

The concept of ‘one person company’ has the following

characteristics:
(i) OPC may be registered as a private company with one member.
(ii) Adequate safeguards in case of death/disability of the sole owner are provided.
(iii) OPC will have a corporate entity of its own.
(iv) The owner of an OPC shall be liable only to the extent of its capital. If the
activities are carried out in a mala fide manner the liability of the owner extends to his
personal property.
(v) An OPC may be managed by the owner or his representative.
(vi) An OPC will get its annual accounts audited and file a copy of the same with the
Registrar of Companies.
(vii) A minimum share capital may be prescribed for an OPC.
(viii) Every OPC shall have at least one director.
(ix) The one person shall have to indicate the name of the person who in the event of
the subscriber’s death, disability, etc. becomes the members of the company.

Merits:
(i) OPC will enable small entrepreneurs and professionals, e.g., chartered accountants,
lawyers, doctors, etc. to avail the benefits of companies,
(ii) The procedure for forming the OPC is very simple.
(iii) Running an OPC is easy as it does not require compliance with many legal
formalities.
(iv) As the risk is limited to the value of shares held by one person, small
entrepreneurs have not to fear litigation and attachment of personal assets.
(v) There is no need to share business information with any other person, therefore,
business secrecy is ensured.
(vi) The motivation and commitment of the owner are high due to absence of profit
sharing.

Demerits:
(i) The life of OPC is uncertain and instable.
(ii) The concept of OPC makes mockery of the corporate concept because company
means more than one person.
(iii) A company should operate as a democratic institution with discussion and
decision by voting. But in an OPC there is no democracy.
(iv) An OPC has to be incorporated. It has also to comply with some legal formalities.
The concept of OPC has been introduced in a half-hearted and incomplete manner.
How would OPC work and what would be the regulatory provisions concerning their
formation and functioning has not been made clear. Hence, the provisions concerning
OPC require a re-look and redrafting.

 TAX PLANNING AND FINANCIAL MANAGEMENT

DECISIONS
Corporate finance is the area of finance that deals with sources of funding,
the capital structure of corporations, the actions that managers take to increase
the value of the firm to the shareholders, and the tools and analysis used to allocate
financial resources. The primary goal of corporate finance is to maximize or
increase shareholder value.[1]
Correspondingly, corporate finance comprises two main sub-disciplines.[citation
needed]
Capital budgeting is concerned with the setting of criteria about which value-
adding projects should receive investment funding, and whether to finance that
investment with equity or debt capital. Working capital management is the
management of the company's monetary funds that deal with the short-
term operating balance of current assets and current liabilities; the focus here is on
managing cash, inventories, and short-term borrowing and lending (such as the terms
on credit extended to customers).
The terms corporate finance and corporate financier are also associated
with investment banking. The typical role of an investment bank is to evaluate the
company's financial needs and raise the appropriate type of capital that best fits those
needs. Thus, the terms "corporate finance" and "corporate financier" may be
associated with transactions in which capital is raised in order to create, develop,
grow or acquire businesses. Recent legal and regulatory developments in the U.S. will
likely alter the makeup of the group of arrangers and financiers willing to arrange and
provide financing for certain highly leveraged transactions.[2]
Although it is in principle different from managerial finance which studies the
financial management of all firms, rather than  corporations alone, the main concepts
in the study of corporate finance are applicable to the financial problems of all kinds
of firms. Financial management overlaps with the financial function of the accounting
profession. However, financial accounting is the reporting of historical financial
information, while financial management is concerned with the deployment of capital
resources to increase a firm's value to the shareholders.

 TAX PLANNING RELATING TO CAPITAL STRUCTURE

DECISION
The optimum capital structure is a mix of equity capital and debt funds. Their
composition depends upon many factors namely :
1. Cost of Capital and also expenditure incurred in raising of such capital.
2. Expectation of shareholders by way of dividend, growth etc.
3. Expansion need of the business  i.e. the rate by which profits of the business
shall be again ploughed back in the business.
4. Taxation policy ; and
5. Rate of return on investment ( Equity + Debt funds ).
TAX CONSIDERATIONS
1. Interest on debt fund is allowed as deduction as it is a business expenditure.
Therefore, it may increase the rate of return on owner’s equity.
2. Dividend on equity fund is not allowed as deduction as it is the appropriate of
profit. Dividend is exempt in the hands of shareholders u/s  10(34) . However,
the company declaring the dividend shall pay dividend distribution tax @
12.5% + surcharges + education cess.
3. The Cost raising owner’s fund is treated as capital expenditure therefore not
allowed as deduction. However if conditions of Sec. 35D is satisfied then
specified expenditures can be amortized.
4. The Cost of raising dent fund is treaded as revenue expenditure. It can be
claimed as deduction in computing the total income.
5. Where the assesses is entitled to incentives u/s 10A etc. maximum equity fund
should be utilized.
6. Where interest on debt fund is payable outside India, tax should be deducted at
source otherwise deduction is not allowed.
TAX PLANNING
1. If the return on investment > rate of interest, maximum debt funds may be
used, since is shall increase the rate of return on equity. However, cost of
raising debt fund should be kept in mind.
2. if rate of return on investment  < rate of interest, minimum debt funds should
be used.
3. Where assesse enjoys tax holidays under various provisions of Income-Tax in
such case minimum debt fund should be used, since the profit arising from
business is fully exempt from tax which increase the rate of return of equity
capital. But the borrowed funds reduces the profits less interest before tax and
to the extent exemption is reduce.
1. DIVIDEND POLICY

Dividend is like a bonus or reward a company or fund house doles out to

its shareholders or investors. It can be given in the form of liquid cash or
benefits or even stocks.
Let’s not confuse dividends with interest or income. Dividend is a gesture
of goodwill and it is up to the company or AMC to share a portion of the
profit with its unitholders. Hence, there is no guarantee that they will
continue to pay out. So, if the company is not doing well, don’t expect
them to pay dividends out of their reserves. Interest and income from
investments, on the other hand, are paid regularly whether the company
makes profit or not.

INTER-CORPORATE DIVIDEND AND BONUS SHARES

Dividends are one of the most important sources of earning for long term
investors who invest in stocks. Companies declare dividends in two
forms i.e. cash dividend and stock dividend (Bonus shares). Cash
dividends are tax free in the hands of investors as company declaring the
dividend pays dividend distribution tax on it. There is less clarity
regarding tax implication of bonus shares / stock dividends. In this article,
we will discuss the tax treatment of bonus shares.
Bonus shares are new shares issued to existing shareholders of a company. These
shares are issued to the shareholders in proportion of their current holdings. For
example, the company may announce one bonus share for every share held by an
investor. As the investor after bonus issue holds two shares (1 original share and 1
bonus share), EPS gets halved. Hence bonus share do not affect total EPS of investor.
Bonus shares are considered free shares as their cost of acquisition is taken as zero,
although they are not free in true sense.
Purpose of bonus shares
As mentioned above, bonus shares do not have any impact on total EPS. If total EPS
doesn’t change, then the question arises – what’s the need of bonus shares? Bonus
shares basically help in solving two purposes:
1. Improving the liquidity of a share
Suppose company’s shares are quite illiquid. Reason for illiquidity can be many but
we are not bothered about that right now. At this point of time, company announces
1:1 bonus share. Since number of shares gets doubled in the market, supply of shares
increase, resulting in a downward pressure on the stock price. Now, as the stock is
available at cheaper valuation, more buyers get interested in it and hence liquidity
improves.
2. Tax saving through Bonus Share
In case of cash dividends, companies have to pay dividend distribution tax resulting in
diminished return for investors. In case of bonus shares, no dividend distribution tax
is levied.
Tax Calculation in case of Bonus Shares

Cost of acquisition of bonus shares is taken as zero hence the capital gain on selling a
bonus share is equal to its selling price.
Let us take an example to understand the calculation of capital gain tax in case of
transfer of bonus shares.
TAX PLANNING AND MANAGERIAL DECISIONS
A tax is a compulsory financial charge or some other type of levy imposed on a
taxpayer (an individual or legal entity) by a governmental organization in order to
fund government spending and various public expenditures.[2] A failure to pay, along
with evasion of or resistance to taxation, is punishable by law. Taxes consist
of direct or indirect taxes and may be paid in money or as its labour equivalent. The
first known taxation took place in Ancient Egypt around 3000–2800 BC.
Most countries have a tax system in place to pay for public, common, or agreed
national needs and government functions. Some levy a flat percentage rate of taxation
on personal annual income, but most scale taxes based on annual income amounts.
Most countries charge a tax on an individual's income as well as on corporate income.
Countries or subunits often also impose wealth taxes, inheritance taxes, estate
taxes, gift taxes, property taxes, sales taxes, payroll taxes or tariffs.
In economic terms, taxation transfers wealth from households or businesses to the
government. This has effects that can both increase and reduce economic growth and
economic welfare. Consequently, taxation is a highly debated topic.

TAX PLANNING WITH RESPECT TO OWN OR LEASE

1. In recent years, leasing has become a popular source of financing in India.
From the lessees point of view, leasing has the attraction of eliminating
immediate cash outflow, and the lease rentals can be claimed as admissible
expenditure against the business income. On the other hand, buying has the
advantages of depreciation allowance and interest on borrowed capital being
tax-deductible. Thus, an evaluation of the two alternatives is to be made in
order to take a decision. Lease or Buy Decision
2. 3. Lease or Buy Decision • Lease or buy decision involves applying capital
budgeting principles to determine if leasing as asset is a better option than
buying it. • Leasing in a contractual arrangement in which a company (the
lessee) obtains an asset from another company (the lessor) against periodic
payments of lease rentals. It may typically also involve an option to transfer
the ownership of the asset to the lessee at the end of the lease. • Buying the
asset involves purchase of the asset with company’s own funds or arranging a
loan to finance the purchase. • In finding out whether leasing is better than
 buying, we need to find out the periodic cash flows under both the options and
discount them using the after- tax cost of debt to see where does the present
value of the cost of leasing stands as compared to the present value of the cost
of buying. The alternative with lower present value of cash outflows is
selected.
3. 4. ADVANTAGES: • Advantages when Assets are taken on Lease : Lease
Rental can be claimed as deduction as revenue expenditure. However
Depreciation cannot be claimed since assets are not owned by the assessee. •
Advantage when Assets are Purchased : Depreciation on specified assets can
be claimed as deduction u/s 32. the Assets may be purchased out rightly or
may be taken on loan. Where the asset is taken on loan interest amount can
either be claimed as revenue expenditure or can be capitalized. But where
interest is paid after the asset is first put us use, the deduction on account of
interest shall be claimed as revenue expenditure, i.e. such interest cannot be
capitalized.

 SALE OF ASSETS USED FOR SCIENTIFIC RESEARCH

SCIENTIFIC RESEARCH ASSET SOLD AFTER HAVING BEEN USED FOR
THE PURPOSE OF BUSINESS.
As per explanation 1 to section 43(1) where an asset is used in the business after is
ceases to be used for scientific research related to that business the actual cost of the
asset to be included in the relevant block of asset shall be taken as nil as 100%
deduction has already been allowed. If such asset is sold then the value of block shall
be reduce by the sale value of the asset.

SECTION 41(3). SCIENTIFIC RESEARCH ASSET SOLD WITHOUT

HAVING BEEN USED FOR THE  PURPOSE OF BUSINESS
(1) Where an asset representing expenditure of a capital nature on scientific research,
is sold, (2) without having been used for other purposes, and (3) the proceeds of the
sale together with the actual amount of the educations made, the amount of the
deduction exceed the amount of the capital expenditure (4) the excess or the amount
of the deductions so made, whichever is the less, (5) shall be chargeable to income-tax
as income of the business or profession of the previous year in which the sale took
place.
The Clause is applicable even if the business is not in existence during PY.

ANALYSIS :
1. Profit from Business = Sale price or cost whichever is lower.
2. Capital Gain = Sale consideration minus cost of acquisition . If LTCA
minus indexed cost of acquisition. There can be no loss under the head
Capital G

TAX PLANNING VIEW :

Tax planning question can be whether the scientific research asset should be sold by
using for  the purpose of business or without being used for the purpose of business.
 Scientific research asset can either be sold without being used
for the purpose of business  as such. Sale of scientific research
asset as such shall give rise to capital gain which can be either
short-tem capital gain or long-term capital gain.
  Sale of Scientific Research Asset  after it is put to use for  the
purpose of business shall reduce the depreciation for
subsequent years. Capital gain shall arise depending upon the
block of asset. As per section 50 Capital Gain can arise only if 
on the last day of the PY.

 MAKE OR BUY DECISION

This applies to industries where assembly of products takes place to make a finished
product. Like a manufacturing of car, where thousands of different parts or
components are assembled to make a car.

It is quite natural every components or part of a car cannot be manufactured by one

company. Since part manufacture involves cost, time, energy, and different kinds of
technology and expertise. Therefore, in such cases company purchases parts from
outside agencies. But where the cost involved in purchasing from outside market is
high, then the company might go in for in house production.

Apart from costing consideration following factors also go in decision-making

process :
1. Utilizations of Capacity
2. Inadequacy Fund
3. Latest Technology
4. Dependence of supplier
5. Labor problem in the factory
What are the cost involved in making of a Pat.
1. Fixed  Cost : Purchased of Plant etc.
2. Variable Cost : Raw Materials, Labour, Electricity etc.
What are the cost involved in buying of a part from outside agency :
1. Buying Cost
2. Inventory Cost
Comparison of the above tow cost shall determine which decisions the company shall
follow. But, however it should be kept in mind that while comparing Cost, common
cost should not be taken into account.
It should also be noted that the cost incurred in making a product and buying a
product, both involves incurring of revenue expenditure. Therefore, tax saved in both
the cases are same. It comes into picture only when there is a need for extension or
establishment of new unit to manufacture that new components.

Tax Consideration :

1.         Establishing a new Unit :          If the decision to manufacture a part or

component involves a setting up a separate industrial unit than tax incentives available
u/s 10A, 10B, 32, 80IA and 80IB should be considered.

2.         Export :             If ‘Make or Buy’ decision is taken for exporting goods then
tax incentives available u/s 80HHC depends upon whether goods manufactured by
taxpayer himself are exported or goods manufactured by others are exported by the
taxpayers.

3.         Sale of Plant & Machinery :    If buying is cheaper than manufacturing and the
assessee decides to buy parts or components for along period of time, he may like to
sell the existing plant and machinery. Tax implication as specified by Sec. 50 has to
considered.

