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PRESENTATION
ON
TAX PLANNING SETTING UP OF NEW
BUSINESS
PRESENTED BY : GROUP NO.8
GROUP MEMBERS
JALPESH BAVISHI(09015)
MAYUR PATADIA(09075)
BHAVESH PATEL(09080)
MAHESH SOLANKI(09101)
MAYUR THACKER(09107)
MILAN VADHER(09114)
PINTU VAISHNAV(09115)
JAY VIDHANI(09119)
100% of the profit, derived from the industrial undertaking are allowed
as to be deduction. available up to assessment year 2009-2010.
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SEC.33AB
TEA/COFFEE/RUBBER DEVELOPMENT ACCOUNT
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CONDITIONS
CONDITION The assessee must be engaged in tea, coffee or
ONE
rubber plantation.
CONDITION It must make a deposit in special account.
TWO
CONDITION The deposit should be made within specified
THREE
time limit.
CONDITION The accounts of the assessee should be
FOUR
audited.
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AMOUNTS OF DEDUCTIONS
A sum equal to amount deposited in special account.
40% of the profit of such business computed under
the head profits and gains from business and
profession before making any deduction u/s 33AB
and before adjusting brought forward business loss
u/s 72.
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IMPORTANT POINTS
Where any deduction is claimed under this section,
no deduction shall be allowed in respect of such
amount in any other previous year.
Where a deduction is claimed and allowed under this
section to an association of person or body of
individual, no deduction shall be allowed to any
member of the association or body in respect of the
same deposit.
Any excess deposit in special account made during a
previous year is not treated as deposit made in the
next year or any other year.
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CASE
X LTD. is engaged in the business of growing and manu.
Tea in India. During the pre. Year 08-09, it deposits
Rs.100 lakh in special account and claims the same as
deduction u/s33AB (i.e., 40% of the business profit Rs.
250 lakh). During 09-10 the company withdraws Rs. 35
lakh from the special account and details are as under;
a) Rs. 25 lakh on 31/12/2009 for the purpose of the
scheme framed by the tea board,
b) Rs. 4 Lakh for other purposes on 27/01/2010.
Rs. 6 lakh is not utilized up to 31/03/2010.
Find the amount chargeable for the tax for the year
2010-11.
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SOLUTION
For the year 2010-11 Rs. 10 lakh is treated as
business income (i.e. Rs 4 lakh, being the amount
misutilised by the company + Rs. 6 lakh, being the
amount which is not utilized by the company during
09-10). Out of Rs. 10 lakh 40% (i.e. Rs. 4 lakh) is
taken as non agricultural income and 60% (i.e. Rs. 6
lakh) is deemed as agricultural income.
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1) Death of taxpayer
2) Dissolution of firm
2) Partition of HUF
-----------
3) Liquidation of company
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To whom it is
transferred
Transfer
after 8 years
Deduction will be
withdrawn
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CASE 1
Business profit of X Ltd., a tea growing and
manufacturing company, is Rs.70 lakh for the A.Y 09-10.
it deposits Rs.25 lakh in the special account for claiming
deduction u/s 33AB. It wants to claim set off of brought
forward business loss of Rs.12 lakh.
find the tax consequences .
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SOLUTION
Amount deductible for A.Y 09-10 is;
a) Rs.28 lakh (i.e. 40% of Rs.70 lakh); or
b) Rs.25 lakh (being the deposit in special a/c)
whichever is lower.
so, Rs.25 lakh is deductible
Business income
Rs.70 lakh
Less: deduction u/s 33AB
Rs.25 lakh
Net income
Rs.45 lakh
Non agricultural income (40% of Rs.45 lakh)
Less: brought forward loss
Net income
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Rs.18 lakh
Rs.12 lakh
Rs.6 lakh
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CASE 2
By withdrawing Rs.20 lakh on 20/01/2010 from the
special account X Ltd. Purchased a non depreciable
asset for Rs.18 lakh according to the scheme framed
by the tea board. The remaining amount of Rs.2 lakh
is not utilized up to 31/03/2010.
SOLUTION:
Rs.2 lakh being not utilized upto31/03/2010 will be
business income (40% of which will be taxable as non
agriculture income) for the A.Y 2010-11.
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CASE 3
The asset which is purchased for Rs.18 lakh is sold for
Rs.31 lakh on 03/12/2012.
