Unit II Tax Planning and Company Promotion

Corporate Tax Planning
Unit-II: Tax Planning and Company Promotion
Meaning of Tax Planning, Tax Avoidance, Tax Evasion
and Tax Management; Features and Scope for Tax
Planning; Business Location and Tax Planning; Nature of
Business and Tax Planning: FTZ, Units in SEZ, 100% EOU
and Infrastructure Development.
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and Infrastructure Development.
Prepared by
Mr. Dayananda Huded M.Com NET, KSET
Faculty of Commerce,
Rani Channamma University, PG Centre, Jamkhandi
E-Mail: dayanandch65@gmail.com
Mr. Dayananda Huded

Meaning of Tax Planning
 Tax planning is a focal part of financial planning. It ensures savings on taxes
while simultaneously conforming to the legal obligations and requirements of
the Income Tax Act, 1961. The primary concept of tax planning is to save money
and mitigate one's tax burden.
 Tax Planning is the arrangement of financial activities in such a way that maximum
tax benefits are enjoyed by making use of all beneficial provisions in the tax laws.
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tax benefits are enjoyed by making use of all beneficial provisions in the tax laws.
It entitles the assessee to avail certain exemptions, deductions, rebates and reliefs,
so as to minimise its tax liability.
Mr. Dayananda Huded

Objectives of Tax Planning
 (i) Reduction of tax liability: One of the supreme objectives of tax planning is the
reduction of the tax liability of the payer and the resultant saving of the earnings
for a better enjoyment of the fruits of hard labour.
 (ii) Minimization of litigation and the tax payer may be saved from the hardships
and inconveniences caused by unnecessary litigations.
 (iii) Productive investment: Tax planning is a measure of awareness of the
taxpayer to the intricacies of the taxation laws and it is the economic consciousness
of the income earner to find out the ways and means of productive investment of
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taxpayer to the intricacies of the taxation laws and it is the economic consciousness
of the income earner to find out the ways and means of productive investment of
the earnings which would go a long way to minimize its tax burden.
 (iv) Healthy growth of economy: The saving of earnings is the only basement
upon which the economic structure of human life is founded.
 (v) Economic stability: Productive investment increase contours of the national
economy embracing in itself the economic prosperity of not only the tax payers but
also of those who earn the income not chargeable to tax. The planning thus creates
economic stability of the nation and its people by even distribution of economic
resources.
Mr. Dayananda Huded

Factors on the Basis of Which Tax Planning is Done
 (i) Residential status and citizenship of the assessee: We know that a
non-resident in India is not liable to pay income-tax on incomes which
accrue or arise and are also received outside India, whereas a resident in
India is liable to pay income-tax on such incomes.
 (ii) Heads of income/assets to be included in computing net wealth:
Before the Tax-planner goes in for his task; he has to have a full picture of
the sources of Income of the tax payer and the members of his family.
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the sources of Income of the tax payer and the members of his family.
 (iii) Latest legal position: It is the foremost duty of a tax-planner to keep
him fully conversant with the latest position of the taxation laws along with
the allied laws and also the judicial pronouncements in respect thereof. For
this purpose he must have a thorough and upto- date understanding of the
annual finance Acts, the Taxation Laws Amendments, the amendments, if
any, of the allied laws, the latest judicial pronouncements of the High
Courts and the Supreme Court, various Circulars of the Central Board of
Direct Taxes which seek to clarify the legal position in so far as the Revenue
is concerned.
Mr. Dayananda Huded

 (iv) Form vs Substance: A tax planner has to bear in mind the following
principles enunciated by the courts on the question whether form or
substance of a transaction should prevail in Income-tax matters.
 (a) Form of transaction: When a transaction is arranged in one form
known to law, it will attract tax liability while, if it is entered into another
form which is equally lawful, it may not.
 (b) Genuineness of transaction: In deciding whether the transaction is a
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 (b) Genuineness of transaction: In deciding whether the transaction is a
genuine or colourable one because in such a situation, it is not the question
of form and substance but of appearance and truth. It will be open to the
authorities to pierce the corporate veil and look behind the legal facade,
at the reality of the transaction.
 (c) Expenditure: In the case of expenditure, the mere fact that the payment
is made under an agreement does not preclude the department from
enquiring into the actual nature of the payment.
Mr. Dayananda Huded