 REPAIR,REPLACE, RENEWAL OR RENOVATION OF

ASSET

The main tax consideration which one has to keep in mind is whether expenditure on
repair, replacement or renewal is deductible as revenue expenditure u/s 30,31, or
37(1). It the expenditure is deductible as revenue expenditure under these sections,
then cost of financing such expenditure is reduced to the extent of tax save.
On the other hand if such expenditure is not allowed as deduction u/s 30,31 or 37(1)
then it may be capitalized and on the amount so capitalized depreciation is available if
certain conditions are satisfied.
“Repair” implies the existence of a thing has malfunctioned and can be set right by
effecting repairs which may involve replacement of some parts, thereby making the
thing as efficient as it was before or close to it as possible. After repair the thing to
which the repair was carried out continues to be available for use. Replacement is
different from repair.

“Replacement” implies the removal or discarding of the things that was in use, by a

different or new thing capable of performing the same function with the same or
greater efficiency. The replacement of a section in a series of machines which are
interconnected , in a segment of the production process which together form an
integrated whole may in some circumstances , be regarded as amounting to repair
when without such replacement that unit in that segment will not function. That logic
cannot be extended to the entire manufacturing facility from the stage of  Raw
Material to the delivery of the final finished product.

“Current Repair” implies the expenditure must have been incurred to ‘preserve and
maintain’ an already existing asset and the object of the expenditure must not be to
bring a new asset into existence of for obtaining a new advantage.
Shifting of Administrative Office :
Expenditure incurred for shifting the administrative office from one city to another
city as a result of amalgamation of three companies having a number of activities in
various centers is allowable as Revenue Expenditure.
Shifting of Head Office from one place to another is Capital Expenditure :
Where the assessee-company shifted its head office from one place to another place
after it Board of Directors resolved that it would be commercially prudent to
centralized  the Registered Office of the company in one place, in connection with
the shifting , it incurred  huge expenses including a certain payment made to the
lawyers, the expenses incurred on this account could not be on revenue account.
Expenditure of shifting of employees is Revenue Expenditure :
Expenditure incurred by assessee on shifting of employees to another place
consequent on shifting of factory to another site due to labour unrest was allowable
as Revenue Expenditure.
Decoration of reception / dining halls in Hotels is revenue expenditure :
Expenses incurred in putting up decorative mirrors in the wall, plaster molded roof,
plywood panels, etc. in reception-cum dinning halls of a Hotel, in order to deep the
place fir and attract customers, is deductible as revenue expenditure.
Expenditure on renovation an modernization of Hotel Premises is Revenue
Expenditure :
Expenditure incurred solely for repairs and modernizing the Hotel and replacing the
existing components of the building, furniture, and fittings, with a view to create a  
conductive and beautiful atmosphere for the purpose of running of a business of a
Hotel , will fall under the category of Revenue Expenditure only, and is hence
deductible.
Expenditure on Wall to Wall Carpet for office is capital expenditure :
Expenditure on purchase of wall-to-wall carpet, for being used in the office, has
nothing to do with the augmenting, preserving or protecting the turnover or profits of
the business and hence it is in the nature of capital expenditure.
Repairs to building can be capital or revenue, depending on nature of change
brought about :
So long as the repair does not bring into existence an additional advantages or benefit
of an enduring nature or change the nature, character or the identity of the building
itself, the expenditure must be regarded as a revenue expenditure. On the other hand,
if it does, it will be in the nature of a Capital Expenditure.
Replacement of Assets as a whole is not ‘Repair’ :
Where substantial repairs are carried out in order to put to use an existing asset, the
same could be termed as Revenue Expenditure. But where there is replacement ‘As a
Whole’ , it amounts to reconstruction and not repairs. It is pertinent that the asset in
its old form must continue to exist to say that the expenditure involved in improving
the assets is Revenue Expenditure. Where effacement takes place and a new asset
comes into being, then expenditure involved would become a Capital Expenditure.
Repairs for converting Godown into Administrative Office :
Where the assessee incurred expenditure on repairs to a godown used for business
purpose so as to convert it into an Administrative Office, the expenditure was
allowable as revenue expenditure, since the business asset has retained its character
and only its use had changed, and the use at both points of time, i.e. before and after
the expenditure was incurred, related to the business of the assessee without there
being any addition to or expansion of the profit-making apparatus of the assessee.
Remodeling of furniture in retail outlet is revenue expenditure :
The expenditure incurred by the assessee company towards the remodeling of
furniture in its various retails depots which was necessitated by changes in design,
was deductible as revenue expenditure.
Repair and replacement of false ceiling in cinema building is revenue
expenditure :
Expenditure on repair and replacement of false ceiling in cinema building owned by
the assessee was allowable as revenue expenditure, since it was incurred for keeping
the business running.
Replacement of electric wiring in cinema building is revenue expenditure, since it
was incurred for keeping the business running.
Expenditure in repairs to car damaged during riots are deductible :
Expenditure to repair damage to car in which director of assessee-company was
traveling to the business premises, was allowable as business expenditure.

 SHUT-DOWN OR CONTINUE DECISION

1. Presentation on topic :- shut down or continue decision. Presented by :-

Sangeeta Saini M.com (final)
2. Tax planning may be defined as an arrangement of one’s financial affairs in
such a way that without violating in any way the legal provisions of an Act,
full advantage is taken of all exemptions, deductions , rebates and reliefs
permitted under the act , so that the burden of the taxation on an assessee , as
far as possible , is the least.
3. SHUT DOWN OR CONTINUE DECISION Loss co- exist with profit in a
business . A business may suffer loss due to one or more of the following
reasons: 1. Fall in demand :- the demand of product may fall due to
availability of new products in the market , change in fashion, or increase in
the number of producers /competitors. 2. Financial problems :- A firm may not
have sufficient finance of its own nor further credit is available from bank or
financial institutions due to government restrictions. 3. Change in technology:-
Where the growth of technology is rapid and if it is not possible to keep pace
with it the net result may be a loss of profit. 4. High rate of taxes :-high rate of
taxes – import duty , excise , sales tax , octroi etc. ; increase the price of the
product . Due to this demand of the product may fall and business may suffer
losses. 5. Mismanagement
4. When a business suffer continuously , whatever the reason of loss may be ,
the management has to decide whether the business should be shut down or
continue . While taking this decision , the impact of income tax provisions
should not be overlooked. A. Treatment of losses and unabsorbed depreciation
Business loss :- If the business or profession has been discontinued loss can be
carried forward and set off against profits and gains of business and
profession. Unabsorbed depreciation :- If the business or profession has been
discontinued , unabsorbed depreciation : 1) Can be set off against income from
business or profession or income under any other head; 2) Can be carried
forward and set off for indefinite period , whether business is carried on or
discontinued.
5. 1.Where a part of business (unit, department, or activity) is discontinued or
the business is continued with the reduced level of activity it is not a
discontinuation of business. 2. Where the business of the assessee has been
shifted from one premises to another or from one market to another or from
one city to another. 3. Where one or the other department of the business had
been closed down. 4. Where the business of an industrial undertaking carried
on in india is discontinued in the previous year by reason of extensive damage
to , or destruction of any building , plant , machinery or furniture owned by the
assessee and used for the purpose of such business is re- established , re
constructed or revived by the assessee within three years from the end of
previous year in which the business was discontinued , the losses of such a
business shall be carried forward or set off against the profits and gains of
business or any other business carried on by him.
6. 1. Where succession takes place by inheritance , the loss incurred by the
father in the course of carrying on his business can be carried forward and set
off by his son , if he succeeds to the business of his father on account of his
death. 2. Where an assessee transfers his business to his spouse and / or minor
child and the income from such business is to be included in his total income
u/s 64 (1) ,the assessee is entitled to set off of his loss carried forward from the
previous year against the income of the wife and minor child included in his
income. The loss can be set off by the same person who has suffered the loss.
In this connection the following points are worth noting:-
7. 3. Where two or more companies amalgamate and form a new company ,
the assessee (amalgamating companies and amalgamated companies )and the
business are not the same and losses sustained by amalgamating companies
cannot be carried forward and set off by the amalgamated company. Section
72 A provides exceptions to this general rule . Section 72 A Conditions for set
off : (1) The amalgamating company fulfills the following conditions: (A)It
has been engaged in the business , in which the accumulated loss occurred or
depreciation remains unabsorbed , for three or more years. (B)It has held
continuously as on the date of amalgamation at least ¾ of the book value of
fixed assets held by it two years prior to the date of amalgamation. (2)The
amalgamated comp[any fulfills the following conditions : (A)The
amalgamated company holds at least ¾ of book value of fixed assets, of the
amalgamating company acquired as a result of amalgamation , for five years
from the effective date of amalgamation . (B)The amalgamated company
continues the business of the amalgamating company for at least five years
from the date of amalgamation.
8. 4. Where there has been a demerger of an undertaking , the accumulated
loss and the unabsorbed depreciation directly relatable to the undertaking
transferred by the demerged company to the resulting company shall be
allowed to be carried forward and set off in the hands of resulting company. If
the accumulated loss or unabsorbed depreciation is not directly relatable to the
undertaking , the same will be apportioned between the demerged company
and the resulting company in the same proportion in which the value of the
assets have been transferred.
9. 5. Where the business is carried on by a H.U.F. is transferred to the
members of the family on partition there is a change in the persons carrying on
the business. Hence , the losses suffered by the family in its business cannot be
set off by the members after partition of the family. 6. Where a partner leaves
a firm (retirement or death) his share of loss cannot be carried forward and set
off by the reconstituted firm.
10. Exceptions Where the change in the said voting power takes place in the
previous year due to the death of the shareholder or on account of transfer of
shares by way of gift to any relative of the shareholders making such gift. Any
change in the shareholding of the Indian company which is the subsidiary of
the foreign company , arising as result of amalgamation or demerger of a
foreign company subject to the condition that 51% of the shareholders of the
amalgamating or demerged foreign company continue to remain the
shareholders of the amalgamated or resulting foreign company. 7. A closely
held company shall not be allowed to carry forward and set off its losses
against the income of previous year unless on the last day of the previous year
the shares of the company carrying not less than 51% of the voting power
were beneficially held by the persons who beneficially held shares of the
company carrying not less than 51% of the voting power on the last day of the
year in which loss was incurred.
11. Speculation loss Speculation loss can be set off against speculation income
either in same year or in subsequent 4 years. The loss from an illegal
speculation business neither can be set off against income from any lawful
speculation business nor it can be carried forward for being set off in the
subsequent year against income even from an illegal speculation business
because the law assumes that any illegal business dies
12. B. Withdrawal of certain deductions:- the benefits of deductions under
section 33AB ( tea development account/ coffee development account / rubber
development account ) and 115VT (reserve for shipping business )may be
withdrawn and liable to tax for the year in which business is discontinued. C.
Deemed income :- if the business is discontinued and asset used for scientific
research and family planning are sold , the selling price to the extend of the
deduction claimed shall be deemed as profits of the previous year in which
such assets are sold. D. Sale of depreciable assets :- the assessee has claimed
depreciation are sold in the event of discontinuance of business the difference
between the net consideration and W.D.V. shall be treated as short term
capital gain / loss. If there is a gain , it will be liable to tax . In case of loss it
can be set off only against the capital gains , if any. E. Sale of other assets
:-when other assets except mentioned in (3) and (4) ] are sold ,there may be
long term or short term capital gain/ loss , as the case may be. Such gain is
 liable to tax. In case of loss it can be set off only against the capital gains , if
any.
13. If a person is running more than one business the loss making business
should not be discontinued but operated at a low key for some time to claim
the following losses and expenses against the income of profit making
business: 1.Retrenchment compensation to staff. If the business is closed and
retrenchment compensation is paid , the expenditure would be disallowed as
not incurred for “carrying on business”. 2. Interest on borrowed funds and bad
debts in relation to discontinued business. 3. In case of closely held company
it may be taken care that there may not be change in the shareholding
exceeding 49 % of the shareholding. If there is a change in shareholding
exceeding 49% and transferor/s and transferee/s are relatives , they may
transfer some percentage of shares as gift rather than sale so that condition for
set off losses are complied with. 4. If the assessee is a company , it may
amalgamate / demerger with other company after satisfying the conditions laid
down in section 72 A.
14. Illustration X Ltd. A domestic company has two businesses A and B . For
last two years business A has been running at a loss wiping out the entire
profits of business B. At the end of financial year 2016-17 there are brought
forward losses of Rs. 8,00,000 and unabsorbed depreciation Rs. 5,00,000. In a
financial year 2017-18 onwards it is expected that business B will earn a profit
of Rs. 5,00,000 annually and if business A is continued at minimum level
there will be an annual loss of Rs. 1,00,000 and rate of tax will be 30.9 % .
Please suggest to the management of company : 1. Whether business A should
be continued or shut down.

 SPECIAL TAX PROVISION

Many Indian job seekers prefer government jobs over private employment. Even
though private companies often offer better pay, government jobs are highly sought
after. A lesser-known reason for this preference is overall tax implications.
Being in a government job allows you to avail of certain special tax provisions that
aren't available to those working with private firms. Some of the special tax
provisions for government employees include:
Leave encashment: While retiring, a government employee can get monetary
compensation for any unused leave they earned throughout the time they worked with
the company. What's more, the amount will be fully exempt from tax as no tax can be
levied on leave encashment by a government employee on their retirement. In the case
of private-sector employees, only a limited amount is exempt from tax. Also, it
depends from firm to firm.

Pension: While pension paid in installments post-retirement is taxable for all

employees across organizations, government employees have a benefit when they
take a lump sum amount. Under the Income Tax Act, 1961, a special provision allows
them to get a lump sum pension tax free at the time of their retirement.

Gratuity: Gratuity is the sum paid by employers on the retirement of employees as a

note of thanks. This amount is available only to employees who have worked for
more than five years at a particular company. While a gratuity is available to both
public and private sector employees, those working in the government have an
advantage as they don't have to pay tax on it. A gratuity paid on the retirement or
death of a worker is exempted from taxes.

NPS: The National Pension Scheme has emerged as a good option for those looking
to build a retirement fund using market-linked returns. While the scheme offers tax
benefits to all contributors, those from the central government do get an additional
advantage here too. Recently, the government announced that the contribution of
employers in NPS for the central government would rise from 10% to 14%.
Additionally, the government amended the Income Tax Act, 1961 section 80CCD(2),
to allow government employees to claim an exemption on the entire 14% amount
contributed by their employers to the NPS. This provision is currently not applicable
to private sector employees.

Entertainment Allowance: Even though most private-sector employees don't get

entertainment allowance anymore, central government employees continue to enjoy
this allowance as well as special provisions for taxation on it. Government employees
are allowed to deduct the allowance from their gross salary by using the minimum of
actual allowance/ one-fifth of the salary (excluding any allowance, benefits or other
perquisites) / ₹5,000. This helps in reducing their overall tax burden.

