Tax planning while setting up of a business with reference to location (2021-2022 A.Y, A.Y 2022-2023 , A.Y 2023-2024 and A.Y 2024-2025)
I hereby want to summarize details regarding Tax Planning while setting up of a business with reference to location related with A.Y 2021-2022 , A.Y 2022-2023 and A.Y 2023-2024 and A.Y 2024-2025.You will get the following deductions if you have established your business unit in the following locations as per the following sections
1. Income from newly established unit in Special Economic Zone. (Section 10AA)
2021-2022
A. Special provisions in respect of newly established Units in Special Economic Zones. 10AA.
While computing the total income of an entrepreneur, as per section 2 of the Special Economic Zones Act, 2005, from his Unit, who begins to manufacture or produce articles or things or provide any services on or after the 1st day of April, 2006, but before the first day of April, 2021, the following deduction shall be allowed—
a. hundred per cent of profits and gains derived from the export, of such articles or things or from services for a period of five consecutive assessment years and fifty per cent of such profits and gains for further five assessment years and thereafter;
b. For the next five consecutive years ,50% of such profits and Gains or the amount debited to profit and loss account and credited to the ‘special Economic Zone Re-Investment Allowance Reserve Account (to be created and utilized for the purpose of the business of the assesse) whichever is less
B. Where any amount credited to the Special Economic Zone Re-investment Reserve Account has been utilized for any purpose other than those specified purposes, the amount so utilized; or has not been utilized before the expiry of the period specified the amount not so utilized, shall be deemed to be the profits, and shall be charged to tax accordingly
C. This section applies to any undertaking, being the Unit, which fulfils all the following conditions, namely:—
(i) it has begun or begins to manufacture or produce articles or things or provide services during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone;
(ii) It is not formed by the splitting up, or the reconstruction, of a business already in existence:
(iii) It is not formed by the transfer to a new business, of machinery or plant previously used for any purpose.
D. Computation of Profits
Profit derived from export of articles manufactured in a unit in SEZ can be calculated using the following formula:-
Profit of the business of the unit in SEZ ×Export sales of the unit in SEZ/ Total sales of the unit in SEZ
E. Assessment Year 2022-2023
Same provisions applicable to Assessment Year 2021-2022
F. Assessment Year 2023-2024
Same provisions applicable to Assessment Year 2022-2023
G. Assessment Year 2024-2025
Amendment is as follows:
In section 10AA of the Income-tax Act, with effect from the 1st day of April, 2024,—
(a) in sub-section (1), after clause (ii) and before the Explanation, the following proviso shall be inserted, namely:— “Provided that no such deduction shall be allowed to an assessee who does not furnish a return of income on or before the due date specified under sub-section (1) of section 139.”;
(b) after sub-section (4), the following shall be inserted, namely:—
‘(4A) This section applies to a Unit, if the proceeds from sale of goods or provision of services is received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.
Explanation 1.—For the purposes of this sub-section, the expression “competent authority” means the Reserve Bank of India or the authority authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.
Explanation 2.—The sale of goods or provision of services shall be deemed to have been received in India where such export turnover is credited to a separate account maintained for that purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.’;
(c) in Explanation 1, for clause (i), the following clauses shall be substituted, namely:—
‘(i) “convertible foreign exchange” shall have the meaning assigned to it in clause
(ii) of the Explanation 2 to section 10A; (ia) “export turnover” means the consideration in respect of export by the undertaking, being the Unit of articles or things or services received in, or brought into, India by the assessee in convertible foreign exchange in accordance with the provisions of sub-section (4A), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things outside India or expenses, if any, incurred in foreign exchange in rendering of services (including computer software) outside India;’.
II. Deduction in respect of profits and gains from undertakings or Enterprise engaged in Infrastructure Development (Sec 80-IA).
