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Tax Planning through Investments

Tax Planning through Investments. SECTION 80-IB DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CERTAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS. (A). TAXPAYER CATEGORY SECTION 80-IB. This deduction is available to all categories of taxpayers.

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Tax Planning through Investments

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  1. Tax Planning through Investments SECTION 80-IB DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CERTAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS CA. Rajat Mohan B.Com(H),ACA, ACS, DISA

  2. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  3. (A). TAXPAYER CATEGORY SECTION 80-IB This deduction is available to all categories of taxpayers. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  4. (B). COMMON CONDITIONS FOR ALL THE CASES: • New Business undertaking criteria — Eligible Undertaking • shall not be formed by splitting up, or the reconstruction, of a • business already in existence. However, this condition shall not • apply in respect of an undertaking which is formed as a result of the • re-establishment, reconstruction or revival by the assessee of the • business of any such undertaking as is referred to in section 33B. • (b)New Plant and Machinery criteria — Eligible Undertaking shall not be formed by the inward transfer to a new business, of machinery or plant previously used for any purpose. • This condition shall be deemed to be complied with, if value of used machinery or plant or any part thereof transferred to a new business does not exceed 20% of the total value of the machinery or plant used in the business. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  5. (B).COMMON CONDITIONS FOR ALL THE CASES: Any machinery or plant used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled: (i) Such machinery or plant was not, at any time prior to the date of the installation by the assessee, used in India; (ii) Such machinery or plant is imported into India from any country outside India; and (iii) No deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the assessee. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  6. (B).COMMON CONDITIONS FOR ALL THE CASES: (c) Negative list of goods produced criteria — Eligible Undertaking shall manufacture or produce any article or thing not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India. However in relation to a small-scale industrial undertaking or an industrial undertaking referred in section 80-IB(4) Eligible Undertaking shall manufacture or produce any article or thing, or operates one or more cold storage plant or plants, in any part of India. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  7. (B).COMMON CONDITIONS FOR ALL THE CASES: d) Minimum no. or workers criteria — In a case where the industrial undertaking manufactures or produces articles or things, the undertaking shall employee at least following no. of workers: MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  8. (B).COMMON CONDITIONS FOR ALL THE CASES: (e) Amalgamation or Demerger criteria — Where any undertaking of an Indian company which is entitled for deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger: (i)Amalgamating or the Demerged company — No deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (ii) Amalgamated or the Resulting company — Deduction shall be admissible under this section to the amalgamated or the resulting company for the unexpired period of deduction. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  9. (B).COMMON CONDITIONS FOR ALL THE CASES: (f) Computation of profits criteria — For the purposes of computing deduction under this section profits and gains of an eligible business shall be computed on stand alone basis. In other words it should be assumed that eligible business was the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  10. (B).COMMON CONDITIONS FOR ALL THE CASES: g) Audit of Accounts criteria — The deduction shall not be admissible unless the accounts of the undertaking audited by an accountant[1] for the previous year for which the deduction is claimed. Report of such audit is to be furnished in the Form no. 10CCB duly signed and verified by such accountant. This report shall be accompanied by the Profit and Loss Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. The form shall also be accompaniedby a copy of the agreement, approval or permission, as the case may be, to carry on the activity signed or issued by the Central Government or the State Government or the local authority for carrying on the eligible business. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  11. (B).COMMON CONDITIONS FOR ALL THE CASES: (h) Inter-unit transaction at market value criteria — Where any goods or services are transacted (purchase or sale) between eligible business or any other business carried on by the assessee shall be at market value. However where the consideration for such transfer as recorded in the accounts of the eligible business does not correspond to the market value as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer had been made at the market value of such goods or services. Where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  12. (B).COMMON CONDITIONS FOR ALL THE CASES: • Transaction between closely connected assessee criteria — Where it appears to the assessing officer that, owing to the close connectionbetween the assessee carrying on the eligible business and any other person, that the business transacted between them produces more than the ordinary profits to such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived there from. • (j) Dual benefit not allowed criteria — Where any amount of profits and gains is claimed and allowed under this section, deduction to the extent of such profits and gains shall not be allowed under any other provisions of Chapter-VIA under the heading ‘C. Deductions in respect of certain incomes’. Deduction under this section shall not exceed the profits and gains of eligible business. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  13. (B).COMMON CONDITIONS FOR ALL THE CASES: • Dual benefit to member AOP/BOI not allowed criteria — Where, benefit of this deduction is given to an association of persons or a body of individuals, no deduction under this section shall again be allowed to member of the association of persons or body of individuals in relation to the share of such member. (l) Powers of Central Government criteria — Central Government may, after making inquiry, direct, by notification in the Official Gazette that the exemption conferred by this section shall not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  14. (B).COMMON CONDITIONS FOR ALL THE CASES: (m) Compulsory filing Return of Income criteria — No deduction shall be allowed to assessee under this section unless he furnishes a return of his income for such assessment year on or before the due date specified under section 139(1). In addition, the claim of this deduction shall be compulsorily made in the return of income. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  15. Case(i): Industrial undertaking (C) ADDITIONAL CONDITIONS SECTION 80-IB (a) Commencement of operations criteria — MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  16. Case (i): (D).AMOUNT OF DEDUCTION SECTION 80-IB MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  17. Case (i): (E). MEANING SECTION 80-IB • Small scale industrial undertaking means an industrial undertaking which is, as on the last day of the previous year, regarded as a small-scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  18. Case (ii): Industrial undertaking in an industrially backward State specified in the Eighth Schedule Case (ii): (C). ADDITIONAL CONDITIONS & AMOUNT OF DEDUCTION MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  19. Case (ii): Industrial undertaking in an industrially backward State specified in the Eighth Schedule MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  20. Case (ii): Industrial undertaking in an industrially backward State specified in the Eighth Schedule MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  21. Case (ii): Industrial undertaking in an industrially backward State specified in the Eighth Schedule • (E). MEANING • ‘North-Eastern Region’ means the region comprising the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  22. Case (iii): Industrial undertaking located in such industrially backward districts as the Central Government may, prescribe. (C). ADDITIONAL CONDITIONS & AMOUNT OF DEDUCTION The amount of deduction in the case of an industrial undertaking located in such industrially backward districts as the Central Government may, by notification in the Official Gazette, which shall be as follows: MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  23. Case (iii): Industrial undertaking located in such industrially backward districts as the Central Government may, prescribe. Case (iv): (D). AMOUNT OF DEDUCTION Deduction shall be 30% of the profits and gains derived from such ship for a period of 10 consecutive assessment years(including the initial assessment year) MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  24. Case (iv): Business of a ship. SECTION 80-IB (C). ADDITIONAL CONDITIONS (i)Ownership Criteria — Industrial undertaking is owned by an Indian company and is wholly used for the purposes of the business carried on by assessee. (ii) Industrial undertaking was not, prior to the date of its acquisition by an Indian company, owned and used in Indian territorial waters by a person resident in India; and (iii) Commencement of operations Criteria — Industrial undertaking is brought into use by the Indian company at any time during the period beginning on 1 April, 1991 and ending on 31 March, 1995. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  25. Case (iv) Business of a ship .SECTION 80-IB Case (iv): (D). AMOUNT OF DEDUCTION Deduction shall be 30% of the profits and gains derived from such ship for a period of 10 consecutive assessment years(including the initial assessment year). MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  26. Case (v)-I:Hotel located in a hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may, having regard to the need for development of infrastructure for tourism in any place and other relevant considerations, specify by notification in the Official Gazette. : (C). ADDITIONAL CONDITIONS (a) Ownership Criteria — Hotel is owned and carried on by a company registered in India with a paid-up capital of not less than Rs. 5,00,000. (b) Approval Criteria — Hotel is approved by the prescribed authority (Rule 18BBC). However any hotel approved by the prescribed authority before 1 April, 1999 shall be deemed to have been approved. (c) Hotel is also approved by the prescribed authority in accordance with the rules made under this Act. (d) Commencement of operations Criteria — Hotel starts functioning at any time during the period beginning on 1 April, 1990 and ending on 31 March, 1994 or beginning on 1 April, 1997 and ending on 31 March, 2001. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  27. Case (v)-I:Hotel located in a hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may, having regard to the need for development of infrastructure for tourism in any place and other relevant considerations, specify by notification in the Official Gazette. However deduction shall not be available wherein hotel located at a place within the municipal jurisdiction of Calcutta, Chennai, Delhi or Mumbai, which has started or starts functioning on or after 1 April, 1997 and before 31 March, 2001. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  28. Case (v)-I:Hotel located in a hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may, having regard to the need for development of infrastructure for tourism in any place and other relevant considerations, specify by notification in the Official Gazette. (D). AMOUNT OF DEDUCTION 50% of the profits and gains derived from the business of such hotel for a period of 10 consecutive years beginning from the initial assessment year. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  29. Case (v)-I:Hotel located in a hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may, having regard to the need for development of infrastructure for tourism in any place and other relevant considerations, specify by notification in the Official Gazette. (E). MEANING • (I)‘Hilly area’ means any area located at a height of one thousand meters or more above the sea level. • (II)‘Place of pilgrimage’ means a place where any temple, mosque, gurdwara, church or other place of public worship of renown throughout any State or States is situated. (III) ‘Rural area’ means any area other than: (i) An area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee or by any other name) or a cantonment board and which has a population of not less than 10 thousand according to the preceding census of which relevant figures have been published before the first day of the previous year; or MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  30. Case (v)-I:Hotel located in a hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may, having regard to the need for development of infrastructure for tourism in any place and other relevant considerations, specify by notification in the Official Gazette. (ii) An area within such distance not being more than fifteen kilometers from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the stage of development of such area including the extent of, and scope for, urbanization of such area and other relevant considerations specify in this behalf by notification in the Official Gazette (Notification No. SO 1013(E), dated 6-10-1999). MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  31. Case (v)-II:Any other hotel. (C). ADDITIONAL CONDITIONS (a) Ownership Criteria — Hotel is owned and carried on by a company registered in India with a paid-up capital of not less than Rs. 5,00,000; (b) Approval Criteria — Hotel is approved by the prescribed authority (Rule 18BBC). However any hotel approved by the prescribed authority before 1st April, 1999 shall be deemed to have been approved. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  32. Case (v)-II:Any other hotel. • (c) Commencement of operations Criteria — Hotel has started or starts functioning at any time during the period beginning on 1 April, 1991 and ending on 31 March, 1995 or beginning on 1 April, 1997 and ending on 31 March, 2001. • However deduction shall not be available wherein hotel located at a place within the municipal jurisdiction of Calcutta, Chennai, Delhi or Mumbai, which has started or starts functioning on or after 1 April, 1997 and before 31 March, 2001. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  33. Case (v)-II: Any other hotel. (D).AMOUNT OF DEDUCTION 30% of the profits and gains derived from the business of such hotel for a period of 10 consecutive years beginning from the initial assessment year. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  34. Case (vi): Multiplex theatre. (C). ADDITIONAL CONDITIONS (a) Owner of industrial undertaking carries on business of building, owning and operating a multiplex theatre. (b) Commencement of operations Criteria — Multiplex theatre is constructed at any time during the period beginning on 1 April, 2002 and ending on 31 March, 2005 (c) Report of an audit in Form No. 10CCBA and containing such particulars as may be prescribed (Refer Rule 18DB) and duly signed and verified by an accountant. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  35. Case (vi): Multiplex theatre. (D). AMOUNT OF DEDUCTION 50% of the profits and gains derived, from the business of building, owning and operating a multiplex theatre, for a period of 5 consecutive years beginning from the initial assessment year in any place. However deduction shall not be available where multiplex theatre is located at a place within the municipal jurisdiction of Chennai, Delhi, Mumbai or Kolkata; MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  36. Case (vi): Multiplex theatre. (E). MEANING • Multiplex theatre means a building of a prescribed area, comprising of two or more cinema theatres and commercial shops of such size and number and having such other facilities and amenities as may be prescribed. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  37. Case (vii): Any convention centre. (C). ADDITIONAL CONDITIONS • Owner of industrial undertaking carries on business of building, owning and operating a convention centre. (b) Commencement of operations Criteria — Convention centre is constructed at any time during the period beginning on 1 April, 2002 and ending on 31 March, 2005. (c) Report of an audit in Form No. 10CCBB and containing such particulars as may be prescribed and duly signed and verified by an accountant. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  38. Case (vii): Any convention centre. (D). AMOUNT OF DEDUCTION 50% of the profits and gains derived, from the business of building, owning and operating a convention centre, for a period of 5 consecutive years beginning from the initial assessment year in any place. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  39. Case (vii): Any convention centre. (E). MEANING • ‘Convention centre’ means a building of a prescribed area comprising of convention halls to be used for the purpose of holding conferences and seminars, being of such size and number and having such other facilities and amenities, as may be prescribed. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  40. Case (viii): Any company carrying on scientific research and development. (C). ADDITIONAL CONDITIONS (i) Company is registered in India. (ii) Company has the main object of scientific and industrial research and development. (iii) Company is for the time being approved by the prescribed authority at any time before 1 April, 1999. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  41. Case (viii): Any company carrying on scientific research and development. (D).AMOUNT OF DEDUCTION Amount of deduction 100% of the profits and gains of such business for a period of 5 assessment years beginning from the initial assessment year. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  42. Case (ix): Any company carrying on scientific research and development. (C). ADDITIONAL CONDITIONS (i) Company is registered in India. (ii) Company has the main object of scientific and industrial research and development. (iii) Company is for the time being approved by the prescribed authority at any time after 31 March, 2000 but before 1 April, 2007. (iv) Fulfils such other conditions as may be prescribed (Rule 18DA). MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  43. Case (ix): Any company carrying on scientific research and development. (D). AMOUNT OF DEDUCTION Amount of deduction 100%of the profits and gains of such business for a period of 10 assessment years beginning from the initial assessment year. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  44. Case (x): Undertaking produces mineral oil, natural gas. (C). AMOUNT OF DEDUCTION Deduction to an undertaking shall be 100% of the profits for a period of 7consecutive assessment years, including the initial assessment year, if such undertaking fulfils any of the following: (a) Undertaking located in North-Eastern Region has begun or begins commercial production of mineral oil before 1 April, 1997; (b) Undertaking is located in any part of India and has begun or begins commercial production of mineral oil on or after 1 April, 1997; (c) Undertaking is engaged in refining of mineral oil and begins such refining on or after 1 October, 1998 but not later than 31 March, 2012. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  45. Case (x): Undertaking produces mineral oil, natural gas. • Undertaking is engaged in commercial production of natural gas • in blocks licensed under the VIII Round of bidding for award of • exploration contracts (hereafter referred to as NELP-VIII) under the • New Exploration Licensing Policy announced by the Government of • India vide Resolution No. O-19018/22/95 ONG.DO.VL, dated 10 • February, 1999 and begins commercial production of natural gas on • or after 1 April, 2009; • (e) Undertaking is engaged in commercial production of natural gas in blocks licensed under the IV Round of bidding for award of exploration contracts for Coal Bed Methane blocks and begins commercial production of natural gas on or after 1 April, 2009. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  46. Case (x): Undertaking produces mineral oil, natural gas. However, section 80- IB (9) shall not apply to blocks licensed under a contract awarded after the 31st day of March, 2011 under the New Exploration Licencing Policy announced by the Government of India vide Resolution No. O-19018/22/95-ONG.DO.VL, dated the 10th February, 1999 or in pursuance of any law for the time being in force or by the Central or a State Government in any other manner. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  47. Case (x): Undertaking produces mineral oil, natural gas. (D). MEANING ‘North-Eastern Region’ means the region comprising the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  48. Case (xi): Developing and building housing project. (C). ADDITIONAL CONDITIONS • Undertaking is developing and building housing projects. • Housing projects are approved before 31 day of March, 2008 by a local authority. • Such undertaking has commenced or commences development and construction of the housing project on or after 1 October, 1998. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  49. Case (xi): Developing and building housing project. Development and construction of the housing project is completed within time limits as specified below: MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  50. Case (xi): Developing and building housing project. Where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority. • The project is on the size of a plot of land which has a minimum area of one acre. • Residential unit has a maximum built-up area of 1000 square feet where such residential unit is situated within the city of Delhi or Mumbai or within 25 kilometers from the municipal limits of these cities and 1500 square feet at any other place. • Built-up area of the shops and other commercial establishments included in the housing project does not exceed higher of: (a) 3% of the aggregate built-up area of the housing project; or (b) 5,000 square feet. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

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