 TAX PROVISIONS IN RESPECT OF FREE TRADE ZONE

Out of the total income of an assessee a deduction of 90% of such profits and gains as
are derived by an undertaking from the export of articles, or things or computer
software shall be allowed.
Rate of deduction for unit set up in Special Economic Zone on or after 1-4-2003 shall
be as follows for first 10 assessment years :
 First 5 Years – 100 % of profits and gains derived from the export of such articles
or things or computer software for a period of five consecutive assessment years
beginning with the assessment year relevant to the previous year in which the
undertaking begins to manufacture or produce such articles or things or computer
software, as the case may be, and thereafter,
 Next 2 Years : 50% of such Profit and Gains is deductible for further 2 assessment
years.
 Next 3 Years :  for the next three consecutive assessment years, so much of the
amount not exceeding 50% of the profit as is debited to the profit and loss account of
the previous year in respect of which the deduction is to be allowed and credited to a
reserve account (to be called the ''Special Economic Zone Re-investment Allowance
Reserve Account'') to be created and utilised for the purposes of the business of the
assesse

4. UNDER A SCHEME OF AMALGAMATION OR DEMERGER

In case an undertaking eligible for deduction under this section is transferred, before
the expiry of the specified period, to another Indian company in a scheme of
amalgamation or demerger –
(a)        No deduction shall be admissible under this section to the amalgamating or
the demerged company for the previous year in which the amalgamation or
demerger takes place ; and
(b)        The provisions of this section shall apply to the amalgamated or the resulting
company as if the amalgamation or demerger had not taken place.
 TAX PROVISIONS IN RESPECT OF INFRASTRUCTURE
DEVELOPMENT
 Infrastructure Facility
 1. Who are eligible to claim this deduction ?
The enterprise which is owned by an Indian company who is engaged in
providing infrastructure facility.
Infrastructure facility here means :
o A road including toll road, a bridge or a rail system
o A highway project
o A water supply project
o A port, airport, inland waterways or inland port or navigational channel
is the sea
 2.What are the conditions to claim deduction u/s 80-IA ?
There are certain conditions given in the section to claim tax holiday. Here are
the insight of conditions :
o Period of commencement :- Enterprise starts providing infrastructure
facility on or after 01 April, 1995. Further, one point needs to be noted
that entreprise who start providing infrastructure facility after 01 April,
2017 is not eligible to claim deduction.
o Income Tax Return :- One of the condition attached with this section
is that assessee needs to file his Income Tax Return and should also
claim the amount of deduction in return. Moreover, income tax return
needs to be filed on time as per section 139(1)
Example :- For F.Y. 2018-19, due date of return filing for companies
was 30 September, 2019. However, A ltd filed his ITR on 05 October,
2019 claiming deduction u/s 80-IA. In this case, A Ltd is not eligible to
claim deduction u/s 80-IA.
o Audit Report :- This deduction is allowed if accounts of the assessee
has been audited by a CA as per the requirement. The audit report duly
 signed & verified by CA and furnished audit report along with the
return of income. Audit report to be submitted in Form 10CCB.
 3. What is the amount of deduction available under section 80-IA ?
Under this section, assessee can claim
100% of the profit is allowed as deduction for 10 consecutive Assessment
Years
Now, the very first question comes into the mind is that from which
Assessment year assessee is eligible to claim deduction for 10 continuous
Assessment Years. We can call first year of deduction ‘Initial Assessment
Year’
Deduction need not be taken from the first year of operation,this option is with
assessee to decide Initial Assessment Year to claim deduction. But Initial
Assessment year should start within a period of 15th Assessment Year in
which an assessee start operating infrastructure facility.

 4. Other points :
If an eligible undertaking transfer infrastructure facility to another enterprise
in that can transferee enterprise is eligible to claim deduction for remaining
period.

B. Telecommunication services
 1. Who are eligible to claim this deduction ?
An undertaking engaged in providing telecommunication services whether
basic or cellular, including radio paging, domestic satellite service, network of
trunking, broadband network and internet services.

 2. What are the conditions to claim deduction u/s 80-IA ?

There are certain conditions given in the section to claim tax holiday for
telecommunication services. Here are the insight of conditions :
o Period of commencement :- Enterprise starts providing
telecommunication services on or after 01 April, 1995. Further, one
point needs to be noted that entreprise who start providing
 infrastructure facility after 31 March, 2005 is not eligible to claim
deduction.
o Income Tax Return :- One of the condition attached with this section
is that assessee needs to file his Income Tax Return and should also
claim the amount of deduction in return. Moreover, income tax return
needs to be filed on time as per section 139(1)
o Audit Report :- This deduction is allowed if accounts of the assessee
has been audited by a CA as per the requirement. The audit report duly
signed & verified by CA and furnished audit report along with the
return of income. Audit report to be submitted in Form 10CCB.
o New Enterprise :- It should be a new undertaking. The undertaking
should not be formed by splitting up or reconstruction or a business
already in existence.
o Exception of New enterprise condition :- Any undertaking
discontinued due to extensive damage or destruction of (any building,
machinery, plant or furniture owned and used for such business) due to
any natural calamity or other unforeseen circumstances such as:-
1. Flood, typhoon, hurricane, cyclone, earthquake or other natural
calamity, or
2. riot or civil disturbance, or
3. accidental fire or explosion, or
4. enemy action or action taken in combat,

3. What is the amount of deduction available under section 80-IA ?

Under this section, assessee can claim

Amount of deduction Period

100% of profit For first 5 years

30% of profit Next 5 years

 Initial Assessment year to be decided by the assessee at his option but not
beyond than 15th Assessment Year in which an assessee start operating
telecommunication services.

C. Industrial parks or special economic zone

 1. Who are eligible to claim this deduction ?
The enterprise which develops and operates industrial park or special
economic zone notified by central government.
 2. What are the conditions to claim deduction u/s 80-IA ?
There are certain conditions given in the section to claim tax holiday. Here are
the insight of conditions :

 Period of commencement :-

Enterprise Year of commencement Year

Special Economic Zone On or after 01 April, 1997 Before 31 March, 2005

Industrial park On or after 01 April, 2009 Before 31 March, 2011

1. Income Tax Return :-One of the condition attached with this section
is that assessee needs to file his Income Tax Return and should also
claim the amount of deduction in return. Moreover, income tax return
needs to be filed on time as per section 139(1)
2. Audit Report :-This deduction is allowed if accounts of the assessee
has been audited by a CA as per the requirement. The audit report duly
signed & verified by CA and furnished audit report along with the
return of income. Audit report to be submitted in Form 10CCB.
 3. What is the amount of deduction available under section 80-IA ?
Under this section, assessee can claim
100% of the profit is allowed as deduction for 10 consecutive Assessment Years
Initial Assessment year to be decided by the assessee at his option but not beyond
than 15th Assessment Year in which an assessee start operating telecommunication
services.

D. Power generation, transmission and distribution

 1. Who are eligible to claim this deduction ?
An undertaking which is set up in any part of India for the generation or
generation & distribution of power.
 2. What are the conditions to claim deduction u/s 80-IA ?
There are certain conditions given in the section to claim tax holiday for
power generation, transmission and distribution. Here are the insight of
conditions :
1. Period of commencement :- Enterprise starts its operation at any time
between 01 April, 1993 and 31 March, 2017. Alternatively, it starts
transmission or distribution at any time between 01 April, 1999 and 31
March, 2017.The power plant offers restoration and improvement of
the network for the duration of 1st April 2004 to 31st March 2011.
2. Income Tax Return :- One of the condition attached with this section
is that assessee needs to file his Income Tax Return and should also
claim the amount of deduction in return. Moreover, income tax return
needs to be filed on time as per section 139(1)
3. Audit Report :- This deduction is allowed if accounts of the assessee
has been audited by a CA as per the requirement. The audit report duly
signed & verified by CA and furnished audit report along with the
return of income. Audit report to be submitted in Form 10CCB.
4. New Enterprise :- It should be a new undertaking. The undertaking
should not be formed by splitting up or reconstruction or a business
already in existence.
5. Exception of New enterprise condition :- Any undertaking
discontinued due to extensive damage or destruction of (any building,
machinery, plant or furniture owned and used for such business) due to
any natural calamity or other unforeseen circumstances such as:-
 i. Flood, typhoon, hurricane, cyclone, earthquake or other natural calamity, or
ii. Riot or civil disturbance, or
iii. Accidental fire or explosion, or
iv. Enemy action or action taken in combat,
and such business is re-established or revived within 3 years from the end of
such previous year.
 3. What is the amount of deduction available under section 80-IA ?
Under this section, assessee can claim
100% of the profit is allowed as deduction for 10 consecutive Assessment Years from
initial Assessment year

E. Reconstruction of a power unit

 1. Who are eligible to claim this deduction ?
An undertaking which is set up for reconstruction or revival of a power
generating plant.It should be owned by an Indian Company.
 2. What are the conditions to claim deduction u/s 80-IA ?
There are certain conditions given in the section to claim tax holiday for
reconstruction or revival of a power unit. Here are the insight of conditions :

1. Period of commencement :-

Particular Period

Formation with majority Before 30 November, 2005

equity participation

Operation begins Before 31 March, 2011

 2. Income Tax Return :- One of the conditions attached with this section
is that assessee needs to file his Income Tax Return and should also
claim the amount of deduction in return. Moreover, income tax return
needs to be filed on time as per section 139(1)
3. Audit Report :- This deduction is allowed if accounts of the assessee
has been audited by a CA as per the requirement. The audit report duly
signed & verified by CA and furnished audit report along with the
return of income. Audit report to be submitted in Form 10CCB.
 3. What is the amount of deduction available under section 80-IA ?Under
this section, assessee can claim
100% of the profit is allowed as deduction for 10 consecutive Assessment
YearsDeduction need not be taken from the first year of operation,this option is with
assessee to decide Initial Assessment Year to claim deduction. But Initial Assessment
year should start within a period of 15th Assessment Year in which an assessee start
operating infrastructure facility.

