TAX PLANNING WITH REFERENCE TO

NEW BUSINESS- NATURE OF BUSINESS

(SEC.33AB, 35ABB,35AD, 44AD, 44AE, 44AF,

80JJAA, 115V TO 115VZC)

Submitted To: Prof. Jigna Trivedi

Submitted By: Ravi Joshi(A-21)
Dhiraj Makwana (A-26)
Bhavesh Patel(A-39)
Hardik Patel(A-40)
Poorvi Maniyar(B-27)
Dharmesh Patel(B-
TEA DEVELOPMENT
ACCOUNT (SEC. 33AB)
TEA/COFFEE/RUBBER DEVELOPMENT
ACCOUNT [SEC.33AB]
 The assessee must satisfy the following conditions:
Condition one Assessee must be engage in tea, coffee or rubber
plantation.

Condition two It must make a deposit in “special account”.

Condition three The deposit must be made within specified time-

limit.

Condition four The account of the assessee should be audited.

 Condition one - Engage in tea/coffee/rubber plantation
It must be engaged in the business of growing and
manufacturing tea or coffee or rubber in India.

 Condition two - Deposit

It must make the following deposits:
a. deposit with NABARD
b. deposit for the purpose, specified in a scheme framed by the tea
board/coffee board/rubber board with the previous approval of the
central government.
 Condition three – Time limit
The aforesaid amount shall be deposited within 6
months from the end of the previous year or before the due date
of furnishing the returns of income, whichever is earlier.

 Condition four - Audit

The accounts of the taxpayer should be audited by a
chartered and the report of the auditor in form No.3AC is to be
filed along with the return of the relevant assessment year.
AMOUNT OF DEDUCTION

 A sum equal to amounts deposited in special account as

mentioned earlier

 40% of the profits of such business computed under the head “

profits and gains of business or profession” before making any
deduction under section 33AB and before adjusted brought
forward business loss under section 72

 Whichever is less
KEPT IN MIND..

 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 under and allowed under this

section to an association of persons 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.
CONSEQUENCES IN CASE OF CLOSURE OF
BUSINESS
When the amount can be withdraw When the amount can be withdraw
and it is treated as taxable profit and it is not treated as income

1.Closure of business 1. Death of the taxpayer

2.Dissolution of firm 2. Partition of H.U.F

3. Liquidation of company
WITHDRAWAL CANNOT BE UTILISED FOR
CERTAIN PURPOSE
 Cannot be utilised for the purpose of purchase of any
machinery or plant to be installed in any office premises
or residential accommodation including guest house, any
office appliance, any other plant or machinery which
either is installed in an undertaking producing low
priority items specified in the eleventh schedule in the
income tax act or is an item of plant or machinery
entitled to 100% write off by way of depreciation or for
any other reason in one year.
CONSEQUENCES IF THE NEW ASSET IS
TRANSFERRED WITHIN 8 YEARS
To whom it is Transfer within 8 year Transfer after 8 years.
transferred form the end of the
previous year in which
the asset is acquired

Transfer to the central, Deduction will not be Deduction will not be

state govt., local withdraw withdraw
authority, a statutory
corporation or a govt.
company

Transfer in a scheme of Deduction will not be Deduction will not be

succession of a firm by withdraw withdraw
company
Transfer in any other case Deduction will be Deduction will not be
withdraw withdraw
TELECOM LICENSE
FEES (SEC.35ABB)
  If all the following condition are satisfied than only deduction
is available under sec. 35ABB.

Condition 1 The expenditure is capital in nature

Condition 2 It is incurred for acquiring any right to operate

telecommunication services.

Condition 3 The expenditure is incurred either before the

commencement of business or there after at any time
during any previous year.

Condition 4 The payment for which has actually been made to obtain
license.
AMOUNT OF DEDUCTION

 The payment is allowed as deduction in equal installments

over the period.

 Period starts from the date of such payment made till the
license expires.

 Note: Deduction starts from the year in which actual payment

of expenditure is made irrespective of P.Y. in which liability is
incurred according to regular accounting methods employed
by assessee.
PROFIT OR LOSS ON SALE OF TELECOM
LICENSE
 Any profit or loss on sale of telecom license is taken into
consideration while computing business income.

