Tax Planning for New Business: Place and Nature

 Tax Planning for New Business: Place and Nature

 

(Tax Planning for New Business: Location and Nature)

 

Some important elements are considered among many elements to start a new business. These elements are the ability and interest of the entrepreneur, available resources, such as capital, technical knowledge, labor, raw material etc.; Business conditions, economic environment, cost and availability of energy and transport facilities. Apart from this, while starting the business and choosing the place of business, the estimated return on the capital employed and the tax burden etc. are the main facts that need to be considered. This is called tax planning.

Tax planning for new business includes the following planning:-

(I)                 Tax planning in respect of 'new place of business'.

(II)                Tax planning in relation to 'nature of business'.

(III)              'Give the format of business organization, tax planning in relation.

 

(I) Tax planning with respect to location

 

(Tax planning for location)

 

In relation to the place of new business, tax planning means planning i.e. choosing the place of business. The Income-tax Act, 1961 provides tax incentives to certain businesses or undertakings established in certain places. Therefore, an entrepreneur should set up his new business in such an area where he can get maximum tax benefits. The government has specially designated such areas, states and places where if a business or a specific business is established, the entrepreneur will get some tax benefits. Such tax benefits would depend on the nature of the sector and the particular situation of the sector. In some areas the tax benefit is 100% while in some other areas less than 100%. Such election is called tax planning in relation to the new place of business in technical terminology. The following are tax benefits or tax reliefs with respect to the new place of business:

 

(1) In relation to the location of new ventures established in the 'free trade sector' [Section 10A (1)] - If an entrepreneur is engaged in the production of goods or computer software in a specified economic zone in the previous year 2003-04 or starts a new business of manufacturing or establishes an 'Electronic hardware technology park' or 'Software technology park' in the same area and derives any profit from the export of such article or goods, such entrepreneur (Taxpayer) shall be given the following tax reliefs:

 

(i) 100% tax exemption as per section 10A(1A), which shall be allowed as deduction from the total profits of the enterprise for five assessment years.

 

(ii) 50% of such profits for the next two assessment years, and

 

(iii) 50% of such profits for two of the next three assessment years, which is credited to a newly created reserve account, namely, the Special Economic Zone Re-investment Allowance Reserve Account. This accumulation is used for business purposes.

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'Free Trade Zone' means Kandla Free Trade Zone and Santacruz Electronic Export Processing Zone or any other Free Trade Zone notified by the Central Government. Similarly, Electronic Hardware Technology Park and Software Technology Park mean such parks, which have been notified by the Ministry of Commerce and Industry of the Central Government. This tax exemption has been abolished from the assessment year 2012-13.

 

(2) 'Establishment of new business in a Special Economic Zone [Section 10AA] - If an entrepreneur sets up a new business or activity of production or manufacture of any article or thing or provision of service,' in a Special Economic Zone, in the previous year 2006-07 but before 1st April, 2021, such entrepreneur (taxpayer) shall be entitled to 100% tax deduction for the initial 15 years of the profits arising from the export of articles, goods or services produced or manufactured by such business under section 10AA. and 50% will be tax free for the next 10 years.

 

(3) Establishment of new business in the 'North Eastern Region' [Section 10C] - If an entrepreneur starts a new business of production or manufacture of any article or thing on or after April 1, 1998 and this business is an Integrated Infrastructure Development Center or Industrial Growth Center, which is located in the North-Eastern region, then the taxpayer will be given 100% tax exemption under Section 80C of the profits of this business which will remain for a period of 10 years. This tax exemption has been disallowed from assessment year 2004-05.

 

(4) Establishment of new business in any industrially backward state or union territory of Jammu and Kashmir [Section 80 IB]-. If an industrial undertaking (including coldstorage plant) is established in an industrially backward state or union territory of Jammu and Kashmir, the taxpayer will be given 100% deduction of profits from such business for the first 10 years.

