Areas of Tax Planning

Scope of tax planning for setting up of new business
Areas of Tax Planning:

Tax planning may be effective in every area of business
management. Some of the important areas where planning
may be attempted are:
1. Location of business
2. Nature and size of business
3. Form of business organisation and the pattern of its
ownership
4. Specific management and financial decisions such as
make or buy, own or lease, capital structure, renew or
replace etc.
5. Employees remuneration
1
Location of Business
Tax planning is relevant from location point of view. There
are certain locations which are given special tax treatment.
Some of these are:
1. Free trade zones
Full exemption under section 10(A) for ten consecutive
years in the case of newly established industrial undertaking
in free trade zones. Free trade zone means the following
areas:
– Kandla (Gujrat) Free Trade Zone
– Santacruz (Mumbai) Electronic Export Processing Zone
– Falta (Calcutta) Export Processing Zone
– Madras Export Processing Zone
– Cochin Export Processing Zone
– Noida Export Processing Zone
2
Location of Business (Cont..)
2. Special Economic Zones
Full exemption under section 10 (AA) for initial five
consecutive years, 50% for subsequent five years and
further deduction of 50% of the profit for a further
period of five years in the case of newly established
units in special economic zones.
The objectives of SEZ are to increase export,
investment (foreign and domestic), employment, state
of the art technology and infrastructure development.
3. Development of Special Economic Zones
Deduction under section 80-IAB in respect of profits by
an undertaking engaged in the development of special
economic zones.
3
Location of Business (Cont..)
4. Industrially backward states or districts
Deductions under section 80-IB in the case of newly set up industrial undertakings
in an industrially backward state or district. The state and union territories which
have been specified to be industrially backward states are Arunachal Pradesh,
Assam, Goa, Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim, Tripura, Andaman and Nicobar Islands, Dadra and
Nagar Haveli, Daman and Diu, Lakshadweep and Pondicherry.
• For the initial 5 assessment years – 100% of the profit and gains derived from such
undertaking and
• Thereafter, for the next 5 assessment years – 25% of the profits and gains derived
from such industrial undertaking. (30% in case of a company) (25% for 7
assessment years in case of co-operative society)
5. Special Category States

Deduction under section 80-IC in case of newly set up industrial undertaking or
substantial expansion of an existing undertaking in certain special category states.
Initially three state Assam, Nagaland and J &K were covered under this category.
Later on 8 more states (AP, HP, Manipur, Meghalaya, Mizoram, Sikkim, Tripura
and Uttrakhand) were also included in this category.
The deduction shall be 100% of profits and gains of the Industrial undertaking for
the first 5 years commencing from the initial assessment year and 25% (30% in the
case of a company) for the next 5 years.
4
Nature of Business
Tax planning is also relevant while deciding upon the
nature of business. There are certain businesses which
have special tax treatment. Some of them are:
1. 100% export oriented undertakings
Full exemption under section 10B for 10 consecutive
years in the case of newly established 100% export
oriented undertakings.
2. Export of eligible Articles or things
Full exemption under section 10BA for 10 years for the
profits arising from the export of eligible articles or
things. Eligible articles or things means all hand-made
articles or things which are of artistic value and which
requires the use of wood as main raw material.
5
Nature of Business (Cont..)
3. Hotels in hilly or rural areas or place of pilgrimage
Deduction under section 80-IB for an assessee engaged in
the business of hotel located in hilly/rural area or place of
pilgrimage.
4. Operating and owning multiplexes theatres
Deduction under section 80-IB (7A) for an assessee
engaged in the business of operating and owning of
multiplexes theatres.
5. Building, operating and owning of convention centres
Tax benefits in case of business of building, owning and
operating of a convention centre under section 80-IB (7B)
Convention centre means building of a prescribed area
which has a convention hall for the purpose of holding
conferences and seminars and is of such size and number
and having such other facilities and amenities as may be
prescribed.
6
6. Telecommunication services
Deduction of expenditure for obtaining licence to operate
telecommunication services under section 35-ABB
7. Growing or manufacturing tea, coffee or rubber
Tax benefits in case of business of growing and
manufacturing tea or coffee or rubber in India under section
33AB
8. Generation or distribution of power
Tax benefits for assessee engaged in the business of
generation or distribution of power under section 80-IA
9. Production or refining of mineral oil
Tax benefits for industrial undertaking engaged in the
business of commercial production or refining of mineral
oil.
7
10. Venture capital investment or undertaking
Full exemption of income arising from venture capital investment or
venture capital undertaking under section 10(23FB)
11. Income from mutual funds
Exemption of income from notified mutual funds under section
10(23D)
12. Developing housing projects
Deduction available undertakings engaged in developing housing
projects under section 80-IB
13. Profits from retail business
Special provisions for computing profits and gains of retail business
as per section 44AF
14. Royalty income of foreign companies
Special provisions in the case of royalty income of foreign
companies [44D]
8
15. Royalty income of non-residents
Special provisions in case of royalty income of non-residents
[44DA]
16. Infra structural development
Profits and gains of industrial undertakings engaged in
infrastructural development
[80-IA]. For the purpose of this clause, infrastructural facilities
means
a) A road, rail or bridge system;
b) A highway project including housing or other activities being
an integral part of the highway project;
c) A water supply project, water treatment system, irrigation
project, sanitation and sewerage system or solid waste
management system;
d) A port, airport, inland waterway or inland port.
9
17. Treatment of bio-degradable waste [80JJA]
Profits and gains from the business of collecting
and processing of bio-degradable waste.
18. Employment of new workmen [80JJAA]
A cash back incentive is provided to employer
against payment of salaries to new employees.
19. Plying of trucks [44AE]
Tax benefits on the income of plying, hiring or
leasing of trucks and does not own more than 10
trucks at any time during the previous year.
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Scope of tax planning for setting up of new business

Areas of Tax Planning:

5. Special Category States

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