Methods Commonly Used by the Companies to
Minimise Tax Liability
 1. Tax Evasion: Tax evasion is an illegal activity in which a person or entity
deliberately avoids paying a true tax liability. Those caught evading taxes
are generally subject to criminal charges and substantial penalties.
 Examples of tax evasion include claiming tax deductions or tax credits
you're not entitled to, intentionally underreporting or failing to report
income, and concealing taxable assets.
 Tax evasion is a punishable offence which involves imprisonment and
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 Tax evasion is a punishable offence which involves imprisonment and
penalty. The Income Tax Act, 1961 provides for cases of tax evasion under
different sections.
 Some of the methods used to evade/reduce tax liability are:
 (a) Concealment of income
 (b) Inflation of expenses to suppress profits
 (c) Falsification of accounts
 (d) Conscious violation of rules
Mr. Dayananda Huded

Contnd.
 2. Tax Avoidance: Tax avoidance is minimising the incidence of
tax by adjusting the affairs in such a manner that although within
the four corners of the taxation laws, the advantage is taken by
finding out loopholes in the laws.
 Tax avoidance is the legal usage of the tax regime in a single
territory to one's own advantage to reduce the amount of tax that
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territory to one's own advantage to reduce the amount of tax that
is payable by means that are within the law. A tax shelter is one
type of tax avoidance, and tax havens are jurisdictions that
facilitate reduced taxes.
 A tax haven is a foreign country or corporation used to avoid or
reduce income taxes, especially by investors from another country.
A tax haven is a country or place that has a low rate of tax so
that people choose to live there or register companies there in
order to avoid paying higher tax in their own countries.
Mr. Dayananda Huded

Examples of Tax Havens Nations
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Mr. Dayananda Huded

 3. Tax Planning: Tax Planning thus can be defined as an
arrangement of the financial affairs within the scope of law
in a manner that derives maximum benefit of the exemptions,
deductions, rebates and relief and reduces tax liability to the
minimal.
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minimal.
 As long as one is within the framework of law, one can plan
financial affairs in such manner which keeps tax liability at its
minimum.
 However, in the name of tax planning, one should not indulge
in Tax Evasion, and the line between Tax Planning and Tax
Avoidance is very thin, so one needs to tread carefully.
Mr. Dayananda Huded

Tax Planning & Tax Evasion
Tax Planning Tax Evasion
1 Tax planning is an act within the
permissible range of the Act conducted
to achieve social and economic
benefits.
Tax evasion is an attempt to avoid tax by
misrepresentation of facts and falsification of
accounts.
2 Tax planning is a legal right which
enables the tax payer to achieve
Tax evasion is a legal offence which may lead
to penalty and prosecution.
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enables the tax payer to achieve
social and economic objectives.
to penalty and prosecution.
3 Tax planning accelerates development
of the economy of a country by
generating funds for investment in
desired sectors.
Tax evasion retards the development of
economy of a country by generating black
money which works as a parallel economy.
4 Tax planning promotes professionalism
and strengthens economic and political
situation of the country.
Tax evasion encourages bribery and weakens
economic and political situation of the country.
Mr. Dayananda Huded

Difference between Tax Avoidance and Tax Evasion
Sl. No. Tax Avoidance Tax Evasion
1 Tax avoidance means planning for
minimisation of tax according to legal
requirements but it defeats the basic
intention of the legislature.
Tax evasion means avoiding of tax liability
illegally.
2 Tax avoidance takes into account Tax evasion involves use of unfair means.
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2 Tax avoidance takes into account
various lacunas of law.
Tax evasion involves use of unfair means.
3 Tax avoidance is lawful but involves the
elements of mala fide intention.
Tax evasion is unlawful.
4 Tax avoidance is planning before the
actual liability for tax comes into
existence.
Tax evasion involves avoidance of payment
of tax after the liability of tax has arisen.
Mr. Dayananda Huded