 

(5) Establishment of new business in any class 'A' or 'B' backward state [Section 80 IB] - If any industrial undertaking (including coldstorage plant) in any industrial backward area class 'A' backward district or class If set up in 'B' backward district, the tax payer will be given tax exemption under Section 80IB up to 100% of the profits of such business in respect of class 'A' and class 'B' districts for initial 5 years.

 

(6) Establishment of new hotel business in specific area [Section 80-IB] - If hotel business is started in a hilly area, rural area or pilgrimage place or in any notified area, then the taxpayer has to pay initial tax under section 80IB Deduction of 50% of profits for 10 years will be provided as tax exemption. But if the hotel is established in areas other than the above mentioned places, the entrepreneur will be given tax exemption-deduction up to 30% of the profits for the initial 10 years.

 

(7) Establishment of new business in certain 'certain specified class of States' [Section 80IC] - If any industrial undertaking or establishment produces or manufactures any article or thing not specified in the Thirteenth Schedule or specified in the Fourteenth Schedule and is established in specified category of states i.e. Sikkim, Himachal Pradesh and Uttarakhand, then the taxpayer will be given 100% deduction of profits for initial 10 years as tax exemption under section 80IC. If the new business is in the state of 'Sikkim', then deduction of 100% of the profits will be provided for the first 5 years and thereafter up to 25% of the profits (30% for corporate taxpayer) for the next 5 years. If that business is in the state of 'Himachal Pradesh' or 'Uttarakhand'. This deduction will start from the first assessment year.

(8) Establishment of new hotel business and convention center in a 'specified area' [Section 80-ID] - If an undertaking, which is engaged in hotel business or ownership and operation of a convention center and it is established in a specified area or hotel business is established in a 'Specified District having a World Heritage Site', then the taxpayer will be allowed 100% of the profits of such business as deduction under section 80ID for 5 consecutive years.

'Specified area' means the National Capital Region (NCR) and the districts of Faridabad, Gurgaon, Sonipat, Gautam Budh Nagar and Ghaziabad.

'Specialized district having a world heritage site' refers to the following districts - Agra, Jalgaon, Aurangabad, Kanchipuram, Puri, Bharatpur, Chhattarpur, Thanjabur, Ballari, South Twenty-four Parganas, Chamoli, Raisen, Gaya , Bhopal, Panchmahal, Kampp, Goalpara, South Goa, North Goa, Nilgiris, Nagaon and Darjeeling.

 

(9) Establishment of new business in North-Eastern States [Section 80 IE] - If a new enterprise begins to manufacture or produce any desirable article or article or expands substantially to produce such desirable article or article or other If a person is carrying on a desirable business and started this business between 1st April, 2007 and 31st March, 2017 in any North-Eastern State, then such taxpayer shall be entitled to 100% of the profits of such business under section 80IE. Equal deduction will be given for the initial 10 years.

 

Photo: Provisions of the sections mentioned earlier from here, in detail in the previous chapter titled 'Tax-Reliefs and Incentives'

 

(II) TAX PLANNING FOR THE NATURE OF BUSINESS

 

(Tax planning for Nature of Business).

 

The nature of business refers to the class, type and subject matter of business. A business may be in the nature of manufacture or production of any article or thing, or of hotel or of providing service, or of operating a convention centre, or of any theater operation software or hardware or of development of areas, or of parks Or it can be for the development of basic facilities, or for the operation of a ship or for providing finance. Various reliefs and tax incentives or deductions are provided to certain classes of businesses under the Income Tax Exemptions, Karka, or export of any article or material, or Act, 1961. Such reliefs are called either tax exemptions or deductions. These tax-reliefs or deductions depend on the nature of the business. While starting a new business, the entrepreneur should choose such a form of business, from which he can get maximum tax exemptions and deductions and get maximum tax benefits. Such planning is called tax planning in relation to the nature of business. Some of the following tax incentives, reliefs or deductions are given depending on the nature of the business or directly related to it:

 

(1) Newly established hundred per cent export promotion undertaking [Section 10B] – If the newly established hundred per cent export promotion enterprise manufactures or produces any article or thing or computer software, the entire profits of such enterprise shall be 100 of such profits Tax exemption will be given by giving % deduction, provided this profit is generated from export of goods or computer software, this deduction will be given for 10 assessment years. But from the assessment year 2012-13, no deduction is given under this section.