 The relevant rules are specified in table.

 Different situations Tax treatment

1 Entire telecom license is transferred

1.1 When sale consideration is less than WDV minus sale consideration is allowed
WDV as deduction under section 35ABB in the
year of sale.
1.2 When sale consideration is more than The excess of sale consideration over
WDV WDV is taxable as business income in the
year of sale.
2 When a part of telecom license is transferred
2.1 When sale consideration is less than WDV minus sale consideration will be
WDV allowed as deduction over the unexpired
period.
2.2 When sale consideration is more than Same tax treatment as is given in 1.2
WDV

Notes:
• In 1.2 & 2.2 the amount taxable as business income cannot exceed deduction
allowed under 35ABB earlier.
• The aforesaid amount is taxable whether business is in existence or not.
• In respect of the same expenditure, no further deduction will be allowed
under sec. 35ABB
CONSEQUENCE IN THE CASE OF
AMALGAMATION OR DEMERGER
License Deduction available Deduction not
available
License Transferred Amalgamated OR Amalgamating OR
Resulting Company. Demerged company.

License not Transferred Amalgamating OR Amalgamated OR

Demerged company. Resulting Company.
DEPRECIATION UNDER SEC. 32

 If depreciation for any P.Y. is claimed and allowed under

35 ABB than it is not available under sec32.
EXPENDITURE ON
SPECIFIED BUSINESS
(SEC. 35AD)
CONDITIONS

 The following condition should be satisfied to avail

benefit U/S 35AD.

1. The specified businesses listed in table only gets

deduction u/s 35AD.
2. Specified business should be new business.
3. Audit of books of account.
SPECIFIED BUSINESS SHOULD BE NEW
BUSINESS
 Specified business should not be;

 Set up by splitting up, or

 Reconstruction of business in existence, or

 Transfer of old P & M.

2nd hand imported machinery is treated as new.

 Conditions

 Before date of installments should not be used in India.

 Imported into India from any foreign country.
 Prior to date of installation no deduction is available on a/c of
depreciation for such P & M.
AMOUNT OF DEDUCTION

 100% of capital expenditure incurred by assessee for

specified business is deductible, subject to following
propositions;

 Acquisition of land or goodwill or financial instrument is

not eligible for any deduction u/s 35AD.
 Expenditure incurred prior to commencement of operation
wholly and exclusively for specified business is deductible in
P.Y. in which the assessee commences the operation, if amount
is specified in books of account on the date of commencement.

 If the operation of business of laying and operating a cross-

country natural gas distribution network is commenced during
Apr 1, 2007 and March 31, 2009, the capital expenditure
incurred before April 1, 2009 will be allowed as additional
deduction u/s 35AD for the A.Y. 2010-11.
CONSEQUENCES OF CLAIMING
DEDUCTION U/S 35AD.
 The assessee is not allowed deduction I respect of
specified business under the provision of Chapter VIA
u/s 80HH to 80RRB for the same or any other
assessment year.

 No deduction for expenditure in respect of which

deduction is claimed is allowed to assessee.
 Any sum received or receivable on account of any capital asset
in respect of which deduction has been allowed u/s 35AD,
being destroyed, demolished, discarded or transferred shall be
treated as income and chargeable to tax.

 Loss computed in respect of specified business can be set off

against gain from specified business only.
 If the assessee owns two units one of them qualifies for
deduction u/s 35AD and other not than there is inter unit
transfer of goods or service between two units, then for the
purpose of section 35AD calculation will be made as if such
transaction are made as if such transactions are made at the
market value.
SPECIAL PROVISIONS FOR
COMPUTING PROFITS &
GAINS FOR BUSINESS OF
CIVIL
CONSTRUCTION(SEC.44AD)
 SPECIAL PROVISIONS FOR COMPUTING
PROFITS & GAINS FOR BUSINESS OF CIVIL
CONSTRUCTION (SEC. 44AD)

Who is covered by the

scheme of section 44AD
SECTION 44AD IS APPLICABLE IF
FOLLOWING CONDITIONS ARE SATISFIED.