Tax Management
 4. Tax Management: Tax Management refers to the
compliance with the statutory provisions of law.
 While tax planning is optional, tax management is
mandatory.
 Tax Management includes maintenance of accounts, filing of
return, payment of taxes, deduction of tax at source, timely
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return, payment of taxes, deduction of tax at source, timely
payment of advance tax, etc.
 Poor tax management may lead to levy of interest, penalty,
prosecution, etc.
 In some cases it may lead to heavy financial loss if proper
compliance is not made, e.g., if a loss return is not filed in
time it will result in a financial loss which will not be allowed
to be carried forward.
Mr. Dayananda Huded

Tax Planning & Tax Management
Tax Planning Tax Management
1 Tax planning is a wider term and
includes tax management.
Tax management is a narrower term and is first
term towards tax planning.
2 Tax planning emphasizes on
minimisation of tax burden.
Tax management emphasis the compliance of legal
formalities for minimisation of tax.
3 Every person may not require tax
planning.
Tax management is essential for every person.
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planning.
4 Tax planning helps in decision making. Tax management helps in complying with the
conditions for effective decision making.
5 Tax planning helps to claim various
benefits of tax.
Tax management helps in complying the conditions
for claiming tax benefits
6 Tax planning involves comparison of
various alternatives before selecting
the best one.
Tax management involves maintenance of accounts
in prescribed form, filing of returns ,payment of
taxes, etc.
7 Tax planning looks at future benefits. Tax management relates to the past, present and
future.
Mr. Dayananda Huded

Features & Scope of Tax Planning
 Reduction in tax liability.- one of the most important features of tax
planning is to reduce tax liability. Every individual has done his financial
plan so he can reduce his tax amount and can save for his future plans.
 Advance planning.- one has to arrange his tax plans at the beginning of
the financial year because no one can plan to reduce his tax liability day
before filing an income tax return.
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before filing an income tax return.
 Investment in the right direction.- with the help of tax planning one can
invest his money in the right direction by choosing the right policy.
Investment in any assets or policy will not help in saving money from taxes,
for this right investment should be done.
 Dynamic in nature.- tax planning has to be done every year because of
the new implementation of policies introduced by the government. One has
to modify his tax plans at the beginning of every financial year.
Mr. Dayananda Huded

Business Location and Tax Planning
 Sec. [ 10A] : Tax Holiday for newly established undertaking in
Free Trade Zone:
 First 5 Years – 100 % of profits and gains is allowed as deduction
 Next 2 Years : 50% of such Profit and Gains is deductible for
further 2 assessment years.
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further 2 assessment years.
 Next 3 Years : for the next three consecutive assessment years, so
much of the amount not exceeding 50% of the profit as is debited
to the profit and loss account year in respect of which the
deduction is to be allowed and credited to a reserve account (to
be called the ''Special Economic Zone Re-investment Allowance
Reserve Account'') to be created and utilised for the purposes of
the business of the assessee
Mr. Dayananda Huded

 Sec. [ 80IA] : an [undertaking] which,—
 (a) is set up in any part of India for the generation or generation and
distribution of power if it begins to generate power at any time during the
period beginning on the 1st day of April, 1993 and ending on the 31st
day of March, 2010;
 (b) starts transmission or distribution by laying a network of new
transmission or distribution lines at any time during the period beginning on
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transmission or distribution lines at any time during the period beginning on
the 1st day of April, 1999 and ending on the 31st day of March, 2010.
 (c) undertakes substantial renovation and modernisation of the existing
network of transmission or distribution lines at any time during the period
beginning on the 1st day of April, 2004 and ending on the 31st day of
March, 2010.
Deductions allowed is 100% or 30% of profits from such eligible business
Mr. Dayananda Huded