 F. Cross country natural gas distribution network

 1. Who are eligible to claim this deduction ?
An undertaking which is owned by an India Company carrying on business of
laying & operation cross - country natural gas distribution network including
pipelines & storage facilities being an integral part of such network.
 2. What are the conditions to claim deduction u/s 80-IA ?
There are certain conditions given to claim tax holiday. Here are the insight of
conditions :
1. Period of commencement :- It should start functioning on or after 01
April, 2007.
2. Income Tax Return :- One of the conditions attached with this section
is that assessee needs to file his Income Tax Return and should also
claim the amount of deduction in return. Moreover, income tax return
needs to be filed on time as per section 139(1).
3. Audit Report :- This deduction is allowed if accounts of the assessee
has been audited by a CA as per the requirement. The audit report duly
 signed & verified by CA and furnished audit report along with the
return of income. Audit report to be submitted in Form 10CCB.
4. New Enterprise :- It should be a new undertaking. The undertaking
should not be formed by splitting up or reconstruction or a business
already in existence.
5. It has been approved by the Petroleum and Natural Gas Regulatory
Board and one third of its total pipeline capacity is available for
common use.
 3. What is the amount of deduction available under section 80-IA ?
Under this section, assessee can claim
100% of the profit is allowed as deduction for 10 consecutive Assessment
YearsDeduction need not be taken from the first year of operation,this option is with
assessee to decide Initial Assessment Year to claim deduction. But Initial Assessment
year should start within a period of 15th Assessment Year in which an assessee start
operating infrastructure facility.
 TAX PROVISIONS IN RESPECT OF BACKWARD AREAS
Admittedly in the instant case, the industrial undertaking of the appellant-assessee is
not located in the Industrial Backward District, which has been mentioned in the
Notification issued by the Central Government. It is pertinent to note here that the
first Notification was issued by the State Government on 03rd September 1997,
whereas the second Notification was issued on 07th October 1997. In both the
aforesaid Notifications, the District in which the industry of the assessee is located has
not been mentioned as Industrially Backward District. It is also not in dispute that the
assessee had set up the industry before coming into force of the Industry Notification.
Therefore, the condition mentioned in Section 80-IA(2)(iv)(c) of the Act that an
industrial undertaking should be located within such Industrial Backward District as
the Central Government vide Notification prescribed has not admittedly been fulfilled
by the assessee. In order to claim the deduction, the assessee has to satisfy the
requirements mentioned under the provision, which admittedly the assessee does not
fulfill. Therefore, the assessee is not entitled to claim deduction under Section 80-
IA(2)(iv)(c) is concerned the same is sans substance.
14. It is pertinent to note here that Section 80HH and Section 80-IA(2)(iv)(c) are two
different and independent provisions. The decision of Hon’ble Rajasthan High Court
relied upon by the learned counsel for the respondent is of no assistance to the
assessee in the fact situation of the case as the aforesaid decision was based on the
concession that once an area is declared to be Industrially Backward Area under
Section 80HH (2) of the Act, the same has to be taken under Industrial Backward
Area for the purposes of this Act. In other words, the aforesaid decision is based on
the concession and there has been no deduction on the issue. Therefore, we do not
agree with the view taken by the Honb’le High Court of Rajasthan insofar as it takes a
view that once the area declared as backward area under Section 80HH(2) of the
Act, the same has to be taken as Industrially Backward Area for the purposes of
the Act, as Section 80HH(2) and 80-IA(2)(iv)(c) are separate and independent
provisions.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
Sri. K.V. Aravind, along with Sri. Dilip, Advocates for Appellants.
Dr. C.P. Ramaswamy and Sri. Balaram. R. Rao, Advocates for respondent.
In both the appeals, similar issue arises for consideration. ITA No.435/2009 pertains
to Assessment Year 2004-2005, whereas ITA No.69/2014 pertains to Assessment
Year 2005-2006. The appeals were admitted by a Bench of this Court by order dated
02.01.2020 on the following substantial question of law.
“Whether respondent-assessee was entitled to claim deduction under Section 80IA(2)
(iv)(c)of the Income Tax Act, 1961 relying upon the notification bearing No.714E
dated 07.10.1997?”
The substantial question of law framed in both the cases are identical.
2. The facts giving rise to filing of these appeals briefly stated are that the assessee is
engaged in the business of manufacturing and sale of zirconium silicate, colours and
frits for application in tiles and sanitary ware. In respect of Assessment Year 2004-
2005, the assessee filed return of income in respect of Assessment Year 2004-2005
and 2005-2006 and claimed deduction under Section 80IA(2)(iv)(c) of the Act. On
26.12.2006 an order on assessment was passed. Being aggrieved, the assessee filed an
appeal before the Commissioner of Income Tax (Appeals). The Commissioner of
Income Tax (Appeals) by an order dated 24.11.2014, inter alia held that assessee’s
manufacturing unit was located in a backward area and therefore, the claim under
Section 80IA of the Act was made. It was further held that when the Notification
came in October 1997 declaring the backward area with effect from 01.10.1994, the
assessee’s unit did not fall within the backward area. Therefore, the order passed by
the Assessing Officer was erroneous and prejudicial to the interest of the revenue as
the Assessment Unit did not fall within the backward area for claiming eligible
deduction under Section 80IA of the Act. In the result, the claims made under Section
80IA of the Act were disallowed. Being aggrieved, the assessee approached the
Income Tax Appellate Tribunal. The Tribunal by order dated 09.04.2009, inter alia,
held that the declaration of the area for claiming the relief  under Section 80IA of the
Act was not made under Notification with retrospective effect, which was not within
the knowledge of the assessee. Therefore, assessee is entitled to claim deduction
under Section 80IA of the Act. In the aforesaid backdrop these appeals have been
filed.
3. The learned counsel for the respondent – assessee inviting the attention of this
Court to Section 80-IA(2)(iv)(c) of the Act submitted that in order to claim the benefit
of deduction under Section 80IA of the Act, the industry is required to be situated in
the backward area which may be specified in the Notification issued by the Central
Government and should commence the production during the period from 01st
October 1994 till 31st March 1999.
4. In the instant case, admittedly the unit of the assessee is not situated within the
backward District as specified in the Official Gazette. Therefore, the Tribunal has
grossly erred in setting aside the order passed by the Commissioner of Income Tax
(Appeals) and in holding that the assessee is entitled to the benefit of 80IA of the Act.
In support of aforesaid submission, learned counsel for the Revenue has placed
reliance on decision of the Hon’ble Supreme Court in ‘ACE MULTI AXES
SYSTEMS LIMITED’, (2017) 88 TAXMANN.COM 69 (SC).
5. On the other hand, learned counsel for the assessee has submitted that once the area
in which the unit of the assessee is situated was declared to be backward area by a
Notification issued under Section 80HH (2) of the Act and therefore, the same has to
be taken as Industrial Backward Area for the purposes of this Act.
6. Learned counsel for the assessee has also pointed out that he was pushed by the
Collector for setting up of Industry in Soolagiri Block of Dharmapuri District in the
State of Tamil Nadu and the assessee is entitled to benefit of Notification dated 03 rd
September 1997, issued under Section 80-IA of the Act, which provides that the
retrospective operation of this Notification will not adversely effect any person.
Therefore, it is in support of his submission, learned counsel for the assessee has also
placed reliance on decision of the Hon’ble High Court of Rajasthan in
‘COMMISSIONER OF INCOME TAX VS. TRINITY HOSPITAL’, (2004) 140
TAXMAN 323 (RAJASTHAN).
7. It is also urged that the appellant-assessee is entitled to parity in the matter of
deduction as the area in which the industry is situated, has already been declared to be
a backward area under Section 80HH(2) of the Act. It is also urged that though equity
and taxation are considered to be strangers but, an attempt should be made to ensure
that they do not remain so always and if a construction, which results in equity rather
than any injustice, then such construction should be preferred to the literal
construction.
8. In support of the aforesaid submission, reliance has been placed on the decision
of Hon’ble Supreme Court in ‘COMMISSIONER OF INCOME TAX VS. J.H.
GOTLA’, (1985) 23 TAXMAN 14J (SC).
9. We have considered the submission made on  both sides and have perused the
records.
10. It is well settled in law that when an exemption is granted with a beneficent object
i.e., to encourage production or setting up an industry in backward area in terms of
Industrial Policy, the provision relating to exemption has to be liberally construed (see
‘STATE OF JHARKHAND VS. TATA CUMINS LTD.,’ (2006) 4 SCC 57). It is
equally well settled legal proposition that if the tax payer is within the plain terms of
the exemption Notification, he cannot be denied the benefit calling in aid in supposed
intention, and the language of the Notification has to be given effect to. (see
‘COMMISSIONER OF (C) ITC LTD., COMMISSIONER OF EXCISE, NEW
DELHI’, (2004) 7 SCC 591.) It has also been held that if the exemption is available
on complying with certain conditions, the aforesaid conditions have to be strictly
complied with.
(See ‘EAGLE FLASK INDUSTRIES LTD., VS. COMMISSIONER OF CENTRAL
EXCISE’, (2004) 7 SCC 377 and ‘STATE OF JHARKHAND VS. AMBAY
CEMENTS’, (2005) 1 SCC 368.) In ‘CCE VS. GINNI FILAMENTS LTD.,’, (2005)
3 SCC 378 it has been held that an exemption Notification has to be read strictly in
so-far-as it pertains to eligibility criteria.
11. Bearing in mind the aforesaid well settled legal principles, before proceeding
further, it is apposite to take note of Section 80-IA(2)(iv)(c) of the Act, which reads as
under:
“80-IA(2)(iv)(c):-In the case of an industrial undertaking located in such industrially
backward district as the Central Government may, having regard to the prescribed
guidelines, by notification in the Official Gazette, specify in this behalf, as an
industrially backward district of Category A or an industrially backward district of
Category B, and , it begins to manufacture or produce articles or things or to operate
its cold storage plant or plants at any time during the period beginning on the 1st day
of October, 1994, and ending on the 31st day of March, 2000;”
12. From the perusal of the aforesaid provision, it is evident that in order to avail
benefit of deduction, twin conditions have to be satisfied, namely, that industry should
be located in Industrial Backward District as prescribed by the Central Government
vide Notification in the Official Gazette and the aforesaid Industry has to commence
the production during the period beginning from 1st October 1994 and ending on 31st
March 1999.
13. Admittedly in the instant case, the industrial undertaking of the appellant-assessee
is not located in the Industrial Backward District, which has been mentioned in the
Notification issued by the Central Government. It is pertinent to note here that the
first Notification was issued by the State Government on 03rd September 1997,
whereas the second Notification was issued on 07th October 1997. In both the
aforesaid Notifications, the District in which the industry of the assessee is located has
not been mentioned as Industrially Backward District. It is also not in dispute that the
assessee had set up the industry before coming into force of the Industry Notification.
Therefore, the condition mentioned in Section 80-IA(2)(iv)(c) of the Act that an
industrial undertaking should be located within such Industrial Backward District as
the Central Government vide Notification prescribed has not admittedly been fulfilled
by the assessee. In order to claim the deduction, the assessee has to satisfy the
requirements mentioned under the provision, which admittedly the assessee does not
fulfill. Therefore, the assessee is not entitled to claim deduction under Section 80-
IA(2)(iv)(c) is concerned the same is sans substance.
14. It is pertinent to note here that Section 80HH and Section 80-IA(2)(iv)(c) are two
different and independent provisions. The decision of Hon’ble Rajasthan High Court
relied upon by the learned counsel for the respondent is of no assistance to the
assessee in the fact situation of the case as the aforesaid decision was based on the
concession that once an area is declared to be Industrially Backward Area under
Section 80HH (2) of the Act, the same has to be taken under Industrial Backward
Area for the purposes of this Act. In other words, the aforesaid decision is based on
the concession and there has been no deduction on the issue. Therefore, we do not
agree with the view taken by the Honb’le High Court of Rajasthan insofar as it takes a
view that once the area declared as backward area under Section 80HH(2) of the
Act, the same has to be taken as Industrially Backward Area for the purposes of
the Act, as Section 80HH(2) and 80-IA(2)(iv)(c) are separate and independent
provisions.
In view of preceding analysis, the impugned order dated 09.04.2009 passed by the
Income Tax Appellate Tribunal, Bengaluru is hereby set aside. In the result, the
appeals stand allowed.
Tags: high court judgments, Section 80IA

 TAX PROVISIONS IN RESPRCT OF TAX INCENTIVES TO

EXPORTERS
A number of incentives and other relief are being offered to exporters and importers,
the details of which are as under:

• Duty drawback to exporters to neutralize Customs, Central Excise Duty and Service
Tax suffered on inputs/inputs services used in manufacture of export goods.

• Benefit of rebate of Central Excise Duty paid on exported goods is allowed under
Rule 18 of the Central Excise Rules, 2002. Goods are also allowed clearance for
export under bond for the same purpose under Rule 19 of the Central Excise rules,
2002. Further, refund of Cenvat Credit of duty suffered on inputs used in the
manufacture of exported goods is allowed under Rule 5 of the Cenvat Rules, 2004.

• In order to boost exports in garment sector, Government has provided various

support measures. One such measure is duty free entitlement for import based on
export performance, wherein manufacturers of textile and leather garments registered
with their respective Export Promotion Council are allowed to import certain
specified items duty free of value upto 5 per cent of the FOB value of the textile
garments or 3 per cent of the FOB value of the leather garments, exported during the
preceding Financial Year for use in the manufacture of garments for export by such
manufacturer. Similarly, the incentives are also provided to the exporters of
handicrafts, leather products including footwear; handlooms, cotton and man-made
textile made-ups etc.

• Duty exemption schemes (Advance Authorization/Duty Free Import Authorizations

and Export Promotion Capital Goods (EPCG) as well as the incentive schemes
(Merchandise Export from India Scheme and Service/Export from India Schemes)
extended to exporters administered by Director General of Foreign Trade (DGFT),
Department of Commerce.

• Section 10AA of Chapter VI-A of the Income-tax Act, 1961 allows 100% deduction
on profits and gains derived from export of certain articles or things subject to
fulfillment of conditions prescribed therein. Further, exporters and importers are also
eligible for claiming deductions in respect of profits and gains derived from such
business as per provisions contained in Part D of Chapter IV (profits and gains of
business or profession) and Chapter VIA (deductions to be made in computing total
income).

Certain representations have been received by the Government regarding delay in tax
refund to exporters from different exporters associations.

Timely issue of refunds has always been a matter of priority and concern for the
Government. Field formations have been directed to ensure prompt and timely
disbursement of rebate claims.

This was stated by Shri Jayant Sinha, Minister of State in the Ministry of Finance in
written reply to a question in Rajya Sabha today.

 PURCHASE BY INSTALLMENT OR HIRE

Hire purchase is an arrangement for buying expensive consumer goods, where the
buyer makes an initial down payment and pays the balance plus interest in
installments. The term hire purchase is commonly used in the United Kingdom and
it's more commonly known as an installment plan in the United States. However,
there can be a difference between the two: With some installment plans, the buyer
gets the ownership rights as soon as the contract is signed with the seller. With hire
purchase agreements, the ownership of the merchandise is not officially transferred to
the buyer until all the payments have been made.
KEY TAKEAWAYS
 Hire purchase agreements are not seen as an extension of credit.
 In a hire purchase agreement, ownership is not transferred to the
purchaser until all payments are made.
 Hire purchase agreements usually prove to be more expensive in
the long run than purchasing an item outright.
Volume 75%
 
1:26
Hire Purchase
How Hire Purchase Agreements Work
Hire purchase agreements are similar to rent-to-own transactions that give the lessee
the option to buy at any time during the agreement, such as rent-to-own cars. Like
rent-to-own, hire purchase can benefit consumers with poor credit by spreading the
cost of expensive items that they would otherwise not be able to afford over an
extended time period. It's not the same as an extension of credit, though, because the
purchaser technically doesn't own the item until all of the payments are made.
Because ownership is not transferred until the end of the agreement, hire purchase
plans offer more protection to the vendor than other sales or leasing methods for
unsecured items. That's because the items can be repossessed more easily should the
buyer be unable to keep up with the repayments.
Advantages of Hire Purchase Agreements
Like leasing, hire purchase agreements allow companies with inefficient working
capital to deploy assets. It can also be more tax efficient than standard loans because
the payments are booked as expenses—though any savings will be offset by any tax
benefits from depreciation.
Businesses that require expensive machinery—such as construction, manufacturing,
plant hire, printing, road freight, transport and engineering—may use hire purchase
agreements, as could startups that have little collateral to establish lines of credit.
A hire purchase agreement can flatter a company's return on capital
employed (ROCE) and return on assets (ROA). This is because the company doesn't
need to use as much debt to pay for assets.
 
Using hire purchase agreements as a type of off-balance-sheet financing is highly
discouraged and not in alignment with Generally Accepted Accounting Principles
(GAAP).
Disadvantages of Hire Purchase Agreements
Hire purchase agreements usually prove to be more expensive in the long run than
making a full payment on an asset purchase. That's because they can have much
higher interest costs. For businesses, they can also mean more administrative
complexity.
In addition, hire purchase and installment systems may tempt individuals and
companies to buy goods that are beyond their means. They may also end up paying a
very high interest rate, which does not have to be explicitly stated.
Rent-to-own arrangements are also exempt from the Truth in Lending Act because
they are seen as rental agreements instead of an extension of credit.
Hire purchase buyers can return the goods, rendering the original agreement void as
long as they have made the required minimum payments. However, purchasers suffer
a huge loss on returned or repossessed goods, because they lose the amount they have
paid towards the purchase up to that point.
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Related Terms
How Conditional Sales Agreements Work
A conditional sales agreement grants possession of an asset to the buyer, but not legal
ownership until the sale price is paid in full.
 more
Lessor
A lessor is a person or other entity that owns an asset but which is leased under an
agreement to the lessee.
 more
How Lease Payments Work
Lease payments are tied to the terms of different forms of leasing, with differences in
lease types coming from how maintenance is treated.
 more
True Lease
A true lease is a type of multi-year lease where the lessor bears both the risks and
rewards of property ownership.
 more
Chattel Mortgages: An Ownership Interest Rather Than a Lien
A chattel mortgage is a loan arrangement in which an item of movable personal
property is used as security for the loan regardless of its location.
 more
Fair Market Value Purchase Option
Fair Market Value Purchase Option is the right, but not the obligation, to buy a leased
asset at the end of the lease for a current value price.