●
he taxpayer
-Individual,HUF,AOP,BOI,firm,compay,co-
Condition 1 operative society or any other person.
●
A Resident or a non-resident.

●
Is engaged in the business of civil
Condition 2 construction or supply of labor for civil
construction work.

●
Gross receipts- less than 40 lakh
●
Gross receipts are the amt. received from the clients for
Condition 3 the contract and will not include the value of material
supplied by the client.
NOTES:
 What is civil construction?

 It is classified in three categories.

A developer
Builder
Contractor

 Sec. 44AD do not apply to a developer. It only applies to

builders and contractors.
 Civil construction as defined in the Act:

 It includes construction (or repair) of buildings, dams, bridges or

other structures, or of roads or canals.

 It also includes the execution of any other work contract. It thus

includes work related to electrical fittings, plumbing job,
landscaping work, etc.

 The taxpayer may be contractor or sub-contractor.

 Interior Decorator:

 Sec. 44AD has no application for computing income of

an interior decorator as the business of interior
decoration does not come under the business of civil
construction.

 If the above conditions are satisfied then only 44AD is

applicable.
 CONSEQUENCES IF SEC. 44AD IS APPLICABLE
 Income to be calculated on estimated basis @ 8 % of gross receipt.
Taxpayer can voluntarily declare higher income in his return.

 Rate of 8% is comprehensive:

 All deduction under sec. 30 to 38 including depreciation , are deemed

to have been already allowed and no further deductions is allowed
under these sections.
 However in case of a firm, the normal deduction in respect of salary
and interest to partners under sec 40 (b) shall be allowed.
 The written down value is calculated, where necessary as if
depreciation as applicable has been allowed.
 Moreover ,it will be assumed that disallowance ,if any, under sec.
40,40 A and 43 B has been considered while calculating the
estimated income @ 8 %.
AFTER CALCULATING INCOME STEPS TO
FOLLOW
●
The income calculated above will
Step 1
be aggregated with other income.

The brought forward business losses

●

Step 2
and other losses should be deducted.

●
All deductions under 80C to
Step 3
80U shall be allowed.

●
Tax on net income shall be calculated
Step 4 according to the normal provisions and rebate
u/s 88E should be allowed
PROVISIONS FOR MAINTENANCE OF BOOKS OF
ACCOUNT/COMPULSORY AUDIT – NOT APPLICABLE

The following privileges are available to taxpayer who declares his

income from the aforesaid business @ 8% of gross receipt (or at a
higher rate)

●
Not required to maintain books of
Privilege 1 a/c according to the provisions of
sec. 44AA

●
Not required to get this books of a/c
Privilege 2
audited under sec 44AB
 It may be noted that above privileges are available only
in the aforesaid business. Even such an assessee has to
comply with the requirements of both sections 44AA and
44AB in respect of his business which are not covered
by the scheme.

 While computing income of assesses under sec 44AD ,

the assessing officer does not have power to assess
anything in excess of returned income if returned income
is more than 8% of total receipt/sale consideration.
IS IT POSSIBLE TO DECLARE LOWER
INCOME?

 Yes a tax payer can declare his income lower than the
deemed profits and gains .
 The following are the consequences :

●
He has to maintain books of a/c as
Consequence 1
per sec. 44AA

●
He has to get his books of a/c
Consequence 2
audited under sec 44AB.
 CASE STUDY
SPECIAL PROVISIONS IN CASE
OF BUSINESS OF PLYING,
HIRING OR LEASING GOODS
CARRIAGES
(SEC. 44AE)
TRANSPORT OPERATION [SEC.44AE]

Who is covered by the scheme of Sec.44AE?

