Chapter VI A - Deductions while Computing Total Income - Part II

OBJECTIVE

Every assessee earning more than the basic exemption limit is eligible to seek deduction from Gross Total Income by way of deductions allowed for investments or payments made, under Chapter VI-A of the Income Tax Act. Chapter VI-A helps an assessee to reduce the overall tax burden to the extent of investment and expenses made within the ambit of law and fulfilment of prescribed conditions. In this Webinar, we shall be focusing on the provisions of Chapter VI-A which relate to Corporate Assessees.

1. Chapter VI A - Deductions while Computing Total Income - Part II CA Jugal Narendra Gala

2. Credits and Acknowledgments V Thirumal

3. Legends used in the Presentation AOP Association of Persons AY Assessment Year BOI Body of Individuals GTI Gross Total Income PY Previous Year RPF Recognized Provident Fund

4. Presentation Schema

5. Introduction In this webinar, provisions related to deductions for Corporate Assessees are discussed

6. General Provisions

7. Deductions to be made in Computing Total Income – Sec 80A In computing the Gross Total Income* [GTI] of an assessee, deductions specified in Sec 80C to Sec 80U shall be allowed In any case Total Deductions under Chapter VIA shall not exceed the GTI of the Assessee i.e there can be no loss due to deductions If any deductions are allowed to an AOP/BOI, no deduction under the same Sec shall be allowed to a member in relation to their share in the AOP/BOI The profits and gains allowed as deduction under Sec 10AA or under any provision of Chapter VI-A under the heading "C.-Deductions in respect of certain incomes" in any AY, shall not be allowed as deduction under any other provisions Such deduction shall not exceed the profits and gains of the undertaking or unit or enterprise or eligible business No deduction shall be allowed if the deduction has not been claimed in the return of income The transfer price of goods and services between eligible business and other business of the assessee shall be determined at the market value of such goods or services as on the date of transfer Where a deduction has been allowed under this Chapter for a eligible business, no deduction under Sec 35AD is permissible in relation to such business for the same or any other AY *Gross total income - means the total income computed in accordance with the provisions of Income-tax Act, before making any deduction under this Chapter VI-A

8. Contd. Part C - Deductions in respect of certain incomes under Chapter VI-A Section Deduction 80-IA Deductions in respect of profits and gains from undertakings or enterprises engaged in infrastructure development/ operation/ maintenance, generation/ transmission/ distribution of power etc. 80-IAB Deduction in respect of profits and gains derived by an undertaking or enterprise engaged in development of SEZ 80-IAC Deduction in respect of profits and gains derived by an eligible start-up from an eligible business 80-IB Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings 80-IBA Deduction in respect of profits and gains from housing projects 80-IC Deduction in respect of profits and gains from certain undertakings or enterprises in certain special category States [Himachal Pradesh and Uttaranchal] 80-IE Deduction in respect of profits and gains from manufacture or production of eligible article or thing, substantial expansion to manufacture or produce any eligible article or thing or carrying on of eligible business in North-Eastern States

9. Contd. Section Deduction 80JJA Deduction in respect of profits and gains from business of collecting and processing of bio-degradable waste 80JJAA Deduction in respect of employment of new employees 80LA Deduction in respect of certain income of Offshore Banking Units and International Financial Services Centre 80P Deduction in respect of income of co-operative societies 80PA Deduction in respect of certain income of Producer Companies 80QQB Deduction in respect of royalty income, etc., of authors of certain books other than text books 80RRB Deduction in respect of royalty on patents

10. Deductions to be based on Income included in GTI – Sec 80AB Deduction not to be allowed unless Return Furnished – Sec 80AC Filing of return of income on or before the due date, is mandatory for availing benefit of deductions under any provision of Chapter VI-A under the heading “C. – Deductions in respect of certain incomes ” In case of failure to file return of income on or before the stipulated due date, the undertakings would lose the benefit of deduction