 AMALGAMATION AND DEMERGER

In simple terms, a Merger or Amalgamation is an arrangement whereby the assets of
two or more companies become vested in one company (which may or may not be
one of the original two companies). It is a legal process by which two or more
companies are joined together to form a new entity or one or more companies are
absorbed by another company and as a consequence the amalgamating company loses
its existence and its shareholders become the shareholders of the new or amalgamated
company.
The Amalgamation under Section 2(1B) of Income-tax Act, 1961 is defined as
follows:
Amalgamation means merger of either one or more companies with another
company or merger of two or more companies to form one company in such a manner
that:
 All the property/liability of the amalgamating company/companies becomes
the property/liability of amalgamated company.
 Shareholders holding minimum 75% of the value of shares in the
amalgamating company (other than shares already held therein immediately
before the amalgamation by, or by a nominee for, the amalgamated company
or its subsidiary) become shareholders of the amalgamated company.
Demerger is an arrangement whereby some part /undertaking of one company is
transferred to another company which operates completely separate from the original
company. Shareholders of the original company are usually given an equivalent stake
of ownership in the new company.
Demerger is undertaken basically for two reasons. The first as an exercise in corporate
restructuring and the second is to give effect to kind of family partitions in case of
family owned enterprises. A demerger is also done to help each of the segments
operate more smoothly, as they can now focus on a more specific task.
The demerger under Section 2(19AA) of Income-tax Act, 1961 is defined as follows:
Demerger means the transfer of one or more undertakings to any resulting company
pursuant to a scheme of arrangement under Sections 391 to 394 of the Companies
Act, 1956 in such a manner that:
 All the property/liability of the undertaking becomes the property/liability of
the resulting company.
 All the property/liabilities are transferred at book value (excluding increase in
value due to revaluation).
 The resulting company issues shares to the shareholders of demerged company
on a proportionate basis, except
where resulting company is a shareholder of the demerged company.
 Shareholders holding minimum 75% of the value of shares become
shareholders of the resulting company (other than shares already held therein
immediately before the demerger by, or by a nominee for, the resulting
company or its subsidiary).
 The transfer of an undertaking is on a going concern
basis.
  The demerger is in accordance with the conditions notified under Section
72A(5) of IT Act, 1961.
Undertaking: includes any part of an undertaking or a unit or division of an
undertaking or a business activity taken as a whole, but excludes individual assets or
liabilities or combination of both not constituting a business activity.
Demerged Company: means the company whose undertaking is transferred to a
resulting company pursuant to a demerger.
Resulting Company: means one or more companies (including wholly owned
subsidiary thereof) to which the undertaking of the demerged company is transferred
in a demerger and the resulting company in consideration of such transfer of
undertaking, issues shares to the shareholders of the demerged company and includes
any authority or body or local authority or public sector company or a company
established, constituted or formed as a result of demerger.
Provisions applicable to company
Capital Gain (Sections 47(vi) and 47(vid))
 Gains arising on transfer of a capital asset in a scheme of
amalgamation/demerger to the amalgamated/resulting company being an
Indian Company is exempt.
Carry forward of accumulated loss and/or unabsorbed depreciation (Section
72A)
 Accumulated loss and unabsorbed depreciation of an amalgamating company
can be carried forward by the amalgamated company for set off against its
profits; in case of;
a. Amalgamation of company owning an industrial undertaking or a ship or a
hotel with another company; or
b. Amalgamation of a public sector company or a company engaged in the
business of operating aircraft with another public sector company or company
engaged in similar business; or
c. Amalgamation of a banking company with a specified bank
1. Amalgamated company has to fulfil the following conditions to avail the
benefit:
a. It continuously holds 3/4th of the book value of the fixed assets acquired in a
scheme of amalgamation for at least five years from the date of amalgamation
 b. It continues to carry on business of amalgamating company for at least five
years from the date of amalgamation
c. It achieves at least the level of 50% of the installed capacity before the end of
4 years from the date of amalgamation and maintains that level till the 5th year
2. Amalgamating company has to fulfil the following conditions:
a. It was engaged in the business in which the accumulated loss has occurred or
the unabsorbed depreciation remains unabsorbed for three or more years.
b. It has continuously held 3/4th of the book value of fixed assets held by it two
years prior to amalgamation.
 Accumulated loss and unabsorbed depreciation of a demerged company can be
carried forward by the resulting company for set off against its profits (Section
72A(4)):
1. Where it is directly relatable to undertaking transferred, it should be such
relatable amount.
2. Where it is not directly relatable to the undertaking transferred, it should be
apportioned in the ratio of assets retained by the demerged company and
transferred to resulting company.
Carry forward of accumulated loss and/or unabsorbed depreciation of the
banking company in a Scheme of amalgamation with banking institution
(Section 72AA)
 In a Scheme of amalgamation of a banking company with a banking institution
sanctioned and brought into force by the Central Government u/s. 45(7) of the
Banking Regulation Act, 1949, the accumulated loss and unabsorbed
depreciation of the banking company can be carried forward by the the
banking institution for set off against its profits.
Reorganisation in case of firm/proprietorship to company and private
company/unlisted public company to LLP (Section 72A(6))
 In cases where a firm/proprietary concern is succeeded by a company
fulfilling all conditions laid down u/ss. 47(xiii)/47(xiv), accumulated losses
and unabsorbed depreciation of the firm/proprietary concern can be carried
forward by the company for set off against its profits.
 In case conditions specified in sections 47(xiii)/(xiv) are not complied with,
any set off of business loss or allowance for depreciation claimed by the
 successor company will be deemed to be the income of the successor company
in the year in which such conditions are not complied with.
 Similar provisions are also applicable to private company or unlisted public
company succeeded by a limited liability partnership fulfilling conditions laid
down u/s. 47(xiiib).
Allowability of expenditure relating to amalgamation/demerger (Section 35DD)
 An Indian company will be allowed a deduction of 1/5th of the expenditure
incurred for the purposes of amalgamation or demerger for five years from the
year in which amalgamation/demerger takes place.
Depreciation in the year of amalgamation/demerger (fifth proviso to Section
32(1))
 Depreciation to amalgamated company and amalgamating company in the
year of amalgamation and depreciation to demerged company and the
resulting company in the year of demerger shall be apportioned in the ratio of
the number of days for which the assets were used.
Written Down Value (‘WDV’) (Sections 32 and 43(6)(c))
 WDV in the hands of amalgamated company shall be the WDV of the block of
assets in the hands of the amalgamating company immediately before
amalgamation.
 WDV in the hands of the resulting company shall be the WDV of transferred
assets of the demerged company immediately before demerger.
 WDV in the hands of the demerged company shall be the WDV of the block
of assets before demerger less WDV of assets transferred to the resulting
company.
Provisions applicable to Shareholders
 Capital Gains arising on transfer of shares of amalgamating company in
exchange of shares of amalgamated company, being an Indian Company is
exempt (Section 47(vii)).
 Acquisition of shares of the resulting company by the shareholders of
demerged company pursuant to demerger will not be taxed either as capital
gains or deemed dividend. (Sections 47 (vid) and 2(22)(v))
 Period of holding of shares of the amalgamated/resulting company will
include the period for which the shares in the amalgamating/demerged
company were held by the shareholder. (Sections 2(42A)(c) and 2(42A)(g))
  Cost of acquisition of shares of:
– The amalgamated company will be the cost incurred for acquiring shares of
amalgamating company. (Section 49(1))
– The resulting company in case of demerger will be the (Section 49(2C)):
Original cost of shares of demerged company X net book value of assets transferred to
resulting company / net worth of the demerged company before demerger
Net worth = Paid-up Share Capital + General Reserve as per books of demerged
company immediately before demerger
– The demerged company will be the original cost of shares of demerged company as
reduced by the cost of shares of the resulting company as computed above (Section 49
(2D)).

 TAX PAYMENT
 Corporate tax is applicable on those entities which have a separate legal entity
from its founders and have been formed under the Companies Act, 2013 or
any previous Companies Act.
 Currently the companies with turnover upto ₹ 250 crores have to pay
corporate tax @ 25%. Whereas, the companies with a turnover above ₹ 250
crores have to pay corporate tax @ 30%.
 The corporate tax rate for foreign companies depends upon the tax agreement
between India and the origin country of the concerned company.
 Companies hire professionals for effective Corporate Tax Planning. These
professionals strategize company financials to reduce the tax and increase
profit well within the tax and financial laws.
The tax is levied in India based on two approaches, direct tax and indirect tax. The
direct tax is levied on all types of assesses, that’s why it is divided into two
parts: Income tax and Corporate tax.
The Corporate tax is the tax paid by the registered companies under the Companies Act, 2013 on the
profit earned by them in a financial year. The profit of these businesses is taxed at a specified rate
which is subject to change as per the discretion of the government.
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 Corporate Tax in India
In India, corporate tax is levied on both domestic and foreign companies. As like
individuals are required to pay income tax based on income, they earn in a financial
year, similarly companies are also required to pay tax on their income, which is
covered under the corporate tax. Some other popular names of corporate tax are;
corporation tax, company tax, etc.
Definition of Corporate
A corporate is an entity which has a separate legal identity from its founders or
shareholders. The Companies Act 2013 defines the company as an entity which is
incorporated under this Act or any previous company law. The income earned from
the business by the company is assessed and computed differently than the
computation of income for individuals.
Types of corporate
The companies or corporate in India are classified into two categories:
 Domestic Corporate: A company that is formed under any of the Indian
Company Law is termed as a domestic company. In addition, a foreign company
whose control and management are wholly situated in India is also termed as a
domestic company.
 Foreign Corporate: A company who does not have its origin in India and
have some or whole part of control and management situated outside India is called a
foreign company.
Corporation Tax AY 2021 - 22
Company Type New Corporate Additional Benefit
Tax Rate
Companies which 22% + No Minimum Alternative
do not want to claim applicable cess Tax to be paid by these
any exemption or and surcharge. companies.
incentives Effective rate is
25.17%.
Companies which 30% Minimum Alternative Tax
intends to claim reduced to 15% from earlier
exemption or rate of 18.50%.
incentives
New Manufacturing 15%, reduced These new manufacturing
 Companies from earlier companies must have been
level of 25% incorporated on or before
Oct 2019 and must start
production before March
2023.
Corporation Tax Rates in India for Domestic Companies
The domestic company or corporate is the entity whose management is situated
wholly in India. The corporate tax applicable to the domestic companies for the A.Y.
2019-20 is charged based on turnover in a financial year. The rates are:
Gross Turnover Tax Rate
Upto ₹ 250 Crore 25%
More than ₹ 250 crore 30%
 In a financial year, if the annual revenue of a company exceeds ₹ 1 crore, then
a surcharge of 7% is levied on such corporations. If the revenue exceeds ₹ 10 crores
the surcharge is 12%.
 In addition, a Health and Education Cess of 4% is applicable along with a
corporate tax on domestic companies.
 In case a domestic company has an overseas branch, then the same rate would
be charged on the total earnings of the company, including domestic and overseas.
Thus, it is to be noted that corporate tax laws in India take the abroad earnings of
domestic companies into consideration as well.
Corporate Tax for Foreign Companies
A company who's not of the Indian origin and its management is situated wholly
outside India. Such corporations are not registered under the Companies Act, 2013.
Therefore, the taxation system for such companies is different from domestic
companies. The taxation system in case of foreign corporates depends upon the tax
agreement between India and the origin country of such foreign company.
Income Tax Rate
Any royalty or fee for technical services 50%
received by a foreign company from an Indian
concern or Indian government as per any
agreement made before April 1, 1976 which is
approved by the central government.
Any other income 40%
 A surcharge of 2% is levied if the income is between ₹ 1 crore to ₹ 10 crores. In case
it exceeds ₹ 10 crores then the applicable surcharge is 5%.
Corporate Tax Rebates
There are various provisions in the income tax law which provides rebates and
deductions to the companies in the process of calculating their income for corporate
tax. Some of the key rebates and deductions are:
 Some interest income received by domestic companies is deductible from the
profit calculated for corporate tax.
 In case the company has set up new infrastructure or sources of power, then
those are subject to deduction.
 The company can carry forward the losses incurred for a maximum of 8 years.
 In case a domestic company receives a dividend from another domestic
company.
 The capital gain earned by corporate entities is not taxed.
 In case of export and new undertakings, deductions are allowed in some cases.
Corporation Tax Planning
Corporate Tax Planning means strategizing the financials of the corporation to
minimize tax outgo and maximize profits. This objective is achieved by better
utilizing the available exemptions, rebates and deductions. Effective tax planning is
tricky and sometimes risky as well; that is why corporates hire professionals for this
task. These professionals are well-tuned with various provisions of the tax, and they
keep themselves updated with the latest developments with regards to rules and
regulation of the corporate tax.
An important aspect to understand here is, tax planning is not tax evasion. Tax
evasion is against the law while tax planning is about strategizing the financials of the
company in such a way that the resultant tax payable is less and profit is more within
the frame of tax laws. Thus, the corporation must be in line with the tax laws and well
versed with financial laws and rules set up by the Indian Government.
Dividend Distribution Tax
A dividend is the distribution of profits by the company to its shareholders. Dividend
Distribution Tax (DDT) is charged on the distributions of such profits. The profits are
distributed by the corporate after deducting the corporate tax, which is levied on the
 net profit of the company. Currently, the dividend distribution tax is payable in the
hands of the company at an effective rate of 17.65%.
Tax on Dividend Income
The Dividend Distribution tax is to be removed from F.Y. 2022. Thus the current
assessment year is the last year for the applicability of Dividend Distribution Tax.
FAQs
✅What is corporation tax in India?
The corporation tax in India is the tax levied on the net profits of the company after
deducting applicable expenses and deductions.
✅What is a corporation tax rate?
The corporation tax rate for domestic companies with turnover upto ₹ 250 crores is
25%, and for companies with a turnover above ₹ 250 crore is 30%.
✅What is the difference between income tax and corporate tax?
Income tax is levied on the income of individuals. In contrast, corporate tax is levied
on the income of companies which are formed under the Companies Act, 2013 or any
previous company law.
✅How do I calculate my corporation tax?
The net profit of the corporation after paying interest on debts is multiplied with the
tax rate to arrive at the payable corporation tax amount.
✅How much tax do I pay as a limited company?
The amount of tax you have to pay as a limited company depends solely on the
amount of net profit for the concerned financial year.
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 7th Pay Commission Pay Matrix
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 TAX DEDUCTION AT SOURCE

What is TDS?
Tax Deducted at Source is a system introduced by Income Tax Department, where the
person responsible for making specified payments such as salary, commission,
professional fees, interest, rent, etc. is liable to deduct a certain percentage of tax
before making payment in full to the receiver of the payment. As the name suggests,
the concept of TDS is to deduct tax at its source. Let us take an example of TDS
assuming the nature of payment is professional fees on which the specified rate is
10%.
XYZ Ltd makes a payment of Rs 50,000/- towards professional fees to Mr. ABC, then
XYZ Ltd shall deduct a tax of Rs 5,000/- and make a net payment of Rs 45,000/-
(50,000/- deducted by Rs 5,000/-) to Mr. ABC. The amount of 5,000/- deducted by
XYZ Ltd will be directly deposited by XYZ Ltd to the credit of the government.
In this comprehensive guide on TDS, we are answering 15 frequently asked questions
by business owners. Check out.
 
1) What Is TAN and How to apply for TAN?
TAN stands for Tax Deduction Account Number. It is a 10 digits alphanumeric
number required to be obtained by all persons who are responsible for deducting or
collecting tax. Under Section 203A of the Income Tax Act, 1961, it is mandatory to
quote Tax Deduction Account Number (TAN) allotted by the Income Tax Department
(ITD) on all TDS returns. The procedure for the application of TAN is very simple
and can be done online by filling up Form 49B. Please refer to NSDL Site in order
to Apply For TAN.
 
