Tax Planning through Investments

1. Tax Planning through Investments • SECTION 80-IAB • DEDUCTIONS IN RESPECT OF PROFITS AND GAINS BY AN UNDERTAKING OR ENTERPRISE ENGAGED IN DEVELOPMENT OF SPECIAL ECONOMIC ZONE. CA. Rajat Mohan B.Com(H),ACA, ACS, DISA

2. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

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

4. (B). CONDITIONS SECTION 80-IAB • Assessee is a Developer (defined as per Section 2(g) Special Economic Zones Act, 2005) developing a Special Economic Zone. • Special Economic Zone is notified on or after 1 April, 2005 under the Special Economic Zones Act, 2005. • 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. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

5. (B). CONDITIONS SECTION 80-IAB • 4.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

6. (B). CONDITIONS SECTION 80-IAB • 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 previous 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

7. (B). CONDITIONS SECTION 80-IAB • 5 Amalgamation or Demerger criteria — Where any undertaking of an Indian company which is entitled to the 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: (a) 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 (b) 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

8. (B). CONDITIONS SECTION 80-IAB • 6.Computation of profits criteria — For the purposes of computing deduction under this section profits and gains of an eligible business shall 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

9. (B). CONDITIONS SECTION 80-IAB • (7)Audit of Accounts criteria — The deduction shall not be admissible unless the accounts of the undertaking audited by an accountant 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

10. (B). CONDITIONS SECTION 80-IAB • (8)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 of such goods[1]. 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

11. (B). CONDITIONS SECTION 80-IAB • (9)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. • (10)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

12. (B). CONDITIONS SECTION 80-IAB • (11)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. • (12)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

13. (C). AMOUNT OF DEDUCTION SECTION 80-IAB Deduction allowed shall be 100% of the profits and gains derived from this eligible business for 10 consecutive assessment years. Assessee has the option to claim deduction for any 10 consecutive assessment years out of 15 years beginning from the year in which a Special Economic Zone has been notified by the Central Government. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

14. THANKYOU Your comments and suggestions are of utmost importance and are always welcomed. CA. Rajat Mohan B.Com(H), ACA, ACS, DISA MOHAN AGGARWAL & ASSOCIATES Chartered Accountants Head Office F-31 D.B. Gupta Market, Karol Bagh, New Delhi-110005 Office Phone: 011-23672609 / 23535809 Branch Office 18A, IInd Floor, North Avenue Road, West Punjabi Bagh, New Delhi-110026 office Phone: 011-47322696/97 Website: www.delhicamohan.com E-mail: rajat.mohan@icai.org