B.COM 6th Sem.

Subject: Fundamentals of Corporate Tax Planning [DSE – 3]

Unit – 1 Syllabus:
Corporate Tax in India–Concept of Tax planning, Tax management, Tax avoidance, Tax
evasion, Assessment year and Financial Year

Residential status of corporate and its incidence of tax, Minimum Alternate Tax, Calculation
of Tax Liability.

Introduction:
During the British rule, the government incurred heavy losses due to Sepoy Mutiny in 1857 and to cover the
loss, Sir James introduced Income Tax for the first time in India in 1860 on an experimental basis till 1886.
Then the first Income Tax Act was passed in 1886 which continued up to 1918. Again a new Act came into
force in the year 1918 and 1922 which continued up to 31 March 1961. Then came the latest Income Tax Act,
1961 Act which is still in force.

Tax Planning:
Tax planning can be defined as an arrangement of one’s financial and business affairs by taking legitimately in
full benefit of all deductions, exemptions, allowances and rebates so that tax liability reduces to minimum.

It is a legitimate and legislative right of the tax payer. It is a systematic and scientific application of various tax
saving provisions with due respect to the letter and spirit of the law.

Features of Tax Planning:

(i) It consists of all arrangements that complied with all tax laws.
(ii) All legal obligations and transactions are met.
(iii) It is both legal and ethical.
(iv) The intension is not to deceit the legal spirit.
(v) The primary aim is to minimize the tax liabilities by availing the various deductions, exemptions,
rebates and reliefs provided in the tax laws.
(vi) Acceptable to the tax authorities and tax payers.
(vii) It is a systematic approach of reducing the tax burden.
(viii) This is based on the principle of discloser.
(ix) This is an honest and deliberate effort of the taxpayer to benefit self and the economy as a whole.

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Analysis of Tax Planning:

(i) It is not avoidance to payment of tax.

(ii) Tax planning should not be done with intent to defraud the revenue.
(iii)All transactions with respect to tax planning should be in correct form and substance.
(iv) Tax planning works within the framework of law and it’s not illegal.

Right to Plan the Tax Liability:

➢ The Supreme Court held in case of McDowell & Co. v. CTO (1985) 154 ITR 148(SC) has said that it is
true that planning may be legitimate provided it is within the framework of the law.
➢ Using dubious methods to avoid the payment of tax is not permissible.
➢ It is obligation of every citizen to pay taxes honestly.

Tax Avoidance:
There is a thin line of difference between Tax Avoidance and Tax Planning.
It refers to an arrangement of one’s financial affairs in such a way that the tax burden is minimised by taking the
advantage of loopholes in the tax laws. Tax Avoidance is done in such a manner that no infringement of
taxation laws and by taking full advantage of loopholes to attract least incidence of tax. The tax authorities
amend the laws as and when such loopholes come to their knowledge.
Features of Tax Avoidance:
(i) It is legitimate arrangement of affairs to minimize the liabilities.
(ii) Tax avoidance is not tax evasion and carries no public shame with it.
(iii) The arrangement is valid in law whether the motive behind it may be to reduce the tax burden.
(iv) The motive or intention is tax avoidance is not malafide.
Earlier tax avoidance was considered completely Legitimate, but at present it may be illegitimate in certain
situations.

Tax Evasion:
Tax Evasion may be defined as “an arrangement of one’s financial affairs in such a way that it reduces his tax
liabilities by any illegal and illegitimate manner”.
Tax evasion refers to a situation where a person tries to reduce his tax liability by deliberately suppressing the
income or by inflating the expenditure which results into showing of income lower than the actual and resorting
to various types of deliberate manipulations.
It involves dishonest tax reporting or say, deliberate misrepresenting the true state of affairs to tax authorities in
order to reduce the tax liability. It is an activity associated with the informal economy. It is a crime and an
assessee guilty of tax evasion is punishable under the relevant laws. It is also known as white collar crime and is
one of the prime reasons for black money generation in the country.

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Features of Tax Evasion:
(i) It is illegal and illegitimate application of tax laws to reduce the tax burden.
(ii) It is always a crime and punishable under the law.
(iii) It can be achieved either by hiding the income, overstating the expenditure or misrepresentation of the
affairs.
(iv) It violates the tax framework and letter of spirit behind it.
(v) The motive or intention of tax evasion is always mala fide.
Tax Evasion Activities:
Some of the Tax Evasion activities include:
➢ Underreporting of Income
➢ Inflating deduction or expenses
➢ Hiding interest in offshore accounts
➢ Hiding money
➢ Shell Companies
➢ Tax heavens
➢ Equity swaps
➢ Avoid capital gain
➢ Avoid real estate tax

Tax Management:
Tax management is a part of tax planning. It involves the back office work of the assessee to make tax planning.
It deals with the maintenance of records, returns, papers, certificates, payments of taxes, interests, fines, fees
etc. and filing returns and rectification of mistakes related to income tax. Basically, tax management deals with
the compliance of tax laws or legal formalities to avail the benefits of deductions, exemptions, rebate, relief,
allowances, concessions etc. Thus we can say that tax management is compulsory while tax planning is
optional.
TAX PLANNING VS. TAX MANAGEMENT