2) What is the TDS Certificate?
TDS certificates are issued by the deductor (the person who is deducting tax) to the
deductee (the person from whose payment the tax is deducted). There are mainly two
types of TDS certificates issued by the deductor.
1. Form 16: which is issued by the employer to the employee incorporating
details of tax deducted by the employer throughout the year, and
2. Form 16A: This is issued in all cases other than salary.
For example, Mr. Gupta is working as a salaried employee at a company, and tax is
deducted on his salary @ 15%. The company shall provide Mr. Gupta with a Form 16
describing particulars in detail regarding the amount of salary paid and tax deducted
on the same.
However, had Mr. Gupta been working as a professional and received professional
fees from an organization that is subject to TDS, then he will be provided Form 16A
for the same.
 
3) When TDS should be deducted?
The concept of TDS is based on a simple principle i.e. tax is to be deducted at the
time of payment getting due or actual payment whichever is earlier. A set of
scenarios will be helpful in understanding the concept:
Say, ABC Private Limited has to make payment of Rs 50,000/- to Mr. XYZ in
exchange for professional services.
Scenario 1:
Mr. XYZ was paid Rs 30,000/- in advance on 15th July. XYZ raised the invoice after
completion of work on 31st July and the rest of the payment is to be made.
In such a case the company should have deducted tax in the following manner:
On 15th July: Rs 3,000/- (@ 10% on the advance of Rs 30,000/-)
On 31st July: Rs 2,000/- (@ 10% of the total invoice amount as deducted by tax
already deducted i.e. Rs 5000/- deducted by Rs 3,000/-)
 
Scenario 2:
Mr. XYZ raised the invoice on 15th July and was paid whole consideration at one go
on 31st July.
In such a whole amount of Rs 5,000/- shall be deducted on 15th July, the date when
payment got due, and a net payment of Rs 45,000/- shall be made on 31st July.
 
Scenario 3:
Mr. XYZ is to receive the whole amount of Rs 50,000/- well in advance before
completion of the assignment.
In such a particular case tax of Rs 5000/- shall be deducted right at the time of
payment of advance and no tax is to be deducted at the time of making an entry for
the bill due.
 
4) How much tax should be deducted from salary?
Persons responsible for paying salary are liable to deduct tax on estimated salary at a
prescribed rate of 15% subject to the following:
1. Exemption Limit: No tax is required to be deducted at source unless the
estimated salary exceeds the basic exemption limit.
2. Exempt allowances: Allowances such as LTC, HRA, conveyance, traveling
exempt as per prescribed limits and other perquisites not forming part of salary
should be deducted from total salary while calculating taxable salary.
3. Other deductions: Other deductions such as deductions under section 80C,
80CCC, 80CCD, 80CCG, 80D, 80DD, 80DDB, 80E, 80EE, etc. should be
considered before the calculation of tax on salary.
 
5) What is the minimum salary one should have for TDS to be deducted by the
employer?
If after comprehensive calculation of allowable allowances, taxable perquisites, and
deductions under chapter VI-A, income from salary head exceeds a sum of basic
exemption limit, then tax has to be deducted by the employer @ 15% on the amount
over and above the basic exemption limit. For example, the salary of Mr. A arrives at
Rs 2,80,000/- assuming that all the allowances, perquisites, and deductions have been
taken into consideration, tax @ 15% on Rs 30000/- (2,80,000 – 2,50,000) shall be
deducted by the employer.
Hence, provisions of TDS shall attract only if the minimum salary is above the basic
exemption limit.
 
6) What are the rates of TDS?
There are around 20-25 sections that prescribe different types of payments on which
tax is deductible at source. Here, we are going to discuss some of the most commonly
encountered nature of payments on which tax is to be deducted at source.
Rates for tax deduction at source (Updated May 2020)
In order to provide more funds at the disposal of the taxpayers for dealing with the
economic situation arising out of COVID-19 pandemic, the rates of Tax Deduction at
Source (TDS) for the following non-salaried specified payments made to residents has
been reduced by 25% for the period from 14th May, 2020 to 31st March, 2021:-
 TAX COLLECTION AT SOURCES
1.Tax collected at source (TCS)
Tax collected at source (TCS) is the tax payable by a seller which he collects from the
buyer at the time of sale. Section 206C of the Income-tax act governs the goods on
which the seller has to collect tax from the purchasers.
2. Goods covered under TCS provisions and rates applicable to them
When the below-mentioned goods are utilized for the purpose of manufacturing,
processing, or producing things, the taxes are not payable. If the same goods are
utilized for trading purposes then tax is payable. The tax payable is collected by the
seller at the point of sale.
The rate of TCS is different for goods specified under different categories :

Edit

Type of Goods

Liquor of alcoholic nature, made for consumption by humans

Timber wood under a forest leased

 Tendu leaves

Timber wood by any other mode than forest leased

A forest produce other than Tendu leaves and timber

Scrap

Minerals like lignite, coal and iron ore

Bullion that exceeds over Rs. 2 lakhs/ Jewellery that exceeds over Rs. 5 lakhs

Purchase of Motor vehicle exceeding Rs. 10 Lakhs

Parking lot, Toll Plaza and Mining and Quarrying

3. Classification of Sellers and Buyers for TCS
A. There are some specific people or organizations who have been classified as sellers
for tax collected at source. No other seller of goods can collect tax at source from the
buyers apart from the following list :
1. Central Government
2. State Government
3. Local Authority
4. Statutory Corporation or Authority
5. Company registered under Companies Act
6. Partnership firms
7. Co-operative Society
8. Any person or HUF who is subjected to an audit of accounts under Income tax act
for a particular financial year.
B. A buyer is a person who obtains goods of specified nature in any sale or right to
receive any such goods, by way of auction, tender or any other mode.
However, the below buyers are exempted from collection of tax at source.
1. Public sector companies
2. Central Government
3. State Government
4. Embassy of High commision
5. Consulate and other Trade Representation of a Foreign Nation
6. Clubs such as sports clubs and social clubs
4. TCS Payments & Returns
a. The dates for paying TCS to the government are :

Collection Month Quarter Ending Due date of Payment Due Date

April 30th June 7th May 15th July

May 7th June

June 7th July

July 30th September 7th August 15th October

August 7th September

September 7th October

October 31st December 7th November 15th January

November 7th December

December 7th January

January 31st March 7th February 15th May

February 7th March

March 7th April

*All sums collected by an office of the Government should be deposited on the
same day of collection.
b. The seller deposits the TCS amount in Challan 281  within 7 days from the last day
of the month in which the tax was collected.
c. Note: If the tax collector responsible for collecting the tax and depositing the same
to the government does not collect the tax or after collecting doesn’t pay it to the
government as per above due dates, then he will be liable to pay interest of 1% per
month or a part of the month
d. Every tax collector has to submit quarterly TCS return i.e in Form 27EQ in respect
of the tax collected by him in a particular quarter. The interest on delay in payment of
TCS to the government should be paid before filing of the return.
5. Certificate of TCS
1. When a tax collector files his quarterly TCS return i.e  Form 27EQ, he has to
provide a TCS certificate to the purchaser of the goods.
2. Form 27D is the certificate issued for TCS returns filed. This certificate contains
the following details:
 a. Name of the Seller and Buyer
b. TAN of the seller i.e who is filing the TCS return quarterly
c. PAN of both seller and buyer
d. Total tax collected by the seller
e. Date of collection
f. The rate of Tax applied
3. This certificate has to be issued within 15 days from the date of filing TCS
quarterly returns. The due dates are:

Quarter Ending Date for generating

For the quarter ending on 30th June 30th July

For the quarter ending on 30th September 30th October

For the quarter ending on 31st December 30th January

For the quarter ending on 31st March 30th May

In case you are still confused about filing TCS returns, feel free to consult the tax
experts at ClearTax.

6. TCS Exemptions
Tax collection at source is exempted in the following cases :
1. When the eligible goods are used for personal consumption
2. The purchaser buys the goods for manufacturing, processing or production and not
for the purpose of trading of those goods.
 ADVANCE TAX OF PAYMENT
hink of this tax as an EMI to the tax department, which you pay before the end of the
financial year
 Advance tax is the income tax payable if your tax liability is more than Rs
10,000 in a financial year
 Any amount paid up to March 31 will also be accepted as advance tax for that
financial year
 Individuals may pay advance tax using tax payment challans at bank branches
authorised by the Income Tax (I-T) Department

If you have been tracking the news, every now and then there is statistics around the
advance tax collection that gets mentioned. The reason for this figure to be indicative
of the final tax collection is which in turn tells about the direct tax collection in the
said financial year. The indicators are also good for banks and finance companies as
the number helps in predicting liquidity requirements, stock analysts monitor it to
forecast quarterly results from companies, and economists scan it to map the
economy.
What is it?
As the name suggests, advance tax refers to paying a part of your taxes before the end
of the financial year. Also called ‘pay-as-you-earn’ scheme, advance tax is the income
tax payable if your tax liability is more than Rs 10,000 in a financial year. It should be
paid in the year in which the income is received. By paying in advance, you help the
government and also yourself by not finding it hard to pay the whole tax at one go at
the end. This way, if your advance tax liability for the financial year 2017-18 has
exceeded Rs 10,000, you are expected to pay it in the same financial year.
The deadlines are: at least 15 per cent of the liability on or before June 15, 45 per cent
by September 15, not less than 75 per cent by December 15 and the whole amount of
the tax calculated, by March 15 of each financial year. If the estimate of one’s income
changes as the instalments progress, the advance tax payable can be increased or
reduced accordingly. Any amount paid up to March 31 will also be accepted as
advance tax for that financial year.
Payment of advance tax: Self-employed and businessmen
Due date of instalment Amount payable
On or before 15th September Not less than 30% of the advance tax liabilit
On or before 15th December Not less than 60% of the advance tax liabilit
On or before 15th March 100% of the advance tax liability
Payment of advance tax: Companies
Due date of instalment Amount payable
On or before 15th June Not less than 15% of the advance tax liabilit
On or before 15th September Not less than 45% of the advance tax liabilit
On or before 15th December Not less than 75% of the advance tax liabilit
On or before 15th March 100% of the advance tax liability
 
So, if you are a salaried employee, you need not pay advance tax as your employer
deducts tax at source (TDS). Advance tax is applicable when an individual has
sources of income other than his salary. For instance, if an assessee earns income via
capital gains on shares, interest on fixed deposits, winnings from lottery or races,
capital gains on house property besides his regular business or salaried income then
after adjusting for expenses or losses he needs to pay advance tax. Even if you are
salaried, the advance tax is payable even by salaried employees on their other income.
While employers deduct TDS on salaries, advance tax is paid on income that is not
subject to TDS. Professionals (self-employed) and businessmen will have to pay taxes
in advance as, given their business income, the liability can be huge. The same
implies for companies and corporates.
How to file Advance Tax?
Individuals may pay advance tax using tax payment challans at bank branches
authorised by the Income Tax (I-T) Department. It can be deposited with the Reserve
Bank of India and all the other authorised banks. There are 926 branches in India that
can accept advance tax payments. Individuals may also pay it online through the I-T
department or the National Securities Depository.
Do not worry if you miss the deadline, because if you fail to pay or the amount you’ve
paid is less than the mandated 30% of the total liability by the first deadline (15
September), you will need to pay an interest. This is computed @ 1% simple interest
per month on the defaulted amount for three months. The same interest penalty would
apply if you fail to pay the second deadline (15 December). Failing to pay the third
and last deadline (15 March) would mean paying 1% simple interest on the defaulted
amount for every month until the tax is fully paid.
And in case you land up paying a higher advance tax than you ought to, you will
receive the excess amount as a refund. Interest @ 6% per annum will be paid by the
Income Tax department to the assessee on the excess amount if the amount is more
than 10% of tax liability.
Try to treat advance tax as an EMI to the tax department, which eventually helps you
pay your income tax without being stressed about it. Likewise, use the payment of
advance tax as an opportunity to stay a step ahead of your tax liabilities, so that you
are not left worrying over how much you owe to the tax department at the end of the
year, you also save yourself from paying penalties for not paying the taxes in advance.
Moreover, you could contribute in your own small way towards nation building even
as the government receives the advance tax money from you, which in turn is used
towards infrastructure development of the country.
 TAX PLANNING IN RESPECT OF MANAGERIAL
The responsibility to ensure the success of a company’s affairs lays on its directors i.e
the people at the helm of affairs of the company. They need to make efforts in a
collective manner while ensuring the best interest of the shareholders and
stakeholders. Since, the future of the company depends on the abilities of the directors
the company must carefully consider their appointment, remuneration and other
related matters.
Remuneration’ means any money or its equivalent given to any person for services
rendered by him and includes the perquisites mentioned in the Income-tax Act, 1961.
Managerial remuneration in simple words is the remuneration paid to managerial
personals. Here, managerial personals mean directors including managing director
and whole-time director, and manager.

 What is the permissible managerial remuneration payable under the

Companies Act 2013?
 Total managerial remuneration payable by a public company, to its directors,
managing director and whole-time director and its manager in respect of any
financial year:

Condition Max Remuneration in any financial yea

Company with one Managing director/whole time 5% of the net profits of the company
director/manager

Company with more than one Managing director/whole 10% of the net profits of the company
time director/manager

Overall Limit on Managerial Remuneration 11% of the net profits of the company

Remuneration payable to directors who are neither managing directors nor whole-time directo

For directors who are neither managing director or 1% of the net profits of the company if th
whole-time directors director/whole time director

If there is a director who is neither a Managing 3% of the net profits of the company if th
director/whole time director director/whole time director
The percentages displayed above shall be exclusive of any fees payable under section
197(5).
Until now, any managerial remuneration in excess of 11% required government
approval. However, now a public company can pay its managerial personnel
remuneration in excess of 11% without prior approval of the Central Government. A
special resolution approved by the shareholders will be sufficient.
In case a company has defaulted in paying its dues or failed to pay its dues,
permission from the lenders will be necessary.
 When the company has inadequate profits/no profits: In case a company
has inadequate profits/no profits in any financial year, no amount shall be
payable by way of remuneration except if these provisions are followed.
 