SOLUTION:
The new asset is transfer within 8 years so the
taxable income will be;
Business income(40% of non agri. income) Rs.18 lakh
Short term capital gain (31-18)
Rs.13 lakh
Taxable income
Rs.31 lakh
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THE PROVISION OF
SECTION 35ABB
______________________________________________________________________________
______________________________________________________________________________
Cont
The payment will allowed as deduction in equal
installment over the period starting from the year in
which such payment has been made and ending in
the year in which the license comes to an end. It may
be noted that the deduction starts from the year in
which actual payment of expenditure is made
irrespective of the pervious year in which the liability
for the expenditure is incurred according to the
method of accounting regularly employed by the
assesses.
Cont
Any profit or loss on sale of telecom license
is taken into consideration while computing
business income. The relevant rules are
given below. In the table given below, WDV
is the written down of value on the first of
the previous year in which telecom license
in transferred
Tax treatment
CASE
SITUATION 1.
The payment of Rs. 18 lakh is deductible in
10 installments over a period of 10 years
from the previous years 2009-10 to 201819 (The amount deductible each year being
Rs 1.8 lakh)
SITUATION 2.
The payment is deductible in 9 years
starting from the year of payment, I.e., the
previous year 2010-11 and ending with the
previous year 2018-19 (The amount
deductible each year being Rs 2 lakh)
SITUATION 3.
The entire payment is made in three installments.
Deduction under section 35ABB is available as underDate of payment
Period during which
deduction is available
Amount of payment
First installment
Second
installment
Third
installment
10 years
(2010-11 to 201819)
RS. 6 lakh
9 years
(2010-11 to 201819)
Rs. 6 lakh
8 years
(2011-12 to 201819)
Rs. 6 lakh
Total
Amount deductible in
previous year
2009-10
RS.
RS.
RS.
RS.
60,000
60,000
2010-11
60,000
66,667
1,26,667
2011-12 to 2018-19
60,000
66,667
75,000
2,01,667
EXPENDITURE ON SPECIFIED
BUSINESS [SEC. 35AD]
______________________________________________________________________________
Section 35AD has been inserted (with effect from the assessment
year 2010-11) to provide for investment- linked tax incentive.
______________________________________________________________________________
The following conditions should be satisfied to avail of the benefit of deduction under section 35AD
Specified business
Any person
Not required
Date of
commencement of
business
On or after April 1, 2009
Warehousing facility
for storage of
agricultural produce
Any person
Not required
An Indian companies or
an
authority/board/corporat
ion established under ay
central or state Act.
Should be approved by
petroleum and natural
gas regulatory board and
notified by the central
government
Not required
Not required
Hotel of 2 star or
Any person
above category
Hospital with 100 beds Any person
for patients
Developing and
Any person
building a housing
project
More conditions
The specified business should not be set up by
splitting up, or the reconstruction, of a business
already in existence. Moreover, it should not be
set up by the transfer of old plant and machinery.
20% old machinery is permitted if the value of
the transferred assets does not exceed 20% of
the total value of the machinery or plant used in
the business, this condition is deemed to satisfied
Cont
Second hand imported machinery is treated as new
any machinery or plant which was used outside India by
any person shall not be regarded as machinery or plant
previously used for any purpose, if the following
conditions are fulfilled Such machinery or plant was not, at any time previous to the
date of the installation by the assesses, used in India
Such machinery or plant is imported into India from any country
outside India.
No deduction on account of depreciation in respect of such
machinery or plant has been allowed or is allowable under the
act in computing the total income of any person for any period
prior to the date of the installation of the machinery or plant by
the assesses.
Cont
Book of account of the assesses should be audited.
100% of capital expenditure incurred wholly and exclusively for the purpose of
specified business carried on by an assesses is deductible in the previous year in
which the expenditure is incurred. However, this is subject to the following
propositions Expenditure incurred on the acquisition of any land or goodwill or financial
instrument is not eligible for any deduction under section 35AD
Expenditure incurred prior to the commencement of operation, wholly and
exclusively, for the purpose of any specified business, shall be allowed as
deduction during the previous year in which the assesses commences the
operation of his specified business, if the amount is capitalized in the books
of account of the assesses on the date of commencement of operation.
If operation of the business of laying and operating a cross-country natural
gas distribution network is commenced during April 1, 2007 and march 31,
2009, the capital expenditure incurred before April 1,2009 will be allowed as
additional deduction under section 35AD for the assessment year 2010-11.
Section 80JJAA
This section provide deduction in respect
of employment of New workmen.
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Meaning of workman
Workman means any person employed in an
industry to do an manual, unskilled, technical,
clerical or supervisory work but does not include
the following,
a) a person who is in air force, Military or Navy, or
who is in Police service; or
b) a person who is employed in managerial or
administrative capacity; or
c) a person who is employed in a supervisory capacity
and draws wages exceeding Rs. 1600 per month.
