“Unlock insights into tax planning for business setup based on the nature of the business. Explore six crucial deductions under the Income Tax Act for A.Y 2021-2022 to A.Y 2024-2025. From Tea and Coffee Development Accounts to Amortization of Preliminary Expenses, get a comprehensive analysis and stay informed about the latest amendments. Authored by experts CA Shravan Suratwala and Aditi Shelke, this guide is your go-to resource for strategic tax planning during business establishment, helping you make informed financial decisions.”
Tax Planning while setting up of a business with reference to Nature of business related with A.Y 2021-2022 , A.Y 2022-2023, A.Y 2023-2024 and A.Y 2024-2025. An analysis of Six important Deductions as per Income Tax Act.
I hereby want to summarize details regarding tax planning while setting up of a business with reference to Nature of business related with A.Y 2021-2022, A.Y 2022-2023, A.Y 2023-2024 and A.Y 2024-2025.You will get the following deductions if you have established following type of business units as per the following sections. I want to include an analysis of six important Deductions as per Income Tax Act .Please remember, there are so many concessions which are related with Nature of business. But, in this article, I concentrate on six deductions related with Nature of business.
1. Tea Development Account, Coffee Development Account and Rubber Development Account (Section 33 AB).
Assessment Year 2021-2022
The amount of deduction allowed is lower of the following.
(a) a sum equal to the amount or the aggregate of the amounts deposited as per this section or
(b) a sum equal to forty percent of the profits of such business (computed under the head“Profits and gains of business or profession “ before making any deduction under this section ).
The deduction under this section shall not be admissible unless the accounts of such business of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been 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 assessee furnishes by that date the report of such audit in the prescribed form duly signed and verified by such Accountant
Assessment Year 2022-2023.
No change in the Assessment Year 2022-2023.
Assessment Year 2023-2024.
No change in the Assessment Year 2023-2024.
Assessment Year 2024-2025.
No change in the Assessment Year 2024-2025.
2. Site Restoration fund (Section 33 ABA).
Assessment Year 2021-2022.
The assesse is carrying on business consisting of prospecting for or extraction or production of petroleum or natural gas or both in India and in relation to which the central Government has entered into an agreement with such assesse for such business. Before the end of the previous year the asseessee should (a) deposit an amount in SBI in a scheme approved by the Ministry of Petroleum and Natural Gas of the Government of India or (b) deposited any amount in the Site Restoration Account. The amount of deduction allowed is the lower of the following
(a) the amount deposited in the scheme referred to above or
(b) a sum equal to 20 percent of the profits of such business (computed under the head “Profits and gains of business or profession “ before making any deduction under this section ).
The deduction under this section shall not be admissible unless the accounts of such business of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been 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 assessee furnishes by that date the report of such audit in the prescribed form duly signed and verified by such Accountant
Assessment Year 2022-2023.
No change in the Assessment Year 2022-2023.
Assessment Year 2023-2024.
No change in the Assessment Year 2023-2024.
Assessment Year 2024-2025.
No change in the Assessment Year 2024-2025.
3. Specified business eligible for deduction of Capital Expenditure (Section 35 AD)
Assessment Year 2021-2022.
An assesse shall if he opts be allowed a deduction in respect of the whole of any expenditure of capital nature incurred, wholly and exclusively, for the purposes of any specified business carried on by him during the previous year in which such expenditure is incurred by him.
Assessment Year 2022-2023.
No change in the Assessment Year 2022-2023.
Assessment Year 2023-2024.
No change in the Assessment Year 2023-2024.
Assessment Year 2024-2025.
No change in the Assessment Year 2024-2025.
4. Amortization of certain preliminary expenses (Section 35D)
Assessment Year 2021-2022.
1. Deduction Allowed –Amount equal to 1/5 th of the following preliminary expenses for the five successive previous years
a. Expenditure in connection with-
i. Preparation of feasibility report
ii. Preparation of project report
iii. conducting market survey or any other survey necessary for the business of the assesse
iv. engineering services relating to the business of the assesse
b. legal charges for drafting any agreement between the assessee and any other persons for any purpose relating to the setting up or conduct of the business of the assesse,
c. where the assesse is a company, also expenditure-
i. by way of legal charges for drafting the Memorandum and Articles of Association of the company;
ii. on printing of the Memorandum and Articles of Association
iii.by way of fees for registering the company under the provisions of the companies Act,1956
iv. in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing ,printing and advertisement of the prospectus;
d. Such other items of expenditure as may be prescribed
2. Where the aggregate amount of the expenditure referred to above exceeds an amount calculated at 5%-
a. of the cost of the project or
b. Where the assesse is an Indian company, at the option of the company, of the capital ,of the capital employed in the business of the company
the exceeds shall be ignored for the purpose of computing the deduction allowable under sub-section (1)
3.where the assesse is a person other than a company or a co-operative society ,no deduction shall be admissible under sub-section (1) unless the accounts of the assesse for the year or years in which the expenditure specified in sub-section (2) is incurred have been 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 for the first year in which the deduction under this session is claimed, the report of such audit by that date in the prescribed form.
Assessment Year 2022-2023.
No change in the Assessment Year 2022-2023.
Assessment Year 2023-2024.
No change in the Assessment Year 2023-2024.
Amendment in the Assessment Year 2024-2025 :
Existing Provision:
Provided that the work in connection with the preparation of the feasibility report or the project report or the conducting of market survey or of any other survey or the engineering services referred to in this clause is carried out by the assessee himself or by a concern which is for the time being approved94 in this behalf by the Board;
Amended Provision:
In section 35D of the Income-tax Act, in sub-section (2), in clause (a), for the proviso, the following proviso shall be substituted with effect from the 1st day of April, 2024, namely:— “Provided that the assessee shall furnish a statement containing the particulars of expenditure specified in this clause within such period, to such income-tax authority, in such form and manner, as may be prescribed.”.
5. Expenditure on prospecting for certain minerals (Section 35E)
Assessment Year 2021-2022
The amortization of qualifying expenditure is allowed in equal installments over a period of 10 years. The amount deductible for each year is the lower amount of-
a. 1/10 th of qualifying expenditure or
b. income (before section 35 E deduction ) of the previous year arising from commercial exploitation of any mine or deposit of minerals of any other nature.
where the assesse is a person other than a company or a co-operative society ,no deduction shall be admissible under sub-section (1) unless the accounts of the assesse for the year or years in which the expenditure specified in sub-section (2) is incurred have been 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 for the first year in which the deduction under this session is claimed, the report of such audit by that date in the prescribed form.
Assessment Year 2022-2023.
No change in the Assessment Year 2022-2023
Assessment Year 2023-2024.
No change in the Assessment Year 2023-2024.
Assessment Year 2024-2025.
No change in the Assessment Year 2024-2025.
6. Special reserve created by a financial corporation under section 36(1)(viii)
Assessment Year 2021-2022
In respect of any special reserve created and maintained by a specified entity,an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head “ Profits and gains of business or profession “ (before making any deduction under this clause ) carried to such reserve account.
Assessment Year 2022-2023.
No change in the Assessment Year 2022-2023.
Assessment Year 2023-2024.
No change in the Assessment Year 2023-2024.
No change in the Assessment Year 2024-2025.
(Republished with amendments)
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