 

(2) Special provision in relation to exports of certain articles or goods [Section 10BA] - A newly established undertaking, which produces or manufactures desirable article or goods without imported raw material and 90% or more of its production in the year If the sale is export sale, 100% of the profits of such undertaking shall be tax-free as a deduction. No deduction is provided under this section from the assessment year 2010-11.

 

(3) Business of growing and manufacturing tea or coffee or rubber in India [Section 33AB] - If the taxpayer grows or manufactures tea or coffee or rubber in India made by the Tea Board or the Coffee Board or the Rubber Board in a special account of the National Bank for Agriculture and Rural Development (NABARD) under the scheme estimated or made by the Tea Board or the Coffee Board or the Rubber Board with the prior permission of the Central Government If a taxpayer deposits any amount in a deposit account within 6 months from the end of the previous year, under any scheme, then the following tax exemption will be given to that taxpayer in the form of deduction.

 

40% of the amount of such deposit or of the profits of such business (whichever is less). Thus, if the taxpayer sets up a business of production or manufacture of tea or coffee or rubber in India, he shall be entitled to a deduction of the profits of such business. Up to 40% can be allowed as deduction.

 

(4) Business of prospecting for and extraction of production of a petroleum or natural gas or both in India [Section 33ABAJ – If a taxpayer in India is carrying on the business of extraction, development or production of petroleum or natural gas or both under an agreement with the Central Government and deposits any money in a special account with the State Bank of India or a Site Restoration Account ( Site restoration account), such taxpayer shall be allowed a deduction from the business profits of the current year equal to the lower of the following:-

 

20% of the amount or amounts or profits deposited in the said accounts

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Business (5) Exemption of profit on eligible business [Section 44 AD] - If an eligible taxpayer is engaged in an eligible business, then that taxpayer shall be entitled to the total sales or gross receipts of such business. Tax exemption is provided by treating profit equal to 8% of Rs. That is, the income earned by the eligible taxpayer from such eligible business will be considered equal to 8% of the total sales or gross receipts of such business. But if the total sales / turnover or gross receipts in any previous year is received through account payee check or bank draft or through any electronic clearing system (ECS), then in that case the eligible taxpayer Income will be considered as 6% instead of 8%. The taxpayer can also declare his taxable profit as higher than 8% or 6% as the case may be. But if the taxpayer claims that his taxable income is less than 8% of the total turnover and gross receipts, then the taxpayer will have to keep all those account books or other forms which prove his claim to be correct.

 

But this provision will not apply in the following cases:-

 

(i) a person carrying on a profession referred to in section 44AA(I);

 

(ii) any person who earns income by way of commission or brokerage;

 

(iii) any person carrying on the business of an agency.

 

(6) Business of plying, hiring or leasing goods carriages [Section 44AE] – If an assessee who owns more than 10 goods carriages at any time during the previous year and he is engaged in the business of plying, hiring or leasing such goods carriages, the taxable profits of such business shall be computed as follows:

 

(i) in the case of a heavy goods vehicle (gross vehicle weight exceeding 12,000 kg), an amount equal to ₹ 1,000 per ton of gross vehicle weight or unladen weight or the amount actually earned by such vehicle (whichever is the case) is higher) shall be deemed to be taxable profit of the business.

 

(ii) ₹ 7,500 per month or part thereof in the case of goods vehicle other than heavy goods vehicle or the amount earned by the taxpayer, whichever is higher, shall be deemed to be taxable profit in business.

 

(7) Shipping business [Section 44B] - If a non-resident taxpayer, engaged in the business of operating ships, carries goods, mail, animals or passengers on hire or If he is engaged in the business of transportation, then 7.5% of the total amount received from such rental will be considered as taxable profit of that business.