Basis Tax Planning Tax Management

Meaning It is an arrangement of one’s financial affairs
in such a way that the burden of taxation on
the assesse is reduced to the minimum without
violating in any way the legal provisions.
Scope It is a wider term and includes tax
management.
Objective It primary objective is minimize the tax
liabilities.
Mandatory It is optional for all assesses
Effect The concept of tax planning is futurist in
nature.
Results It results in minimizing the tax liabilities.
It deals with the compliance of tax laws or legal
formalities to avail the benefits of deductions,
exemptions, rebate, relief, allowances,
concessions etc.
It is narrow in scope and an initial part of tax
planning.
It basically aims at compliance with the legal
and statutory formalities of law.
It is compulsory for all types of assesses.
The concept of tax management is for past,
present and future.
It results in avoiding penalties, fines, interest
and persecutions under tax laws.

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Essential It helps to claim various benefits of tax.
Impact It helps in decisions making directly.
TAX AVOIDANCE VS. TAX EVASION
Basis Tax Avoidance
Meaning It is an arrangement of one’s financial affairs
in such a way that the tax burden is minimized
by taking the advantage of loopholes of
colourable devices in the tax laws.
Scope It considers the weakness or loopholes of the
tax laws.
Objective To avoid tax liabilities within the framework
of tax laws.
Legality It has legal sanction and allowed.
Effect It is an intentional tax planning before the
actual tax liability arises.
Intention Though it legal but may involves mala fide
intention
Results It results in deferment of tax liabilities.
Means It uses justified means to minimize tax burden
used
TAX PLANNING VS. TAX AVOIDANCE
Basis Tax Planning
Meaning It is an arrangement of one’s financial affairs
in such a way that the burden of taxation on
the assesse is reduced to the minimum without
violating in any way the legal provisions.
Scope It is a wider term and includes tax
management.
Objective It primary objective is minimize the tax
liabilities legitimately.
Mandatory It is optional of all assesse but advisable.
Effect In tax planning, transactions are real and
natural.
Essential It requires claiming various benefits of tax in
true spirit.
Impact It is for long term benefits.
It helps in complying the condition for claiming
tax benefits.
It prepares the ways and means to achieve the
objectives of tax planning.
Tax Evasion
It is an arrangement of one’s financial affairs in
such a way that reduces his tax liabilities by
illegal and illegitimate manner.
It adopts unfair means and methods.
To minimize or avoid the tax by illegitimate
means or omission.
It is illegal and not permissible under tax laws.
It is an intentional attempt to avoid payment of
tax after the liability to tax has arisen.
It is unlawful and always involves mala fide
intention.
It results in penalties and imprisonment.
It uses such means which are forbidden by the
laws to avoid tax.
Tax Avoidance
It is an arrangement of one’s financial affairs in
such a way that the tax burden is minimized by
taking the advantage of loopholes or colourable
devices in the tax laws.
It is narrow in scope and involves dodging of
tax law.
It primary objective is minimize the tax
liabilities but may be illegitimately.
It is not at all advisable.
In tax avoidance, transactions are artificial or
colourable devices.
It requires claiming various benefits of tax
within the legal framework.
It is for short term benefits.
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TAX PLANNING VS. TAX EVASION

Basis Tax Planning Tax Evasion

Meaning It is an arrangement of one’s financial affairs
in such a way that the burden of taxation on
the assesse is reduced to the minimum without
violating in any way the legal provisions.
Scope It is a wider term and completely within the
framework of law.
Objective It primary objective is minimize the tax
liabilities legitimately.
Legality It is legal and accepted by judiciary
Principle It is based on principle of disclosure
Essential It is a deliberate creation of law for wealth
generation through savings and investments.
Impact It promotes development of sound economy
It is an arrangement of one’s financial affairs in
such a way that reduces his tax liabilities by
illegal and illegitimate manner.
It may adopt any unfair means and methods.
To minimize or avoid the tax by illegitimate
means or omission.
It is illegal and is prohibited.
It involves misrepresenting the facts.
It is white collar crime and punishable offence.
It promotes accumulation of black money and
erodes the growth of economy.

Objectives of Tax Planning:

1) Reduction of Tax Liability: Tax Planning enables the assesse to minimize the tax liabilities by availing
the benefits of various deductions, exemptions, rebates and reliefs provided in the tax laws.
2) Minimisation of Litigation: Income tax may be a matter of litigation due to conflicting objectives and
interpretation by tax payer and tax authorities. Tax planning helps to avoid such litigation by applying the
tax saving provisions in its true letter spirit and content.
3) Productive Investment: The assesse can minimize its tax burden by investing in designated schemes or
purchasing financial products designed for that purpose. These savings or investments provide a source of
funds to the government.
4) Healthy Growth of Economy: There are exemptions for establishing new business in economic backward
area, employing new employees. Tax planning leads to the investments in various schemes of the
government and other business. Also, tax being a major revenue for the government. All such investment
leads to development of the economy.
5) Economic Stability: Tax planning curtails the scope for black money generation. It results in development
of sound investment system, capital market, employment generation etc.