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Existing undertaking
It means the wages paid to new
regular workmen in excess of
100 workmen employed during
the year
Additional wages shall be nil if he
increase in number of regular
workmen employed during the
year is less than 10per cent of the
existing number of workmen
employed in the undertaking as
on the last day of the preceding
year.
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Categories
Category
Nature of employment
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Case
X Ltd. Is an Indian company. It owns an
industrial undertaking which starts production
on April 1, 2009. On the same day, it appoints
94 casual workmen. On may 1, 2009, it
appoints 10 regular workmen (salary being Rs.
3000 per month). Find out the amount of
deduction under section 80JJAA for the
assessment year 2010-2011.
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Calculation of deduction
Rs.3,000*11 months*4 regular workmen
=Rs.132000
= 30% of Rs.1,32,000
=Rs.39,600
The amount deductible is Rs.39,600.
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Up to 1,000
Exceeding 25,000
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Case 1
Case 2
Number of partners
Profit-sharing ratio
Equal
Equal
10,00,000
15,00,000
6,00,000
12,00,000
60,000
50,000
80,000
50,000
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Tax on firm
Income of firm
6,00,000
12,00,000
Less: salary
Rs. 10,500 per month
3,78,000
7,02,000
1,20,000
1,80,000
1,02,000
3,18,000
31,518
98,262
10,506
24,566
Salary
1,26,000
1,75,500
Interest
40,000
45,000
60,000
50,000
1,46,000
2,20,500
Nil
6,232
10,506
30,798
Net income
Tax on partners
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Case 2
6,00,000
12,00,000
Number of partners
Income earned by
Individual
2,00,000
3,00,000
60,000
50,000
1,80,000
3,00,000
Tax on each
individual
2,060
14,420
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Partnership firm
The following basic assumptions have been made
a. There are two partners X and Y with an equal share of
profit.
b. They want to draw the maximum permissible amount
as salary. Both the partners will draw equal salary.
c. Income is from business (not from profession)
d. They are entitled to simple interest at the rate of 12
per cent on the capital contribution of RS.10,00,000.
e. Partners do not have any income.
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Interest on Salary
capital to
payable to
partners
X and Y
Taxable
income of
firm after
salary and
interest
Tax
liability of
the firm
Tax
liability of
the
partners
Total tax
as
percentag
e of
income
(5+6) as %
of (1)
(1)
Rs.
(2)
Rs.
(3)
Rs.
(4)
Rs.
(5)
Rs.
(6)
Rs.
(7)
5,00,000
1,20,000
3,18,000
62,000
19,158
12,154
6.26%
10,00,000
1,20,000
6,18,000
2,62,000
80,958
43,054
12.40%
15,00,000
1,20,000
9,18,000
4,62,000
1,42,758
77,868
14.71%
20,00,000
1,20,000
12,18,000
6,62,000
2,04,558
1,39,668
17.21%
25,00,000
1,20,000
15,18,000
8,62,000
2,66,358
2,05,382
18.87%
30,00,000
1,20,000
18,18,000
10,62,000
3,28,158
2,98,082
20.87%
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Taxable
income
before
payment
of salary
to
directors
Salary to
directors
X and Y
Taxable
income
of the
company
Tax
liability
of the
company
(1)
Rs.
(2)
Rs.
(3)
Rs.
(4)
Rs.
5,00,000
Taxable
income
of X
(5)
Rs.
Tax
liability
of X
(6)
Rs.
Total tax
of the
company
X and Y
(7)
Rs.
(7) as% of
(1)
(8)
3,90,000
1,10,000
33,990
1,95,000
3,605
41,200
8.24%
10,00,000 6,90,000
3,10,000
95,790
3,45,000
19,055
1,33,900
13.39%
15,00,000 9,90,000
5,10,000
1,57,590
4,95,000
34,505
2,26,600
15.11%
2,19,190
6,45,000
64,890
3,49,170
17.46%
2,81,190
7,95,000
95,790
4,72,770
18.91%
9,45,000
1,41,625
6,26,240
20.87%
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firm
Partners are increased to five
Total salary payable to partner
remains the same (maximum
permissible)
80
Interest
on capital
to
partners
Salary
Taxable
Tax
payable to income of liability of
5 Partners firm after the firm
salary and
interest
Tax
liability of
the
partners
Total tax
as
percentag
e of
income
(5+6) as %
of (1)
(1) Rs.
(2) Rs.
(3) Rs.
(4) Rs.
(5) Rs.
(6) Rs.
(7) Rs.