 Sec. [80IB] : Deduction in respect of Profits of Industrial Undertaking located in
backward State or District. Deduction allowed is either 100% and /or 30% for 10
years depending upon case to case.
 Sec. [80IB(11B)] : The amount of deduction in the case of an undertaking deriving
profits from the business of operating and maintaining a hospital in a rural area
shall be 100% of the profits and gains of such business for a period of five
(5) consecutive assessment years, beginning with the initial assessment year.
Sec. [ 80IC] : Profits from Industrial Undertaking located in the specified States,.
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 Sec. [ 80IC] : Profits from Industrial Undertaking located in the specified States,.
States are State of Jammu & Kashmir, Himachala Pradesh, Uuttaranchal and North
Eastern States. Deduction allowed is 100% of such profit.
 Sec.[ 80 LA] : Where the gross total income of an assessee,— (i) being a
scheduled bank, or, any bank incorporated by or under the laws of a country
outside India; and having an Offshore Banking Unit in a Special Economic Zone;
or (ii) being a Unit of an International Financial Services Centre , there shall be
allowed a deduction from such income, of an amount equal to— 100% of such
income for five consecutive assessment years beginning with the assessment year.
Mr. Dayananda Huded

Nature of Business and Tax Planning
 1. Sec. [ 10(1) ] : Agricultural Income– fully exempted (100%.
2. Sec. [10(23FB)] : Dividend or Long-Term Capital Gain ( LTCG)
accruing to Venture Capital or a Venture Company – 100% tax
exempted.
 “venture capital company” means such company—
 (i) which has been granted a certificate of registration under the Securities and
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 (i) which has been granted a certificate of registration under the Securities and
Exchange Board of India Act, 1992
 “venture capital fund” means such fund—
 (i) operating under a trust deed registered under the provisions of the
Registration Act, 1908 or operating as a venture capital scheme made by the
Unit Trust of India established under the Unit Trust of India Act, 1963;
 (ii) which has been granted a certificate of registration under the Securities and
Exchange Board of India Act, 1992 .
Mr. Dayananda Huded

 3. Sec. [ 33 AB) ] : Tea Development Account, Coffee
Development Account and Rubber Development Account : Where an
assessee carrying on business of growing and manufacturing tea or coffee
or rubber in India has, before the expiry of six months from the end of the
previous year or before the due date of furnishing the return of his income,
whichever is earlier,—
 - deposited with the National Bank any amount or amounts in an
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 - deposited with the National Bank any amount or amounts in an
account the assessee shall be allowed a deduction of—
 (a) a sum equal to the amount or the aggregate of the amounts so
deposited ; or
(b) a sum equal to 40% [forty] per cent of the profits of such business
(computed under the head “Profits and gains of business or profession”
before making any deduction under this section),
whichever is less :
Mr. Dayananda Huded

 4. Reduced rate of tax for newly set-up domestic
manufacturing companies and companies engaged in
generation of electricity
 A beneficial CIT rate of 15% (plus surcharge of 10%
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and applicable health and education cess of 4%) with
effect from tax year 2019/20 for newly set-up domestic
manufacturing companies can be availed. The benefit of
concessional tax rate of 15% has been extended to
domestic companies engaged in the business of
generation of electricity from tax year 2020/21.
Mr. Dayananda Huded

 Sec. [ 44 AF ] : Special provisions for computing profits and gains of retail business : If
the assessee engaged in retail trade in any goods or merchandise, a sum equal to 5% (five
per cent ) of the total turnover shall be deemed to be the profits and gains of such business
chargeable to tax under the head “Profits and gains of business or profession”.
 Sec. [ 44B ] : Special provision for computing profits and gains of shipping business in
the case of non-residents. : in the case of an assessee, being a non-resident, engaged in
the business of operation of ships, a sum equal to 7½ % (seven and a half per cent ) of the
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the business of operation of ships, a sum equal to 7½ % (seven and a half per cent ) of the
aggregate of the amounts shall be deemed to be the profits and gains of such business
chargeable to tax under the head “Profits and gains of business or profession”.
 Sec. [ 44 BBA ] : Special provision for computing profits and gains of the business of
operation of aircraft in the case of non-residents : in the case of an assessee, being a
non-resident, engaged in the business of operation of aircraft, a sum equal to 5% ( five per
cent ) of the aggregate of the amounts shall be deemed to be the profits and gains of such
business chargeable to tax under the head “Profits and gains of business or profession”.
Mr. Dayananda Huded

Income
(in ₹)
Corporate Income Tax Rate (%)
Turnover Does not
increase ₹ 400 crores in
FY 2020/21
For Other Domestic
Companies
Foreign Companies
Basic Effective ** Basic Effective ** Basic Effective **
Less than
INR 10
million (1
cr)
25 26 30 31.20 40 41.60
More than 25 27.82 30 33.38 40 42.43
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More than
1 crore but
less than 10
crore
25 27.82 30 33.38 40 42.43
More than
10 crore
25 29.12 30 34.94 40 43.68
Mr. Dayananda Huded
* Surcharge of 12% is payable only where total taxable income exceeds INR 10 million.
** Effective tax rates include surcharge and health and education cess of 4%.