Where the effective capital is: Limits of yearly remuneration

Negative or less than 5 Crores 60 Lakhs

5 crores and above but less than 100 Crores 84 Lakhs

100 Crores and above but less than 250 Crores 120 Lakhs

250 Crores and above 120 Lakhs plus 0.01% of the effective capital in ex
Please Note:
These restrictions do not apply to the sitting fees of the directors (managing director,
whole time director/manager).
 Remuneration in excess of the aforementioned limits may be paid only if a
special resolution is passed by the shareholders.
 Remuneration as per the above limits may be paid if:
o A managerial personnel is functioning in a professional capacity
o The managerial person does not have an interest in the capital of the
company/holding company/subsidiary company either directly, or
indirectly, or through any statutory structures*
o The managerial person does not have a direct/indirect interest or
related to the directors /promoters of the company/holding
company/subsidiary company any time during the last 2 years either
before/on/after the date of appointment
 o He/she is in possession of a graduate level qualification along with
expertise and specialized knowledge in the field in which the company
mainly operates.
*If any employee holds less than 0.5% of the company’s paid-up capital under any
scheme (including ESOP) or by way of qualification, for this purpose he/she is
considered to not have interest in the share capital of the company.
3. Important Pointers
1. Determination of Remuneration: The remuneration payable to the director
shall be determined by:
 The articles of the company
 A resolution
 Special resolution if articles require it to be passed in the general meeting
1. The remuneration payable as per these rules shall also include the
remuneration payable to the personals working in any other capacities.
However, if the services are rendered in professional a capacity and if the
nomination and remuneration committee/Board of directors believes that the
director possesses the necessary qualification for the practice of the
profession, exceptions are possible.
2. Fees to directors: The directors may receive fees for attending meetings and
such fees cannot exceed the limits prescribed. Different fees for different
classes of companies may be as prescribed.
3. The fees can be paid:
a. Monthly
b. As a Specified Percentage of the Net Profits yearly
c. Partly by method (a) and partly by method(b)
4. Remuneration of independent directors: An Independent director shall be
entitled to a sitting fees, a reimbursement for participation in meetings and
profit related commission as approved by Board. However, he shall not be
entitled to ESOP.
5. Excess Remuneration to be refunded: If any director receives any
remuneration in excess of the provisions of law, the same shall be refunded to
the company or kept in trust for the company. Such recovery shall not be
waived unless permitted by the Central Government.
 6. Disclosure by a listed company: Every listed company shall disclose the ratio
of the remuneration paid and the median employee’s remuneration along with
other prescribed details.
7. Insurance: When the company insures its personnel by providing protection
against any act done by them due to negligence, default, misfeasance, breach
of duty, breach of trust, such the premium paid for this insurance shall not be
treated as part of remuneration except if the director is proved guilty.
8. Any managing director/whole time director receiving commission from the
company may also receive a remuneration or commission from the holding or
subsidiary of such a company provided the same is disclosed in the board’s
report
Penalty
Any person who contravenes these provisions shall be punishable with a minimum
fine of Rs.1 Lakh and a maximum fine of Rs. 5 Lakhs.
 TAX PLANNING IN RESPECT OF FOREIGN INCOME
You are considered an Indian resident for a financial year: i. When you are in India
for at least 6 months (182 days to be exact) during the financial year ii. You are in
India for 2 months (60 days) for the year in the previous year and have lived for one
whole year (365 days) in the last four years If you are an Indian citizen working
abroad or a member of a crew on an Indian ship, only the first condition is available to
you – which means you are a resident when you spend at least 182 days in India. The
same is applicable to a Person of Indian Origin (PIO) who is on a visit to India. The
second condition is not applicable to these individuals. A PIO is a person whose
parents, or any of his grandparents were born in undivided India.   You are an NRI if
you do not meet any of the above conditions. For FY 2019-20 if an individual has
come to India on a visit before 22nd March, 2020 and a) has been unable to leave
because of lockdown on or before 31st March, 2020, period of stay from 22nd to 31st
March shall not be considered. b) has been quarantined due to Covid19 on or after 1st
March, 2020 and departed on evacuation flight on or before 31st March, 2020 or
unable to leave India his period of stay from the beginning of quarantine to 31st
march shall not be considered. c) has been departed on a evacuation flight on or
before 31st March, 2020, period of stay from 22nd March 2020 to date of departure
shall not be considered
 a. Is My Income Earned Abroad Taxable?
b. Am I Required to File My Income Tax Return in India?
c. When is the Last Date to File Income Tax Return in India?
d. Do NRIs Have to Pay Advance Tax?
a. Is My Income Earned Abroad Taxable?
An NRI’s income taxes in India will depend upon his residential status for the year. If
your status is ‘resident,’ your global income is taxable in India. If your status is ‘NRI,’
your income which is earned or accrued in India is taxable in India. Salary received in
India or salary for service provided in India, income from a house property situated in
India, capital gains on transfer of asset situated in India, income from fixed deposits
or interest on savings bank account are all examples of income earned or accrued in
India. These incomes are taxable for an NRI. Income which is earned outside India is
not taxable in India. Interest earned on an NRE account and FCNR account is tax-
free. Interest on NRO account is taxable for an NRI.
b. Am I Required to File My Income Tax Return in India?
NRI or not, any individual whose income exceeds Rs.2,50,000 is required to file an
income tax return in India.  
Case Study:
Srishti lives and works in the USA. She checked her Form 26AS online and found out
that a TDS entry of Rs 20,000 is mentioned. This TDS had been deducted at 30% on
interest earned by her in her NRO account. Srishti has no other income in India.
Does Srishti have to pay any tax in India, and is she required to file an income
tax return?
Whether your income will be taxed in India or not, depends upon your residential
status. First, let's find out Srishti's residential status. She is an Indian citizen and has
gone to the US for her job - she will be a resident if she spends 182 days or more in
India. Srishti left India on 3rd July 2017 and came back to India on 15th March 2018.
Therefore in the financial year that begins on 1st April 2017 and ends on 31st March
2018, Srishti has spent less than 182 days in India. Since she is an Indian citizen on
employment abroad, to qualify as a resident she must spend 182 days or more in
India. Therefore, Srishti is an NRI for the purpose of income tax in India. For Srishti,
only her income which is earned or accrued in India shall be taxable in India. Her
income in the USA is not taxable in India since she is an NRI. Interest earned in India
is taxable for an NRI. (Do note that interest on NRO account is taxable whereas
interest earned on NRE account is exempt from tax). Srishti needs to add up all the
income she has earned in India. The interest earned on the NRO account of Rs 70,000
is Srishti's only income. For FY 2017-18, the minimum income which is exempt from
tax is Rs 2.5 lakhs. Srishti's total income in India is less than the minimum exempt
amount, and therefore she does not have to pay any tax on it. In fact, since no tax is
payable by her, she must claim a refund of the TDS deducted on her interest income.
A refund can only be claimed by filing an income tax return for that financial year.
c. When is the Last Date to File Income Tax Return in India?
July 31st is the last date to file income tax return in India for NRIs.
d. Do NRIs Have to Pay Advance Tax?
If your tax liability exceeds Rs 10,000 in a financial year, you are required to pay
advance tax. Interest under Section 234B and Section 234C is applicable when you
don't pay your advance tax.
2. Taxable Income for an NRI
Your salary income is taxable when you receive your salary in India or someone does
on your behalf. Therefore, if you are an NRI and you receive your salary directly to an
Indian account it will be subject to Indian tax laws. This income is taxed at the slab
rate you belong to.
a.  Income from Salary
b.  Income from House Property
c.  Rental Payments to an NRI
d.  Income from Other Sources
e.  Income from Business and Profession
f. Income from Capital Gains
g.  Special Provision Related to Investment Income
h. What are the Investments that Qualify for Special Treatment?
i.  Special Provision Related to Long-Term Capital Gains
j.  Would you Like a Tax Expert to Help You With Your IT Returns?
a. Income from Salary
Income from salary will be considered to arise in India if your services are rendered in
India. So even though you may be an NRI, but if your salary is paid towards services
provided by you in India, it shall be taxed in India immaterial of where you are
receiving the income. In case your employer is Government of India and you are the
citizen of India, income from salary, if your service is rendered outside India is also
taxed in India. Note that income of Diplomats, Ambassadors are exempt from
tax. Ajay was working in China on a project from an Indian company for a period of 3
years. Ajay needed the salary in India to take care of the needs of his family and make
payments towards a housing loan. However, since salary received by Ajay in India
would have been taxed as per Indian laws, Ajay decided to receive it in China.
b. Income from House Property
Income from a property which is situated in India is taxable for an NRI. The
calculation of such income shall be in the same manner as for a resident. This
property may be rented out or lying vacant. An NRI is allowed to claim a standard
deduction of 30%, deduct property taxes, and take benefit of an interest deduction if
there is a home loan. The NRI is also allowed a deduction for principal repayment
under Section 80C. Stamp duty and registration charges paid on the purchase of a
property can also be claimed under Section 80C. Income from house property is taxed
at slab rates as applicable. Nandini owns a house property in Goa and has rented it out
while she lives in Bangkok. She has set up the rent payments to be received directly in
her bank account in Bangkok. Nandini's income from this house which is in India
shall be taxable in India.
c. Rental Payments to an NRI
A tenant who pays rent to an NRI owner must remember to deduct TDS at 30%. The
income can be received to an account in India or the NRI's account in the country he
is currently residing. Maria pays a monthly rent of Rs30,000 to her NRI landlord. She
must deduct 30% TDS or Rs 9,000 before transferring the money to the landlord's
account. Maria must also get a Form 15CA prepared and submit it online to the
Income Tax Department. A person making a remittance (a payment) to a Non-
Resident Indian has to submit Form 15CA. This form has to be submitted online. In
some cases, a certificate from a chartered accountant in Form 15CB is required before
uploading Form 15CA online. In Form 15CB, a CA certifies details of the payment,
TDS rate, and TDS deduction as per Section 195 of the Income Tax Act, if any
DTAA (Double Tax Avoidance Agreement) is applicable, and other details of nature
and purpose of the remittance. Form 15CB is not required when:
i. Remittance does not exceed Rs 5,00,000 (in total in a financial year). Only Form
15CA has to be submitted in this case.
ii. If lower TDS has to be deducted and a certificate is received under Section 197 for
it or lower TDS has to be deducted by order of the AO.
iii. Neither is required if the transaction falls under Rule 37BB of the Income Tax Act,
where it lists 28 items. Check out the entire list here.
In all other cases, if there is a remittance outside India, the person who is making the
remittance will take a CA's certificate in Form 15CB and after receiving the certificate
submit Form 15CA to the government online.
d. Income from Other Sources
Interest income from fixed deposits and savings accounts held in Indian bank
accounts is taxable in India. Interest on NRE and FCNR account is tax-free. Interest
on NRO account is fully taxable.
e. Income from Business and Profession
Any income earned by an NRI from a business controlled or set up in India is taxable
to the NRI.
f. Income from Capital Gains
Any capital gain on transfer of capital asset which is situated in India shall be taxable
in India. Capital gains on investments in India in shares, securities shall also be
taxable in India. If you sell a house property and have a long-term capital gain, the
buyer shall deduct TDS at 20%. However, you are allowed to claim capital gains
exemption by investing in a house property as per Section 54 or investing in capital
gain bonds as per Section 54EC.
g. Special Provision Related to Investment Income
When an NRI invests in certain Indian assets, he is taxed at 20%. If the special
investment income is the only income the NRI has during the financial year, and TDS
has been deducted on that, then such an NRI is not required to file an income tax
return.
h. What are the Investments that Qualify for Special Treatment?
Income derived from the following Indian assets acquired in foreign currency:
i. Shares in a public or private Indian company
ii. Debentures issued by a publicly-listed Indian company (not private)
iii. Deposits with banks and public companies
iv. Any security of the central government
v. Other assets of the central government as specified for this purpose in the official
gazette
No deduction under Section 80 is allowed while calculating investment income.
i. Special Provision Related to Long-Term Capital Gains
For long-term capital gains made from the sale of transfer of these foreign assets,
there is no benefit of indexation and no deductions allowed under Section 80. But you
can avail an exemption on the profit under Section 115 F when the profit is reinvested
back into:
i. Shares in an Indian company
ii. Debentures of an Indian public company
iii. Deposits with banks and Indian public companies
iv. Central Government securities
v. NSC VI and VII issues
In this case, capital gains are exempt proportionately if the cost of the new asset is
less than net consideration. Remember, if the new asset purchased is transferred or
sold back within 3 years, then the profit exempted will be added to the income in the
year of sale/transfer. The benefits above may be available to the NRI even when
he/she becomes a resident - until such an asset is converted to money, and upon
submission of a declaration for the application of the special provisions to the
assessing officer by the NRI. The NRI may choose to opt out of these special
provisions and in that case the income (investment income and LTCG) will be
charged to tax under the usual provisions of the Income Tax Act.
j. Would you Like a Tax Expert to Help You With Your IT Returns?
Get help on your income taxes and tax filing from us. The experts can prepare your
tax return and e-file within 48 hours. Plans start at Rs. 3,100 for NRI. GET AN
EXPERT
3. Deductions and Exemptions for NRIs
Similar to residents, NRIs are also entitled to claim various deductions and
exemptions from their total income. These have been discussed here:
a. Deductions Under Section 80C
b. Deductions allowed to NRIs under Section 80C
a. Deductions Under Section 80C
Most of the deductions under Section 80 are also available to NRIs. For FY 2019-20,
a maximum deduction of up to Rs 1.5 lakhs is allowed under Section 80C from gross
total income for an individual.
b. Of the Deductions Under Section 80C, those allowed to NRIs are:
i. Life insurance premium payment: The policy must be in the NRI's name or in the
name of their spouse or any child's name (child may be dependent/independent,
minor/major, or married/unmarried). The premium must be less than 10% of sum
assured.
ii. Children's tuition fee payment: Tuition fees paid to any school, college,
university or other educational institution situated within India for the purpose of full-
time education of any two children (including payments for play school, pre-nursery
and nursery).
iii. Principal repayments on loan for the purchase of a house property: Deduction
is allowed for repayment of loan taken for buying or constructing residential house
property. Also allowed for stamp duty, registration fees and other expenses for
purpose of transfer of such property to the NRI.
iv. Unit-linked insurance plan (ULIPS): ULIPS is sold with life insurance cover for
deduction under Section 80C. Includes contribution to unit-linked insurance plan of
LIC mutual fund e.g. Dhanraksha 1989 and contribution to other units -linked
insurance plan of UTI.
v. Investments in ELSS: ELSS has been the most preferred option in recent years as
it allows you to claim a deduction under Section 80C upto Rs 1.5 lakhs, it offers the
EEE (Exempt-Exempt-Exempt) benefit to taxpayers and simultaneously offers an
excellent opportunity to earn as these funds invest primarily in the equity market in a
diversified manner.
4. Other Allowable Deductions
Besides the deduction that an NRI can claim under Section 80C, he is also eligible to
claim various other deductions under the Income tax laws which have been
discussed here:
a. Deduction from House Property Income for NRIs
b. Deduction under Section 80D
c. Deduction under Section 80E
d. Deduction under Section 80G
e. Deduction under Section 80TTA
f. Deductions not Allowed to NRIs
g. Investment under RGESS (Section 80CCG)
 h. Deduction for the Differently-Abled under Section 80DD
i. Deduction for the Differently-Abled under Section 80DDB
j. Deduction for the Differently-Abled under Section 80U
k. Exemption on Sale of Property for an NRI
l. How are You Taxed When You are a…
m. Income Tax Filing for Foreign Nationals
a. Deduction from House Property Income for NRIs
NRIs can claim all the deductions available to a resident from income from house
property for a house purchased in India. Deduction towards property tax paid and
interest on home loan deduction is also allowed. You can read about house property
income in detail here.
b. Deduction under Section 80D
NRIs are allowed to claim a deduction for premium paid for health insurance. This
deduction is available up to Rs 30,000 ( increased to Rs 50,000 effective 1 April
2018) for senior citizens and up to Rs 25,000 in other cases for insurance of self,
spouse, and dependent children. Additionally, an NRI can also claim a deduction for
insurance of parents (father or mother or both) up to Rs30,000 (raised to Rs 50,000
effective 1 April 2018) if their parents are senior citizens, and Rs 25,000 if the parents
are not senior citizens. Beginning FY 2012-13, within the existing limit a deduction of
up to Rs 5,000 for preventive health check-ups are also available.
c. Deduction under Section 80E
Under this Section, NRIs can claim a deduction of interest paid on an education loan.
This loan may have been taken for higher education for the NRI, or NRI's spouse or
children or for a student for whom the NRI is a legal guardian. There is no limit on
the amount which can be claimed as a deduction under this Section. The deduction is
available for a maximum of 8 years or till the interest is paid, whichever is earlier.
The deduction is not available on the principal repayment of the loan.
d. Deduction under Section 80G
NRIs are allowed to claim a deduction for donations for social causes under Section
80G. Here are all the donations which are eligible under Section 80G.
e. Deduction under Section 80TTA
Non-resident Indians can claim a deduction on income from interest on savings bank
account up to a maximum of Rs 10,000 like resident Indians. This is allowed on
deposits in savings account (not time deposits) with a bank, co-operative society or
post office and is available starting FY 2012-13.
f. Deductions not Allowed to NRIs
Some Investments under Section 80C:
i. Investment in PPF is not allowed (NRIs are not allowed to open new PPF accounts,
however, PPF accounts which are opened while they are a resident are allowed to be
maintained)
ii. Investments in NSCs
iii. Post office 5-year deposit scheme
iv. Senior citizen savings scheme
g. Investment under RGESS (Section 80CCG)
Deduction under Section 80CCG or Rajiv Gandhi Equity Savings Scheme was
introduced in effective assessment year 2013-14. The main purpose behind this
deduction was to increase retail investor participation in equity markets. Upon
satisfaction of certain conditions the deduction allowed is lower of 50% of the amount
invested in equity shares or Rs 25,000. This deduction is not available to NRIs. No
deduction under this section shall be allowed in respect of any assessment year
commencing on or after the 1st day of April, 2018.
h. Deduction for the Differently-Abled under Section 80DD
Deduction under this Section is allowed for maintenance including medical treatment
of a handicapped dependent (a person with a disability as defined in this Section) is
not available to NRIs.
i. Deduction for the Differently-Abled under Section 80DDB
Deduction under this Section towards medical treatment for a dependent who is
disabled (as certified by a prescribed specialist) is available only to residents.
j. Deduction for the Differently-Abled under Section 80U
Deduction for disability where the taxpayer himself suffers from a disability as
defined in the Section is allowed only to resident Indians.
k. Exemption on Sale of Property for an NRI
 