Assessment Year 2021-2022
Company can claim the following deductions if it undertakes the following activities
A. Developing or operating or maintaining Infrastructure facility
No Deduction is allowed to the enterprise which starts those operations mentioned in (A) after 01/4/2017
B. Developing or operating or maintaining Industrial Parks and special Economic Zones. The relevant dates are as follows:-
i. Industrial Park—–between 31/3/1997 and 1/4/2011
ii. Special Economic Zones(notified by Central Government )—between 31/3/1997 and 1/4/2006
C. Generation and distribution of power
i. Generation and distribution of power begins after 31/3/1993 but before 1/4/2017
ii. Starts transmission or distribution by laying a network of new transmission or distribution lines after 31/3/1999 but before 1/4/2017
iii. Undertakes substantial renovation and modernization of the existing network of transmission or distribution lines after 31/3/2004 but before 1/4/2017
D. Reconstruction or revival of a power generating plant
Quantum and period of deduction.
100% of such profits for ten consecutive assessment years.
Conditions
i. The undertaking is not formed by splitting up or reconstruction of existing unit
ii. The undertaking is not formed by transfer of machinery or plant previously used for any Purpose (usage of upto 20% of Previously used plant and machinery is allowed)
ii. Audit of Accounts
Audited by an accountant as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44 AB and the assesse furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant.
iii. Withdrawal of deduction
The government may withdraw the deduction in respect of certain undertakings after making enquiry.
iv. Other provisions related with this section are following:-
Computation of income for deduction Computation of income for distribution can be done as follows
Please consider the example.
Question– X Ltd Two business .Business K is eligible for deduction u/s 80IA and Business L is not eligible for such deduction. The profit /loss of the above businesses for the last three years are as follows:
| Previous year | Business K (80-IA Unit) | Business L |
| 2015-2016 | (50,000) | 1,40,000 |
| 2016-2017 | 30,000 | 180,000 |
| 2017-2018 | 70,000 | 120,000 |
Answer
A. Total Income in 2015-2016=90,000 Deduction under Sec 80IA-Nil
B. Total Income in 2016-2017=210,000 Deduction under Sec 80IA=Nil
C. Total Income in 2017-2018=70,000+120,000-50,000(Deduction under sec 80IA) =140,000
Assessment Year 2022-2023
Same provisions applicable to Assessment Year 2021-2022
Assessment Year 2023-2024
Same provisions applicable to Assessment Year 2022-2023.
Assessment Year 2024-2025
Same provisions applicable to Assessment Year 2023-2024.
III. Deduction in respect of profits and gains from undertakings or Enterprise engaged in development of Special Economic Zone (Sec 80-IAB).
Assessment Year 2021-2022
Eligible assessee
Developer engaged in the business of developing a SEZ notified on or after 01/4/2005 but before 01/4/2017.
Quantum and period of deduction.
100% of such profits for ten consecutive assessment years
Other provisions related with this section are following:-
i. Audit of Accounts
Audit by CA is necessary and the assesse is to send the audit report along with the return of Income
ii.Withdrawal of deduction
The government may withdraw the deduction in respect of certain undertakings after making enquiry.
iii. Other provisions related with this section are following:-
Computation of income for deduction Computation of income for distribution can be done as follows
Please consider the example.
Question– X Ltd Two business .Business K is eligible for deduction u/s 80IAB and Business L is not eligible for such deduction. The profit /loss of the above businesses for the last three years are as follows:
| Previous year | Business K (80-IA Unit) | Business L |
| 2015-2016 | (50,000) | 1,40,000 |
| 2016-2017 | 30,000 | 180,000 |
| 2017-2018 | 70,000 | 120,000 |
Answer
A. Total Income in 2015-2016=90,000 Deduction under Sec 80IAB-Nil
B. Total Income in 2016-2017=210,000 Deduction under Sec 80IAB=Nil
C. Total Income in 2017-2018=70,000+120,000-50,000(Deduction under sec 80IAB) =140,000
Assessment Year 2022-2023
Same provisions applicable to Assessment Year 2021-2022
Assessment Year 2023-2024
Same provisions applicable to Assessment Year 2022-2023.
Assessment Year 2024-2025
Same provisions applicable to Assessment Year 2023-2024.
IV.Deduction in respect of profits and gains from specified start-up business (Sec 80-IAC).