11. Deduction for Corporate Assessees

12. Contributions by Companies to Political Parties – Sec 80GGB Eligible Deduction Any sum ‘contributed’ in the previous year by an Indian company to any political party or an electoral trust Any sum paid by way of cash shall not be allowed as deduction Deemed Contribution Following shall also be deemed to be contribution for a political purpose: A donation or subscription or payment which is likely to effect public support for a political party Expenditure incurred by a company on advertisement in any publication on behalf of a political party Conditions Companies Act, 2013 Conditions - There are no limits on amount of contribution Only a non-government company which has been in existence for at least 3 years can make a contribution Such contribution has to be approved by a Board resolution and shall be disclosed in the Financials Electoral Trust A non-profit company created in India for orderly receipt of the voluntary contributions from any person and for distributing the same to the respective political parties

13. Tax Exemption for Start-ups - Sec 80-IAC Should not be formed by way of splitting up or reconstruction of existing business Used Plant & Machinery should not be more than 20% of the assets. Imported used P&M shall not be considered as used P&M Conditions Incorporated on or after 1 st Apr 2016 but before 1 st Apr 2021 Total Turnover does not exceed Rs. 25 crore in PY for which deduction is claimed Holds Certification from Department for Promotion of Industry and Internal Trade (DPIIT) A Company or LLP engaged in eligible business Eligible Start-up

14. Eligible Business and Other Conditions engaged in innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation  Business carried out by an eligible start-up Eligible business Deduction shall be computed as if the income from eligible business was the sole income of the assessee Audit Report under Form No. 10CCB shall be submitted for the PY in which deduction is claimed Deduction under this Sec or Chapter VIA shall not exceed the total profits AO is empowered to make adjustments to profits in case of excessive profits or transactions not at market price Other Conditions

15. Profits and Gains of Certain Undertakings - Sec 80-IB Eligible Business Business of processing, preservation and packaging of fruits or vegetables or meat and meat products or poultry or marine or dairy products or Integrated business of handling, storage and transportation of food-grains Operations begun on or after 1 st April 2001 In case of business of processing, preservation and packaging of meat or meat products or poultry or marine or dairy products – operation begun on or after 1 st April 2009 Quantum of Deduction For 5 AYs beginning with the Initial AY - 100% of the profits and gains derived from such business Thereafter for 5 AYs - 30% of the profits and gains derived from such business (in case of companies) - 20% in case of undertaking in a form other than company

16. Profits and Gains from Housing Projects – Sec 80-IBA Eligible Deduction 100% of the profits and gains from the the business of developing and building housing projects Conditions Housing Project means a project consisting predominantly of residential units with such other facilities and amenities as the competent authority may approve Carpet area Net usable floor area of an apartment Excluding – The area covered by the external walls, areas under service shafts exclusive balcony or verandah area and exclusive open terrace area However, carpet area includes the area covered by the internal partition walls of the apartment

17. Additional Conditions – Sec 80-IBA Location of the housing project Size on plot of land on which the project is located Carpet area of the residential unit comprised in the housing project Percentage of floor area ratio* to be utilised by the project Within the metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region) ( Amendment of Union Budget 2019) Not less than 1,000 sq. m. Not more than 60 sq. m. Not less than 90% of the floor area ratio permissible in respect of the plot of land under the rules to be made by the Central Govt. or the State Govt. or the local authority, as the case may be. In any other place Not less than 2,000 sq. m. Not more than 90 sq. m. Not less than 80% of such floor area ratio Only one residential unit is allotted to an Individual, his spouse or his children The project is the only housing project on the plot of land Assessee maintains separate books of account in respect of the housing project. The stamp duty value of a residential unit in the housing project does not exceed Rs. 45 lakhs ( Amendment of Union Budget 2019) * Floor area ratio means the quotient obtained by dividing the total covered area of plinth area (it is the entire area occupied by the building including internal and external walls) on all the floors by the area of the plot of land