Minimum Alternative Tax (MAT)
 Companies exercising the option of a lower tax rate of 22% (discussed above)
have been excluded from the applicability of provisions of MAT and MAT credit.
 Companies that continue to pay taxes under the existing tax regime (not exercising
the option under the alternative tax regime as discussed above) are liable to pay
MAT on their adjusted book profits (other than income from life insurance business)
where the tax liability under the normal provisions (excluding surcharge and health
and education cess) of the Income-tax Act for the tax year is not more than 15%
(excluding surcharge and health and education cess) of such book profits.
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(excluding surcharge and health and education cess) of such book profits.
 MAT credit is the amount paid over and above the normal tax liability, which can
be carried forward and can be utilised for 15 years. However, MAT credit to the
extent of difference between the foreign tax credits allowed against MAT over
such credit allowable against the tax under the other provisions of the Income-tax
Act will not be eligible to be carried forward.
 MAT provisions are not applicable to foreign companies that do not have a PE in
India. However, MAT provisions will not apply to foreign companies where their
total income is solely derived from shipping business, exploration of mineral oils,
business of aircraft, civil construction in turnkey projects and income thereon is
offered to tax as per specific provisions provided under the Income-tax Act.
Mr. Dayananda Huded

Income * (in ₹) MAT Rate (%)
Indian Company Foreign Company (Other than
exempted)
Basic ** Effective *** Basic ** Effective ***
Less than INR 10
million (1 cr)
15 15.6 15 15.6
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million (1 cr)
More than 1 crore
but less than 10
crore
15 16.692 15 15.912
More than 10 crore 15 17.472 15 16.380
Mr. Dayananda Huded
* Surcharge of 10% is payable only where total taxable income exceeds INR 10 million.
** Basic rate of MAT is 9% of book profits in case of a corporate and non-corporate taxpayer
located in an International Financial Services Centre and deriving income solely in convertible
foreign exchange.
*** Effective tax rates include surcharge and health and education cess.

FTZ Tax Planning
 Free Trade Zones (FTZs) are those locations or areas that
allow the import, storage, manufacturing of goods, etc.,
without subjecting them to customs duties or taxes.
 Companies setting up in an FTZ can take advantage of its
various regulatory and fiscal incentives. These include the
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various regulatory and fiscal incentives. These include the
right to duty-free imports, retain and reinvest foreign
exchange earnings, and tax rebates, to name a few.
Moreover, organizations can avail of additional benefits if
they adhere to the customs control and filing requirements.
 An FTZ intends to attract investment, increase employment
and, thus, reduce poverty and unemployment in the local
area.
Mr. Dayananda Huded

Examples
 North American Free Trade Alliance (NAFTA) / United States-Mexico-Canada Agreement
(USMCA)
 The NAFTA is a free trade agreement between the US, Mexico, and Canada enacted in
1994. The NAFTA lowered/eliminated its tariffs for imports and exports between its three
participants, creating a substantial FTZ.
 On August 27, 2018, president Donald Trump announced a renegotiated trade agreement
with Mexico to replace the NAFTA. This trade agreement between the US and Mexico
provided duty-free access for agricultural goods on both sides. It eliminated non-tariff
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provided duty-free access for agricultural goods on both sides. It eliminated non-tariff
barriers to encourage more agricultural trade between the two countries. As of September
30, 2018, Canada was included in this agreement, and the NAFTA was entirely replaced by
the United States-Mexico-Canada Agreement (USMCA), taking effect on July 1, 2020.
 With a GDP of US$ 24.9 trillion, the USMCA is the largest FTZ in the world.
 European Union (EU) Single Market
 The EU Single Market refers to a market of 27 member states of the EU. It is similar to a
free trade area in that it doesn’t impose tariffs, quotas, or taxes on trade activities.
However, it does facilitate the free movement of services, capital, and people. The EU Single
Market with a GDP of US$ 14 trillion is the second-largest FTZ in the world.
Mr. Dayananda Huded