Assessment Year 2021-2022
Eligible Assessee
1. Company
2. LLP.
Conditions
i. The Assessee is incorporated on or after 01/4/2016 but before 01/4/2022
ii.The total Turnover does not exceed Rs.100 crores in any previous years relevant to the assessment year for which deduction under sub-section (1) is claimed.
Quantum and period of deduction
100% of such profits for three consecutive assessment years out of Ten years beginning from the year in which the eligible start up is incorporated. The deduction specified ,at the option of the assesse, be claimed by him for any three consecutive years out of seven years beginning from the year in which the eligible start-up is incorporated.
General Conditions
i.The undertaking is not formed by an splitting up or reconstruction of existing unit
ii.The undertaking is not formed by transfer of machinery or plant previously used for any purpose(usage of up-to 20% of Previously used plant and machinery is allowed)
iii. Computation of income for deduction.
Computation of income for distribution should be done as follows-
Please consider the example.
Question– X Ltd Two business .Business K is eligible for deduction u/s 80IAC and Business L is not eligible for such deduction. The profit /loss of the above businesses for the last three years are as follows:
| Previous year | Business K (80-IA Unit) | Business L |
| 2015-2016 | (50,000) | 1,40,000 |
| 2016-2017 | 30,000 | 180,000 |
| 2017-2018 | 70,000 | 120,000 |
Answer
A. Total Income in 2015-2016=90,000 Deduction under Sec 80IAC-Nil
B. Total Income in 2016-2017=210,000 Deduction under Sec 80IAC=Nil
C. Total Income in 2017-2018=70,000+120,000-50,000(Deduction under sec 80IAC) =140,000
iv. Audit of Accounts
Audit by CA is necessary and the assesse is to send the audit report along with the return of Income.
v. Withdrawal of deduction
The government may withdraw the deduction in respect of certain undertakings after making enquiry.
Assessment Year 2022-2023
Same provisions applicable to Assessment Year 2021-2022 except the following:
The Assessee is incorporated on or after 01/4/2016 but before 01/4/2023
Assessment Year 2023-2024
Same provisions applicable to Assessment Year 2022-2023.
Assessment Year 2024-2025
Same provisions applicable to Assessment Year 2023-2024 except the following:
The Assessee is incorporated on or after 01/4/2016 but before 01/4/2024
V. Deduction in respect of profits and gains other than infrastructure Development undertakings (Sec 80-IB).
Assessment Year 2021-2022
Where the gross total income of an assesse includes any profits and gains derived from any business referred to in sub-section (3) to (11),(11A) and (11 B) (such business being hereinafter referred to as the eligible business),there shall, in accordance with and subject to the provisions of this section, be allowed,in computing the total income of the assesse, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section.
A. The amount of deduction in the case of an industrial undertaking in an industrially backward state specified in the Eighth Schedule shall be hundred percent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty five percent (or thirty percent where the assesse is a company) of the profits and gains derived from such industrial undertaking.
B. The amount of deduction in the case of an undertaking located in such industrially backward districts as the Central Government may, having regard to the prescribed guidelines by notification in the Official Gazette, specify in this behalf as industrially backward category A or an industrially backward district of category B shall be-
i..hundred percent of the profits and gains derived from an industrial undertaking located in a backward district of category A for five assessment years beginning with the initial assessment year and thereafter ,twenty-five percent (or thirty percent where the assesse is a company ) of the profits and gains of an industrial undertaking.
ii. hundred percent of the profits and gains derived from an industrial undertaking located in a backward district of category B for three assessment years beginning with the initial assessment year and thereafter ,twenty-five percent (or thirty percent where the assesse is a company ) of the profits and gains of an industrial undertaking
C. The amount of deduction in the case of any multiplex theatre shall be-
a. fifty percent of the profits and gains derived from the business of building ,owning and operating a multiplex theatre ,for a period of five consecutive years beginning from the initial assessment year in any place :
Provided that nothing contained in this clause shall apply to a multiplex theatre located at a place within the municipal jurisdiction (whether known as a municipality,municipal corporation ,notified area committee or a cantonment board or by any other name ) of Chennai, Delhi, Mumbai or Kolkata
D. The amount of deduction to an undertaking shall be hundred percent of the profits for a period of seven consecutive assessment years, including the initial assessment year, if such undertaking fulfils any of the following, namely-
a. is located in North-Eastern Region and has begun or begins commercial production of mineral oil before the 1 st day of April 1997
E. The amount of deduction in the case of an undertaking deriving profits from the business of operating and maintaining a hospital located anywhere in India ,other than the excluded area ,shall be hundred percent of the profits and gains derived from such business for a period of five consecutive assessment years ,beginning with the initial assessment year.