5,00,000
1,20,000
3,18,000
62,000
19,158
Nil
3.83%
10,00,000
1,20,000
6,18,000
2,62,000
80,958
Nil
8.10%
15,00,000
1,20,000
9,18,000
4,62,000
1,42,758
24,518
11.1%5
20,00,000
1,20,000
12,18,000
6,62,000
2,04,558
55,414
13%
25,00,000
1,20,000
15,18,000
8,62,000
2,66,358
86,314
14.11%
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30,00,000
1,20,000
18,18,000
10,62,000
3,28,158
1,17,214
14.85%
Salary to
five
directors
Taxable
income
of the
company
Taxable
liability
of the
company
Taxable
income
of one
directors
Tax of
one
directors
Total tax
of the
company
and five
directors
(7) as% of
(1)
(1) Rs.
(2) Rs.
(3) Rs.
(4) Rs.
(5) Rs.
(6) Rs.
(7) Rs.
(8) Rs.
5,00,000
4,50,000
50,000
15,450
90,000
Nil
15,450
3.09%
1,00,000
30,900
1,80,000
2,060
41,200
4.12%
46,350
2,70,000
11,330
1,03,000
6.87%
61,800
3,60,000
20,600
1,64,800
8.24%
77,250
4,50,000
29,870
2,26,600
9.06%
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10,00,000 9,00,000
Privet Company
Number of partners : 4
Number of partners : 4
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Basic pay
1,20,000
Education allowance
2,400
168,000
Transport allowance
9,600
Firm income
14,00,000
1,80,000
book profit
12,20,000
8,22,000
3,98,000
1,22,980
Partner salary
2,05,500
Interest
45,000
Net income
2,50,500
9,320
1,60,260
11.45%
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14,00,000
12,00,000
Net Income
2,00,000
61,800
Director
Basic salary
1,20,000
NIL
18,000
Gross salary
1,38,000
Nil
Salaries
1,38,000
Net income
1,38,000
Nil
61,800
4.41%
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Firm
LLP
Company
Tax rates
Applicability of
surcharge
Minimum alternate
tax
Not applicable
Not applicable
Dividend tax
Not applicable
Not applicable
Dividend declared,
distributed or paid is
liable for dividend tax
at the rate of
16.60875%. However,
deemed dividend
under section 2(22)(e)
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is an exception.
firm
LLP
Company
Interest on capital to
partners or
shareholders
Deductible if
permitted by the
partnership deed and
rate of interest does
not exceed 12%
conditions of section
184 should be
satisfied.
Deductible if
permitted by the
partnership deed and
rate of interest does
not exceed 12%
conditions of section
184 should be
satisfied.
Shareholder cannot
be paid interest on
share capital.
Shareholders get
dividend on shares,
dividend payment is
not a deductible
expenditure.
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Remuneration to
partners or
shareholders
Firm
LLP
Company
Deductible if
conditions of
sections 40(b) and
184 are satisfied.
Aggregate amount
deductible cannot,
however, exceed
90% of first Rs. 3
lakh of book profit
and 60% of the
balance.
Deductible if
conditions of
sections 40(b) and
184 are satisfied.
Aggregate amount
deductible cannot,
however, exceed
90% of first Rs. 3
lakh of book profit
and 60% of the
balance.
Shareholders can
join the company as
employees.
Remuneration can
be paid. There is no
maximum ceiling .
However, section
40A(2) is applicable.
Section 78 is
applicable
Section 79 is
applicable, if the
company is a
company in which
the public are not
substantially
interested
Applicability of
Section 78 is
sections 78 and 79 in applicable
case there is a
change in
constitution of the
firm or change in the
list of shareholders
of a company
88
firm
LLP
company
Loan to partners/
shareholders
Not taxable as
income
Not taxable as
income
Treated as deemed
dividend in the hands
of shareholders
under section
2(22)(e), if a few
conditions are
satisfied and the
company is a
company in which
the public are not
substantially
interested.
Applicability of
presumptive tax
schemes under
section 44AD, 44AE
and 44AF up to the
A.Y. 2010-11
Applicable
Applicable
Applicable
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Firm
LLP
Company
Applicability of
presumptive tax
scheme under
section 44AD from
the A.Y. 2010-11
Applicable
Not applicable
Not applicable
Whether expenditure
for family planning
for the benefit of
employees is
deductible under
section 36(1)(iX)
Cannot be claimed as
deduction under
section 36(1)(ix).
However, deduction
can be claimed under
section 32 and 37
Whether weighted
deduction under
section 35(2AB) is
available
Not applicable
Not applicable
Applicable
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