Condition:1
 Tax payer may be:

 An individual
 HUF
 BOI
 Firm
 Company
 Co-operative society or any other person
 Resident or non resident
Condition:2

 Tax payer is engaged in business of:

 Plying
 Hiring
 Or leasing of goods carriages.
Condition:3

 The tax payer owns not more than 10 goods carriage at any
time during the previous year.
 Taxpayer deemed to be a owner in following cases:-

 Goods carriage on hire purchase

 Goods carriage on installments
 For which whole or part amount is due.
 2. INCOME SHALL BE CALCULATED AS
FOLLOW

Types of goods carriage Estimated Income

Heavy goods vehicles Rs.3500 for every month(or part

of a month ) during which is
owned by the taxpayer

Other than heavy goods vehicle Rs.3150 for every month (or part
of a month) during which the
goods carriage is owned by the
taxpayer
Note:

 Goods Carriage:
 Constructed or adapted for use solely for the carriage of the
goods
 Any motor vehicle or adapted when used for the carriage of
goods

 Heavy goods vehicles:

 Any goods carriage the gross weight of it or,
 A tractor or road roller the unladen weight
 Exceed 12000 Kilograms.
 Ownership :
• During which the goods carriage is owned by the taxpayer(Not on
the bases of which it put to use)
For instance:
Income of the taxpayer who is engaged in the aforesaid business and
who purchases a “heavy goods vehicle” On May 16,2008 .The goods
carriage is put to use on June 12,2008.
Income shall be Rs.38,500(35,00 x 11 months)

 Hire declaration of income possible:

 All deduction u/s 30 to 38 including depreciation are deemed to
allowed and no further deduction is allowed under this sections.
 Normal deduction in respect of salary and interest to partner u/s
40(b) shall be allowed.
SPECIAL PROVISIONS FOR
PROFITS & GAINS OF RETAIL
BUSINESS (SEC. 44AF)
RETAIL TRADERS [SEC.44AF]

1.Who is covered by the scheme of Sec.44AE ?

Condition:1
 Tax payer may be:
 An individual
 HUF
 BOI
 Firm
 Company
 Co-operative society or any other person
 Resident or non resident
Condition:2

 Tax payer is engaged in business of:-

 Retail Trade in any goods.
 Merchandise.

Condition:3

 Total turnover from the above business does not exceed Rs.40
lakh.
Calculation of income:-

 The income from the above mentioned business at 5 % of the total

turnover.

 A taxpayer voluntarily declare a higher income in his return.

 All deduction u/s 30 to 38 including depreciation are deemed to

allowed and no further deduction is allowed under this sections.

 Normal deduction in respect of salary and interest to partner u/s

40(b) shall be allowed.
DEDUCTION IN RESPECT OF
EMPLOYMENT OF NEW
WORKMEN (SEC. 80JJAA)
CONDITION TO BE SATISFIED IN ORDER TO
GET DEDUCTION UNDER SEC. 80JJAA
1. The tax payer is Indian company.

2. Income of tax payer include any profit and gain derived from
any industrial undertaking engaged in the manufacture or
production of article or thing.

3. The industrial undertaking is not formed by splitting up or

reconstruction of existing undertaking or amalgamation
with another industrial undertaking.

4. The assessed furnishes along with the return of income the

report of a chartered accountant in form No. 10DA.
DEDUCTION AMOUNT

 The amount of deduction is equal to 30 per cent of

“additional wages” paid to the new “regular workmen”
employed by the assessee in the previous year.

 Deduction is available for three assessment years

MEANING OF WORKMAN

“Workman” means any person employed in any industry to do

any manual, unskilled, skilled, technical, clerical, or supervisory
works but does not include the following:

 A person who is in air force, Military, Navy or in police

services; or
 A person who Is employed in managerial or administrative
capacity; or
 A person who is employed in a supervisory capacity and draws
wages exceeding Rs. 1600per month.
MEANING OF REGULAR WORKMAN:

“Regular workman” does not include the following:

 A casual workman; or
 A workman employed for contract labor ;

 Any other workman employed for a period of less then

300 days during the previous.
 MEANING OF ADDITIONAL WAGES

“Additional wages” has been defined as follows.

In case of new undertaking In case of existing undertaking
In means the wages paid to It means the wages paid to new “regular
new “regular workman” in workman” in excess of 100 ”workman”
excess of 100 “workman” employed during the year
employed during the year
Additional wages shall be nil if the
increase in no of regular “workman”
employed during the year is less than 10
per cent of the existing number of
“workman” employed in the undertaking
as on the last day of the preceding year.
CATEGORIES

 Hear in after all employee in an undertaking are grouped in

the following categories.