 

(8) Income from business of exploration etc. of mineral oils [Section 44BB] - If a non-resident taxpayer is engaged in the business of exploration or extraction or production of mineral oils in India, and provides his services and facilities in this regard or rents out his machines for these works, then 10% of the amount received (whether payable or received in India or outside India) in this context shall be deemed to be the taxable income of that taxpayer.

 

But if the taxpayer claims to have less than the above 10% profit, he can do so only if he maintains the prescribed account books and forms under section 44-AA(2), gets the accounts audited and Submit the audit report prescribed in section 44-AB.

 

(9) Business of air craft operation [Section 44 BBA] – If a non-resident taxpayer is engaged in the business of operating an aircraft and carrying passengers, animals, mail or goods 5% of the amount received or payable by way of rent or rental as a result thereof is deemed to be taxable profit.

 

(10) Business of civil construction etc. in certain turnkey power project by a foreign company [Section 44 BBB] approved by the Government, is engaged in the business of construction work or installation of plant and machinery, then only 10% of the amount received or payable by the company from such business will be considered as taxable business income of the company.

(11) Industrial undertaking or enterprise engaged in infrastructure development etc. [Section 80 IA] - If an industrial undertaking or undertaking is engaged in the business of:- (1) infrastructure development to provide for; (II) providing telecommunication services; (III) developing an industrial park or special economic zone; (IV) the business of generation, distribution or transmission of energy; (V) Reconstruction and revival of any power plant is to be provided and he receives benefits from them, then the taxpayer will get tax exemption under section 80-1A in respect of such benefits in the form of deduction, which will be in the form of deduction. The amount of deduction will be 100% of the profits of such business and will be available for the first 10 assessment years. But in respect of an undertaking which provides telecommunication services, the deduction will be 100% of the profits for the first 5 years and 30% of the profits for the next 5 years.

 

(12) Industrial undertaking engaged in the business other than infrastructure development [Section 80 IB] - If an industrial undertaking is engaged in the following business:- (I (i) production or manufacture of any article or thing or operation of a cold storage plant, (ii) operation of a ship, (iii) hotel business or business of scientific and industrial research and development or (v) production of mineral oils, (vi) (i) housing and development project business, (vii) integrated management, storage and transportation of food grains, (viii) multiplex theatre, (ix) convention center or (x) any hospital in a rural area. operation and maintenance of, (xi) tax exemption shall be granted to a taxpayer located in any area of India other than the Excluded area, by way of deduction from the profits of such business, 100%, 50%, 30% of the profits % and 25% as the case may be, the period of deduction is from 3 initial years to 10 initial years Which can operate and maintain the hospital, which depends on the type of different business.

 

(13) Business of hotel and convention center [Section 80 ID] — If a taxpayer is engaged in the business of a hotel, which is located in a specified area or a specified district Specified district having world heritage site) or is engaged in the business of owning, building and operating a convention center, then that taxpayer will be allowed 100% of the profits of such business as deduction under section 80ID. This deduction will be like tax-exemption which will be provided for 5 consecutive years.

 

- (14) Business of collecting and processing of garbage (Business of collecting and processing of Bio-degradable waste) [Section 80 JJA] - If any taxpayer is engaged in collecting and processing or using garbage engaged in the business of manufacturing electricity, bio-fertilizers, bio-pesticides or other biological agents, round or square pieces for bio-gas fuel or chemical fertilizers, then the taxable income of such taxpayer 100% deduction of the same shall be allowed for 5 consecutive assessment years for computing the profits.

 

(15) An undertaking providing employment to new workman [Section 80 JJAA] — If an undertaking taxpayer employs new regular employees in the previous year, that undertaking shall A deduction equal to 30% of the cost of the new employees will be provided in the benefits. This deduction will be allowed for 3 consecutive assessment years including the assessment year in which the appointments are made.

 

(16) Off-shore banking business and International financial services center [Section 80LA] - If the taxpayer is a scheduled bank or a foreign bank having onshore banking activities in a Special Economic Zone unit or is a unit of International Financial Services Center, then that taxpayer will be given deduction equal to 100% of the income for the first 5 years and 50% of the income for the next 5 years under section 80LA from his income.