 African Continental Free Trade Area (AfCFTA)
 Based on the number of countries involved, the AfCFTA is the largest free trade
area in the world. A total of 1.3 billion people are connected by this pact across
55 countries, with a combined GDP of US$ 3.4 trillion.
 China’s Special Economic Zones
 The SEZs of China offer the opportunity to integrate a free-market approach to
bring in more foreign direct capital into the country. Essentially, they serve as
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bring in more foreign direct capital into the country. Essentially, they serve as
dynamic environments that promote innovation and productivity.
 Southeast Asian Free Trade Area
 The ASEAN Free Trade Area (AFTA) was signed in Singapore in January 1992.
Initially, the group included Brunei, Indonesia, Malaysia, the Philippines, Singapore,
and Thailand. However, Vietnam, Laos, Myanmar, and Cambodia have joined since
then. In general, the trade between the member nations involved with various
agreements has mainly been void of export and import duties. Several other
countries, including China, have also signed agreements to eliminate tariffs on
around 90% of imports.
Mr. Dayananda Huded

Period and Rate of Deduction
 Rate of deduction for unit set up in Special Economic Zone on or after 1-4-
2003 shall be as follows for first 10 assessment years :
 8 First 5 Years – 100 % of profits and gains derived from the export of
such articles or things or computer software for a period of five consecutive
assessment years beginning with the assessment year relevant to the
previous year in which the undertaking begins to manufacture or produce
such articles or things or computer software, as the case may be, and
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such articles or things or computer software, as the case may be, and
thereafter,
 8 Next 2 Years : 50% of such Profit and Gains is deductible for further 2
assessment years.
 8 Next 3 Years : for the next three consecutive assessment years, so much
of the amount not exceeding 50% of the profit as is debited to the profit
and loss account of the previous year in respect of which the deduction is to
be allowed and credited to a reserve account (to be called the ''Special
Economic Zone Re-investment Allowance Reserve Account'') to be created
and utilised for the purposes of the business of the assessee
Mr. Dayananda Huded

Units of SEZ and Tax Planning
 The salient features of the SEZ scheme are:-
 A designated duty free enclave to be treated as a territory outside the
customs territory of India for the purpose of authorised operations in the
SEZ;
 No licence required for import;
 Manufacturing or service activities allowed;
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Manufacturing or service activities allowed;
 The Units are only required to achieve Positive Net Foreign Exchange to be
calculated cumulatively for a period of five years from the commencement
of production;
 Domestic sales subject to full customs duty and import policy in force;
 Full freedom for subcontracting;
 No routine examination by customs authorities of export/import cargo;
 SEZ Developers /Co-Developers and Units enjoy Direct Tax and Indirect
Tax benefits as prescribed in the SEZs Act, 2005.
 NOTE: Tax planning explained earlier (Refer: slide number 25 and 28)
Mr. Dayananda Huded

100% EOU and Infrastructure Development
 Export Oriented Units (EOUs) have been defined under
the Foreign Trade Policy (FTP) as those units
undertaking to export their entire production of goods
and services [except permissible sales in Domestic Tariff
Area (DTA) for manufacture of goods, including repair,
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Area (DTA) for manufacture of goods, including repair,
re-making, reconditioning, re-engineering, rendering
Mr. Dayananda Huded

Objectives of EOU Scheme
 Main objectives of EOU Scheme are as under:-
 (a) Boosting exports
 (b) Earning foreign exchange
 (c) Attracting foreign investment
(d) Generating employment
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 (d) Generating employment
 (e) Backward and forward linkage by way of sourcing of
raw material from and supply of finished goods to DTA
 (f) Attracting latest technology into the country
 (g) Upgrading the skill and creating source of skilled man-
power
 (h) Development of backward area.
Mr. Dayananda Huded