Assessment Year 2022-2023
Same provisions applicable to Assessment Year 2021-2022.
Assessment Year 2023-2024
Same provisions applicable to Assessment Year 2022-2023.
Assessment Year 2024-2025
Same provisions applicable to Assessment Year 2023-2024.
5. Deductions in respect of profits and gains from housing projects (80 IBA)
Eligible Assessees.
Assessment Year 2021-2022.
All Assessees engaged in the business of developing and building affordable housing projects approved by competent authority after 01/6/2016 but before 01/4/2022. Quantum and period of deduction. 100% of profits derived from such business if it fulfils certain conditions.
Assessment Year 2022-2023.
Same provisions applicable to Assessment Year 2021-2022 except the following:
Additional Exemption:
Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building rental housing project, there shall be allowed a deduction of an amount equal to 100 % of the profits and gains derived from such business.
Assessment Year 2023-2024
Same provisions applicable to Assessment Year 2022-2023.
Assessment Year 2024-2025
Same provisions applicable to Assessment Year 2023-2024.
6. Deduction in respect of profits and gains from undertakings or Enterprises Special Category States (Sec 80-IC).
Assessment Year 2021-2022.
Any undertaking which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth schedule or commences any operation specified in that schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakings substantial expansion during the period beginning-
i. on the 23 rd day of December ,2002 and ending before the 1st day of April 2007 in the state of Sikkim; or
ii. on the 7th day of January ,2003 and ending before the 1 st day of April 2012 in the state of Himachal Pradesh or the State of Uttaranchal or
iii. on the 24 th day of December ,1997 and ending before the 1 st day of April,2007 ,in any of the North-Eastern States.
a. One hundred percent of such profits and gains for ten assessment years commencing with the initial assessment year in the case of clause i and clause iii above.
b. One hundred percent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter ,twenty five percent (or thirty percent where the assesse is a company ) of the profits and gains in the case of clause ii above.
Assessment Year 2022-2023
Same provisions applicable to Assessment Year 2021-2022
Assessment Year 2023-2024
Same provisions applicable to Assessment Year 2022-2023.
Assessment Year 2024-2025
Same provisions applicable to Assessment Year 2023-2024.
7. Deduction in respect of profits and gains in respect of certain undertakings in North –Eastern States (Sec 80-IE).
Assessment Year 2021-2022
The deduction shall be allowed to an undertaking has begun production during the following period in any of the following North –Eastern States
Period-1/4/2007 to 1/4/2017
North Eastern States means
Arunchal Pradesh
Assam
Manipur
Meghalaya
Mizorm
Nagaland
Sikkim
Tripura.
Production Activities which are eligible for deduction.
i. To manufacture or produce any eligible article or thing
ii.to undertake substantial expansion to manufacture or produce any eligible article or thing
iii.to carry on any eligible business.
Eligible business means
i. hotel not below two star category
ii. adventure and leisure sports
iii. providing medical and health services
iv. cunning old age home
v. bio-technology related ones etc
Quantum and period of deduction
100% of the profits derived from such business for 10 consecutive assessment years commencing with the initial assessment years.
Assessment Year 2022-2023
Same provisions applicable to Assessment Year 2021-2022.
Assessment Year 2023-2024
Same provisions applicable to Assessment Year 2022-2023.
Assessment Year 2024-2025
Same provisions applicable to Assessment Year 2023-2024.
(Republished with amendments)
Author Bio
All we are talking about tax planning. However there is need for advising on how to reduce tax litigation and its cost. For that we need advising properly following the exemption /deduction/beneficial provisions etc.