18. Business of Collecting and Processing of Bio-Degradable Waste – Sec 80JJA Eligible Business Business of collecting and processing or treating of bio-degradable waste for: Generating power or Producing bio-fertilizers, bio-pesticides or Other biological agents or For producing bio-gas or Making pellets or briquettes for fuel or organic manure Eligible Deduction 100% of profits and gains from such business for a period of 5 consecutive AYs beginning from AY relevant to the year of commencement of business

19. Employment of New Employees – Sec 80JJAA Eligible Deduction 30% of the additional employee cost for 3 AYs from the year of such employment On Employment of a person by a business of an assessee subject to tax audit, The business is not formed by way of splitting up or reconstruction The business is not acquired by the assessee from any person by way of business re-organisation Report of Accountant in Form 10DA is filed Conditions Additional Employee Cost Total emoluments* paid or payable to additional employees employed during the previous year * Any sum paid or payable to an employee for his employment excluding PF contributions and compensation on termination

20. Additional Employee Additional Employee An employee employed during the PY who has the effect of increasing no. of total employees compared to prior PY and: Whose emoluments are more than Rs 25,000 For whom contribution to Employee’s Pension Scheme (EPS) is paid in full Who has worked for 280 days or more in the PY Participates in Recognised Provident Fund (RPF)

21. Offshore Banking Units and International Financial Services Centre – Sec 80LA Eligible Assessee A scheduled bank having an Offshore Banking Unit in a SEZ A Foreign Bank having an Offshore Banking Unit in a SEZ A Unit of an International Financial Services Centre (IFSC) Eligible Income Income from an Offshore Banking Unit in a SEZ; or Income from the business permitted under Banking Regulation Act , 1949, with - An undertaking located in a SEZ or Any other undertaking which develops, develops and operates or develops, operates and maintains a SEZ ; or Income from any Unit of the IFSC from its business for which it has been approved for setting up in such a Centre in a SEZ

22. Quantum and Period of Deduction Eligible assessee Quantum and period of deduction Relevant previous year from which deduction is allowed A scheduled bank having an Offshore Banking Unit in a SEZ 100% of such income for 5 consecutive AYs. Thereafter, 50% of such income for the next 5 consecutive AYs. Beginning with the AY relevant to the PY in which: the permission under Banking Regulation Act, 1949 was obtained; or the permission or registration under the SEBI Act, 1992 was obtained; or the permission or registration under any other relevant law was obtained. Foreign Bank having an Offshore Banking Unit in a SEZ Unit of an International Financial Services Centre (IFSC) 100% of such income for any 10 consecutive AYs at the option of the assessee, out of 15 years. Other Conditions Report of Accountant in Form 10CCF shall be filed A copy of the permission obtained under Banking Regulation Act, 1949 should also be furnished Along with the return of income

23. Certain Income of Producer Companies – Sec 80PA Producer Company having a total turnover of less than 100 crore rupees in any PY Eligible Assessee 100% of profits and gains attributable to eligible business for AY19-20 to AY23-24 Eligible Deduction Eligible Business

24. Producer Company – Sec 581A of Companies Act, 1956 A body corporate having objects or activities specified in section 581B of the Companies Act, 1956 and registered as Producer Company under that Act. Sec 581B - Objects of the Producer Company (a) Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit: However, the Producer Company may carry on any of the activities specified in this clause either by itself or through other institution; (b) Processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its Members; (c) Manufacture, sale or supply of machinery, equipment or consumables mainly to its Members; (d) Providing education on the mutual assistance principles to its Members and others; (e) Rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members; (f) Generation, transmission and distribution of power, revitalisation of land and water resources, their use, conservation and communications relatable to primary produce; (g) Insurance of producers or their primary produce; (h) Promoting techniques of mutuality and mutual assistance; (i) Welfare measures or facilities for the benefit of Members as may be decided by the Board; (j) Any other activity, ancillary or incidental to any of the activities referred to in clauses (a) to (i) or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner; (k) Financing of procurement, processing, marketing or other activities specified in clauses (a) to (j) which include extending of credit facilities or any other financial services to its Members

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