 Minimum Investment Criterion
 Only projects with investment of Rs.1 crore and above (except in
cases of certain specified sectors such as EHTP/STP/BTP,
Handicrafts/agriculture/ floriculture /aquaculture /animal
husbandry /information technology, services, Brass Hardware and
Handmade Jewellery sectors, and such other sectors as decided
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Handmade Jewellery sectors, and such other sectors as decided
by BOA) in plant & machinery are considered.
 Unit Approval Committee (UAC):
 For setting up a unit under EOU Scheme, approvals are given by
the Unit Approval Committee, which is headed by the jurisdictional
Development Commissioner and consists of SEZ officers, officers of
the State Govt., and officer of jurisdictional Central Excise
Commissionerate as members
Mr. Dayananda Huded

Comparison of EOU and SEZ Schemes
Benefits SEZ Units EOU’s
Income Tax 100% income-tax exemption for five years and
50% exemption for five years and thereafter 50%
exemption for five years in case of re-investment
of profits in terms of section 10AA of Income Tax
Act, 1961 inserted after section 10A as per the
Second Schedule of the SEZ Act (read with section
100% Income-tax exemption
upto 31.3.2011 (i.e.
Assessment Year 2011-12) or
first 10 years, whichever is
earlier. At present, no income
tax exemption available to
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Second Schedule of the SEZ Act (read with section
27 of the SEZ Act, 2005). The units commencing
operations before 1st April, 2005 shall be
covered as per provision contained under section
10A of Income Tax Act. Note : In terms of SEZ Act,
2005 (with effect from 10.2.2006) for SEZ
developer, the exemption from Income Tax shall be
available for a period of 10 years in a block of
15 years as per section 80-IAB inserted after
section 80-IA in terms of Second Schedule of the
SEZ Act, 2005.
tax exemption available to
EOU/STP/EHTP/BTP units
Mr. Dayananda Huded

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Constructio
n Material
Goods for infrastructure
development/maintenance i.e. construction
material allowed to be imported / procured
indigenously duty free.
Goods for infrastructure
development i.e. construction
material not allowed to be
imported/procured
indigenously duty free.
Service Tax SEZ units/developer exempted from payment of
service tax in respect of services consumed within
the SEZ. Services used partially in the SEZ or used
outside the SEZ as per notification issued by CBEC
are allowed to be refunded.
EOUs not exempted from
payment of service tax,
however CENVAT credit is
allowed for service tax paid.
Post manufacture services
Mr. Dayananda Huded
are allowed to be refunded. Post manufacture services
which are not input services
are allowed to be refunded
as per notification issued by
CBEC.
Trading
Unit
Trading units are allowed to be set up in SEZ. Trading units are not
permitted to be set up under
EOU Scheme.
Domestic
procuremen
t
Supply from DTA (Domestic Tariff Area) to SEZ is
physical exports.
Supply from DTA to EOU
considered as ‘deemed’
exports.

35
Foreign
Investment
100% FDI investment permitted through automatic
route for SEZ manufacturing unit and formal FIPB
(Foreign Invest Promotion Board) approval not
required. Sector Specific guidelines are applicable.
100% FDI investment permitted through
automatic route for EOUs and formal FIPB
approval required. Sector Specific guidelines
are applicable.
Customs
Documentatio
n
All import/export documentation and assessment
formalities to be completed in the zone itself.
All import/export documentation and
assessment formalities to be completed at the
respective port of import/ export.
Examination of
Goods
No routine examination of export /import goods by
Customs.
Examination of exports/imports goods by
customs except in cases where selfcertification
is allowed.
Mr. Dayananda Huded
is allowed.
Warehousing
License
Private bonded Warehouse License not required. Private bonded Warehouse License is required.
Locational
Requirement
SEZ unit can only be set up in the SEZ notified under
Section 4 of the SEZ Act.
No such requirement for EOU. EOU can be set up
anywhere in the country on standalone basis
provided the area has been declared as
warehousing stations.
Investment
Requirement
No minimum statutory investment limit prescribed. Minimum investment limit of one crore in plant
and machinery required except certain specified
sectors such as software, handicraft etc.