Long-term capital gains (when the property is held for more than 3 years) is taxed at
20%. Do note that long-term capital gains earned by NRIs are subject to a TDS of
20%.
NRIs are allowed to claim exemptions under Section 54, Section 54 EC, and Section
54F on long-term capital gains. Therefore, an NRI can take benefit of the exemptions
from capital gains at the time of filing a return and claim a refund of TDS deducted on
Capital Gains. Exemption under Section 54 is available on long-term capital gains on
sale of a house property. Exemption under Section 54F is available on sale of any
asset other than a house property. Read more about Section 54.
Exemption is also available under Section 54EC when capital gains from sale of
the first property is reinvested into specific bonds.
i. If you are not very keen to reinvest your profit from sale of your first property into
another one, then you can invest them in bonds for up to Rs.50 lakhs issued by
National Highway Authority of India (NHAI) or Rural Electrification Corporation
(REC). ii. The homeowner has 6 months' time to invest the profit in these bonds,
although to be able to claim this exemption, you will have to invest before the tax
filing deadline. iii. The money invested can be redeemed after 3 years, but cannot be
sold before the lapse of 3 years from the date of sale. With effect from the FY 2018-
2019, the period of 3 years has been increased to 5 years. iv. With effect from FY
2018-19, the exemption under section 54EC has been restricted to the capital gain
arising from the transfer of long term capital assets being land and building or both.
Earlier, the exemption was available on transfer on any capital assets. The NRI must
make these investments and show relevant proof to the buyer to get no TDS deducted
on the capital gains. The NRI can also claim excess TDS deducted at the time of
return filing and claim a refund.
l. How are You Taxed When You are a...
i. Resident Individual on a Temporary Foreign Assignment
Rahul worked out of Singapore on a temporary assignment for 4 months and earned in
Singaporean Dollars during that time. He got this income credited to a bank account
here in India. He has returned back home now. How should he file his income tax
return? Rahul's taxes for this year will depend on his residential status. Since Rahul
has not been outside of India for more than 182 days, he will be considered a resident.
He will be required to file his income taxes in India this year. This will also include
his salary earned during the foreign assignment in Singapore. If the assignment
extends to more than 182 days, Rahul's residential status will change and he will be
required to pay taxes only on the Indian income earned thus far. Here, note that
Rahul's foreign income credited to an Indian bank account is taxable in India.
ii. Resident Individual recently moved abroad
Prashant moves to the US on a new assignment. He gets his US income credited to an
NRE account in India. He continues with his FD investments and has some money put
away in a savings account in India. He just received Form 16 from his Indian
employer. Should he file his returns this year in India? NRI or not, every individual
must file a tax return if their income exceeds Rs 2,50,000. But note that NRIs are only
taxed for income earned/collected in India. So, Rahul will pay taxes on income earned
while in India, and income accrued from FDs and savings account.

Prashant's income from India

Income from Indian employer Rs 3,00,000

Interest income from FDs Rs 25,000

 Bank account savings interest Rs 4,500

Gross total income Rs 3,29,500

Deductions

Section 80C - PPF investments Rs 20,000

Section 80TTA exemption Rs 4,500

Taxable income Rs 3,05,000

Tax slab at 10% Rs 5,500

Cess at 3% Rs 165

TDS deducted by employer Rs 4,000

TDS deducted by bank Rs 4,500

Tax Refund Rs 2835

iii. Living in a Foreign Country
It's been 3 years since Arjun moved to the US. He is paid in US dollars. He has his
money invested in a savings account and FDs in India. He has bought an apartment
and gave it on rent for Rs.35,000 per month. He gifts his parents a car and transfers
Rs.10,000 every month to their account to help with their household expenses during
the year. He also transfers Rs 20,000 in his father's account to meet the cost of the
insurance policy he has purchased for his parents.

Rental Income Rs 4

Less: Standard 30% deduction under Section 24 Rs 1

Income from house property Rs 2

Income from FDs and bank account Rs 3

Gross total income Rs 3

Deduction under Section 80D Rs 2

Taxable income Rs 3
  Arjun's gift to his father and money transfer of Rs 10,000 to his mother are exempt
from tax. Regarding the insurance expenses on his parents, Rahul can claim a
deduction under Section 80D of Rs 20,000, since his father is over 65 years of age. He
will be required to file a tax return in India as his gross income exceeds Rs 2,50,000.
iv. NRI Recently Moved Back to India
Returning NRIs assume RNOR (Resident, Non-Ordinary Resident) status when: a.
You have been an NRI in 9 of the 10 financial years preceding the year of your return
b. You have lived in India for 2 years or less (729 days or less) in the last 7 financial
years The IT Department allows RNORs to continue to enjoy exemptions available to
NRIs for a period of 2 years after their return. Therefore, deposits held in foreign
currency, which are exempt for an NRI, shall be exempt to returning NRIs for 2 years.
After these 2 years, returning NRIs are treated as resident individuals.
v. A resident with Global Income
If you are a resident Indian, your global income is taxable in India. This income may
have been earned or received outside - but it shall be taxed in India. In case this
income is also taxable in another country, you can take benefit of DTAA (Double Tax
Avoidance Agreement).
CASE STUDY:
Shreya returned to India in 2010 after living in London for more than 5 years. The
French company she worked for has retained her as a consultant and sends her fees in
pounds. Her salary is credited to a bank account there, and Shreya pays tax on it in the
UK. Does Shreya Have to Pay Tax on this Income or Include it in Her Income
Tax Return in India? Shreya is a resident of India. Taxability of income in India
depends upon residential status. A resident has to pay tax on their global income. The
resident must disclose all the income earned by them from all sources and all
countries in their income tax return and pay tax on it in India. (An NRI pays tax only
on income earned or accrued in India). Therefore, all of Shreya's income, including
the fee that she earns in foreign currency will be taxable in India. Her income in
pounds shall be converted to Indian rupees for the purpose of income tax calculation
and added to her total income, which will be taxed at slab rates prescribed by the tax
department. If Shreya has already paid tax on the foreign income in the UK, she can
claim the benefit under DTAA. Based on the relevant provisions of the DTAA
between the two countries, Shreya will be saved from getting taxed twice.
  If you are a resident and have earned any income from abroad, remember to disclose
it in your income tax return.
m. Income Tax Filing for Foreign Nationals
An expatriate in India is someone who comes to live in India but is not a citizen of
India.
Read more about income tax filing for foreign nationals here
5. How can NRIs Avoid Double Taxation?
NRIs can avoid double taxation (meaning: getting taxed on the same income twice in
the country of residence and India) by seeking relief from DTAA between the two
countries. Under DTAA, there are two methods to claim tax relief - exemption
method and tax credit method. By exemption method, NRIs are taxed in only one
country and exempted in another. In tax credit method, where the income is taxed in
both countries, tax relief can be claimed in the country of residence.

6. Frequently Asked Questions

 
 When are you considered as a non-resident Indian (NRI)?
A person who is not a resident of India is considered to be a non-resident of
India (NRI). You are a resident if your stay in India for a given financial year
is : 182 days or more or 60 days or more and 365 days or more in the 4
immediately preceding previous years. In case you do not satisfy either of the
above conditions, you will be considered an NRI.
 I am an NRI. I have rental income from a flat that I own in India. I am
employed in the US and I receive salary income in the US. What income
should I offer in India?
Since you are an NRI, only the income that accrues to you in India will be
taxable. You would not be taxed on your global income. Accordingly, you will
have to pay taxes in India on the rental income from the flat situated in India.
However, you will not be liable to pay any taxes on the salary income that you
receive from the USA.
 When should an NRI file his return of income in India?
An NRI, like any other individual taxpayer, must file his return of income in
India if his gross total income received in India exceeds Rs 2.5 lakhs for any
given financial year. Further, the due date for filing return for an NRI i also 31
July of the assessment year.
  I am an NRI aged 65 years. Do I have to file a return even if my gross
total income is Rs 2.8 lakhs during a year from India?
The basic exemption of Rs 3 lakhs and Rs 5 lakhs is available only for resident
senior citizens and resident super senior citizens. Hence, as an NRI, even if
you are a senior citizen, the moment your income in India exceeds Rs 2.5
lakhs, you will be liable to file your return of income in India.
 Should taxes be deducted when payments are being made to NRIs?
Specified payments in the nature of rent, professional or technical fees etc
made to an NRI requires tax deduction at source by the individual making the
payment. The individual must obtain a TAN for himself in order to deduct
taxes at source. Further, Form 15CA (to be filed by the person making the
payment) and Form 15CB (to be obtained from a Chartered Accountant) are
also required for making payments to non-residents. Read our detailed article
on Form 15CA and 15CB for further clarity.
 Is an NRI taxable on the income he receives in India, in his country of
residence? What is the role of the Double Taxation Avoidance
Agreements (DTAA) here?
An NRI in receipt of income in India is taxable in India on such income i.e.
India as a source state has the right to tax such income. However, the country
of which such NRI is a resident, will also have a right to tax such income as it
is the residence state. In the process, the NRI will end up getting taxed twice
on the same income. To overcome this, India has entered into DTAAs with
various countries which help eliminate such double taxation by allowing the
taxpayer to claim credit for foreign taxes paid while filing their return of
income in the home country.
 I am an NRI. Will I be subject to capital gains tax if I sell a flat that I own
in India?
Yes. You will be liable for capital gains tax in India upon sale of your flat.
Further, the purchaser himself must deduct taxes on the quantum of gains you
make. The rate of tax deduction for a long term asset would be 20% while
taxes at slab rates would be deducted at source if the asset is a short term asset.

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ALL ARTICLES
1. Tax Implications for NRIs Who Want to Sell Property in India
Check out the tax Implications for NRIs who want to Sell Property in India.
Find out how much tax is payable and TDS deductible.
2. NRI Status and NRI Taxation
Know about different NRI statuses, NRI taxation and RNOR. Find out how
taxable income is calculated based on your status and who is a RNOR.
3. How to claim Tax Credit on Foreign Income of a Resident
Find out how to claim tax credit on foreign income of a resident indian. Check
out how can you include this income in your income tax return.
4. How NRIs can Claim Benefits Under DTAA
NRIs can avoid paying tax two times on the income earned in India. read on to
know more about DTAA and Find out how to do it.
5. How NRIs can claim benefits under DTAA
NRIs can avoid paying tax two times on the income earned in India. Find out
how.
6. Find out if you are an NRI or Resident or Resident but not Ordinarily
Resident (RNOR)
Residential Status Calculator for Income Tax. Your income tax liability
depends on your Residential Status. Find out whether you are an NRI or
Resident or Resident but Not Ordinarily Resident.
7. What is Rule 37BB of the Income Tax Act for an NRI
File Income Tax Returns online with ClearTax. ClearTax is fast, safe and very
easy to use. Save money. ClearTax handles all cases of Income from Salary,
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8. Income Tax for NRI
Read the guide on implications of Income Tax for NRI to know your tax
laibility and how to file your income return in India online.

 CONCLUSION
Substantial tax saving is possible by adopting a holistic, family-wide tax planning.
Do remember that your legally tax saved today is your future investment. Looking to
the size of the family as well as the type of income and the age bracket of different
family members the tax planning of the family has to take off. Also it should be
remembered that tax saving is a reality come true which is easy to implement.
Presently for the financial year 2014-2015 the exemption limit for individual or an
HUF is Rs. 2,00,000 it is high time that tax payers have a separate and independent
income-tax file for every member of the family and thus enjoy tax free income for
every member to the tune of `2,00,000. Women tax payers, moreover, will also enjoy
exemption limit of `2,00,000. Similarly, the senior citizens (age 60 to 80 years) would
really be very happy with an exemption limit of `2,50,000. However, the happiest
would be very senior persons (age above 80 years) as they would enjoy tax
exemption limit of `5,00,000.