A: Employees employed in managerial or administrative

capacity. It also includes employees employed in
supervisory capacity and drawing salary exceeding Rs. 1600
per month.

B: It includes casual workmen and workmen employed through

contract labor (but not coming under category A)
C: Other workmen (Not coming under categories A and B)
If employed for less than 300 days during the previous
year

D: Other workmen (Not coming under categories A and B)

if employed for 300 days or more than 300 days during
the previous year
 DEDUCTION UNDER SEC.80JJAA(IN CASE
NEW UNDERTAKING)

In the case of new undertaking is available as follows.

1. First find out whether no of workmen(B+C+D) employed during

the previous year is more than 100.

2. If yes, then find out wages paid to new regular workmen (D) in
excess of 100 workmen employed during the year.

3. 30% of the wages determined in (2) is the amount of deduction

under sec. 80JJAA.
DEDUCTION UNDER SEC.80JJAA(IN CASE
OF EXISTING UNDERTAKING)
In the case of an existing undertaking is available as follows.

1. First find out whether no of workmen(B+C+D) employed during

the previous year is more than 100.

2. If yes then find out number of regular workmen(D) newly

employed during the year and whether it is equal to or more than
10 per cent of the existing number of workmen (B+C+D)
employed in the undertaking on the last day of the preceding
year.
3. If yes then find out wages paid to new regular workmen
(D) in excess of 100 workmen employed during the year.

4. 30% of the wages determined in 3 is the amount of

deduction under section 80JJAA.
TONNAGE TAX SYSTEM (SEC.
115V TO 115VZ)
 TONNAGE TAX SCHEME [SEC115V TO
115VZ]

Basic Features:

 It is scheme of taxation where income arising from

operation of ship is determined based on the tonnage of
ship.

 The income is taxed at normal corporate rate.

 Tax is payable even if there is loss.

 A company may be forced to leave place in certain

circumstances.
SALIENT FEATURES

 A company owning at least one qualifying ship may join. A

qualifying ship is one with minimum tonnage of 15 tons &
having a valid certificate.

 Certain types of ship like fishing vessels, pleasure crafts,

harbor & river ferries etc. are excluded in terms of section.

 Section 115VG gives the manner of computation of daily

income as follows:
Qualifying ship having net tonnage Amount of daily tonnage income

Up to 1,000 Rs:46 for each 100tons

Exceeding 1,000 but not more than 10,000 Rs:460 plus Rs:35 for each 100 tons
exceeding 1,000tons

Exceeding 10,000 but not more than Rs:3,610 plus Rs:28 for each 100 tons
25,000 exceeding10,000tons

Exceeding 25,000 Rs:7,810 plus Rs:19 for each 100tons

exceeding 25,000tons

Example: Suppose a tonnage tax company operates only one

qualifying ship throughout the previous year 2009-10. The ship has a
net tonnage of 25,000tons and the corporation tax rate for that year is
30.9%.
TONNAGE TAX LIABILITY CALCULATE AS FOLLOWS
Daily profit Rs
For the first 1,000 tons 460
For the1,001 to 10,000 tons 3,150
For Remaining 15,000 tons 4,200

Total 7,810

Annual profit

Rs:7,810 X365days Rs:28,50,650

Tonnage tax: Rs:28,50,650X30.9% Rs:8,80,851

 A company is not allowed any set-off of loss nor is any
Depreciation allowed.

 It is need to be bifurcate the qualifying ships and non-

qualifying ships at the time a company joins the scheme.

 A company may opt for tonnage tax scheme by applying to

Joint commissioner for a period of 3 months i.e. any time
between 1st October 2004 to 31st Dec 2004.
 Section 115VT: Company has to create a reserve of at least 20% of its book
profit to be utilized for the purpose of acquisition of new ship.

 Section 115VU: Company has to comply with min. training for 5

consecutive year.

 Section 115VV : Company has opted for tonnage tax, not more than 49% of
net tonnage of qualifying ships operated by it.

 Section 115VW: Maintenance of separate books of account and audit of the

same is compulsory for co. opting for the same.

 Section 115VX: The details regarding valid certificate of net tonnage ships.

 Section 115VY &115VZ: It provides contingencies of amalgamation &

merger
THANK YOU