Infrastructure Development
 1. Export Oriented Units (EOUs), Electronics Hardware Technology Parks (EHTPs),
Software Technology Parks (STPs) & Bio-Technology Parks (BTPs)
 Businesses can set up units that undertake to export their entire production of
goods and services (except permissible sales in the domestic tariff area or DTA),
under the Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology
Park (EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology
36
Park (EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology
Park (BTP) Scheme for manufacture of goods. These schemes are not applicable for
trading units. An EOU/EHTP/STP/BTP unit has to be a net foreign exchange earner.
 • An EOU/EHTP/STP/BTP unit may export all kinds of goods and services except
items prohibited in ITC (HS). Exports of gold jewellery, including partly processed
jewellery, whether plain or studded, and articles, containing gold of 8 carats and
above up to a maximum limit of 22 carats only shall be permitted.
• Export of Special Chemicals, Organisms, Materials, Equipment and Technologies
(SCOMET) shall be subject to fulfillment of conditions indicated in ITC (HS).
Mr. Dayananda Huded

2. SEZ Scheme
 The SEZ scheme was launched in 2005 and made operational through SEZ Rules in February 2006. The objectives of
the SEZ Scheme are as follows:
 a. Promotion of exports of goods and services;
b. Promotion of investment from domestic and foreign sources;
c. Creation of employment opportunities; and
d. Development of infrastructure facilities.
 The salient features of this scheme are as follows:
 a. The SEZ scheme provides an ecosystem conducive to exports, wherein all clearances, starting from setting up of the
37
 a. The SEZ scheme provides an ecosystem conducive to exports, wherein all clearances, starting from setting up of the
unit, allocation of space, approval of raw material, capital goods, issuance of letters of permission, monitoring of
exports, permission for sale in DTA (Domestic Tariff Area) etc. are provided at one place.
 b. It provides a mechanism enabling manufacturing units to repeatedly import raw materials and capital goods for
export production and export, without the need for Advance Authorization, EPCG Authorization etc each time.
 c. The scheme is especially helpful for SME investors as they lack the resources to secure various kinds of approvals,
finding space etc.
 d. There are large inflows of service-sector led investment into SEZs (specifically for software exports) and this trend is
likely to continue over the next decade.
 As of May 15, 2019, 416 SEZs had formal approvals and 351 SEZs were notified (excluding 7 Central Government
and 12 State/Pvt SEZs). Total investment in SEZs had reached Rs.5,07,644 crore as of March 31, 2019 and they had
generated employment for 20,61,055 persons. Exports from SEZs reached Rs 7,01,179 crore in 2018-19, growing by
21% YoY.
Mr. Dayananda Huded

3. Trade Infrastructure for Export Scheme (TIES)
 Improving Ease of trading measures is a high priority area for the
government as Indian exporters face high transaction costs. For example,
the average logistics costs in India are about 15% while such costs in
developed countries are about 8%.
 TIES was launched by the Department for setting up and upgradation of
infrastructure projects with overwhelming export linkages like the Border
Haats, Land customs stations, quality testing and certification labs, cold
38
Haats, Land customs stations, quality testing and certification labs, cold
chains, trade promotion centres, dry ports, export warehousing and
packaging, SEZs and ports/airports cargo terminuses.
 The aim of the scheme is to enhance export competitiveness by bridging
gaps in export infrastructure, creating focused export infrastructure, first
mile and last mile connectivity for export-oriented projects and addressing
quality and certification measures. Central and State Agencies, including
EPCs, Commodities Boards, SEZ Authorities and Apex Trade Bodies
recognised under the EXIM policy of Government of India are eligible for
financial support under this scheme.
Mr. Dayananda Huded

Corporate Tax Planning
 https://incometaxmanagement.com/Pages/Tax-
Management-Managerial-Financial-Decisions/1-2-Tax-
Management-In-Nature-Of-The-New-Business.html
 https://taxsummaries.pwc.com/india/corporate/taxes-
39
on-corporate-income
Mr. Dayananda Huded

40
Mr. Dayananda Huded
inprotected.com

Unit II Tax Planning and Company Promotion

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