Types of Tax Planning:

1) Long term tax planning: It is for the period of more than one year. e.g. – Claiming deduction u/s 80IA for
industrial undertaking or enterprises engaged in infrastructure development is for 10 years.
2) Short term tax planning: It is for a period of up to one year. For example, claiming presumptive taxation
u/s 44AD by retail business and declaring income at 8% of the gross revenue for the year in which it
certifies the conditions mentioned in that section.
3) Permissive tax planning: Tax planning applying the deduction, exemption, rebate and relief as permissible
in the Act in respect of amount, time and mode. For example, deduction u/s 80D for payment of medi-claim
insurance premium.
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4) Purposive tax planning: Tax planning measures taken for specific purpose is known as purposive tax
planning. For example, exemption u/s 54 is investment in residential house property within specified time
and mode out of long term capital gain arising from the sale of residential house property.

Requisites of Tax Planning:

➢ In-depth knowledge of Income Tax laws
➢ Amendments in Annual Finance Act, Circulars and clarifications issued by CBDT
➢ Various Judgments by High Courts and Supreme Court in relation to taxation
➢ Fair knowledge of other allied laws like laws related to wealth tax, sales tax, GST, transfer of property act
etc.
➢ Other important parameters like residential status, nature of business or income, capital structure etc.

Importance of Tax Planning:

➢ No tax planning would lead to least benefits.
➢ Tax planning is more reliable as Tax Evasion and Tax Avoidance are wrong means to save taxes.
➢ Government has provided companies with incentives in tax laws so planner gets the advantage to use such
incentives.
➢ With increase in profits, the quantum of corporate tax also increases and it necessitates the devotion of
adequate time on tax planning.
➢ It helps to deal with the burden of direct and indirect taxation during inflation.
➢ Helps in proper expense planning, capital budget planning, sales promotion planning etc.
➢ Availability of accumulated profits, reserves and surpluses and claiming such expenses as revenue
expenditure are possible today because of Tax Planning.
➢ In these days saving tax can be seen as non-repayable interest-free loan taken for government.

Limitations of Tax Planning:

1) Not a substitute of tax payment: Tax planning leads to minimization of tax liabilities and not waiver of
tax. The assesse can take advantage of various deductions, exemptions, rebates and reduce his tax liabilities
to the extent permissible under the Act.

2) Requires sound knowledge of laws: The application of various rules and provisions requires detailed and
thorough knowledge of Income Tax laws and other allied laws which are not so easy.

3) Unreasonable time spent by Management: Tax liabilities increases with increase in income or profits.
Therefore, the management spends more and more time in tax planning with the increase in income or
profits which they could spend to earn more and invest more.

4) Tax Planning is not infringement: Tax planning reduces tax liabilities within the framework of Income
Tax laws and does not mean infringement of different provisions of law.

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5) Inherent limitations of laws: The legal language is often of double meaning or multiple interpretations. To
get the best result of tax planning, one needs proper understanding and interpretation of income tax laws.

6) Limited Benefits: The assesse has to satisfy various preconditions to claim various deductions,
exemptions, rebates etc. thereby limiting the benefits.

Assessment Year [ Sec. 2 (9)]:

“Assessment Year” means the period of 12 months commencing on the 1st day of April every year.
In India, the Govt. maintains its accounts for a period of 12 months i.e. 1st April to 31st March every year. As
such it is known as Financial Year. The Income Tax department has also selected same year for its Assessment
procedure.
The Assessment Year is the Financial Year of the Govt. of India during which income a person relating to the
relevant previous year is assessed to tax. Every person who is liable to pay tax under this Act, files Return of
Income by prescribed dates.
Tax is calculated and compared with the amount paid and assessment order is issued. The year in which whole
of this process is undertaken is called Assessment Year.
At present, the Assessment Year 2022-23 (1-4-2022 to 31-3-2023) is going on.

Previous Year [Sec. 3]:

As the word ‘Previous’ means ‘coming before’, hence it can be simply said that the Previous Year is the
Financial Year preceding the Assessment Year e.g. for Assessment Year 2022-23, the Previous Year should be
the Financial Year ending 31st March 2022.
In other words, the financial year in which income is earned is known as Previous Year and the subsequent year
in which it is taxed is known as Assessment Year.

Previous Year in case of a continuing Business:

It is the Financial Year preceding the Assessment Year. As such for the assessment year 2022-23, the Previous
Year for continuing business is 2021-22 i.e. 1-4-2021 to 31-3-2022.

Previous Year in case of newly set up Business:

The Previous Year in case of newly started business shall be the period between commencement of business
and 31st March of the following year.

Meaning of Company:
According to Sec 2 (17), “Company” means:
(i) Any Indian Company, or
(ii) Any body corporate incorporated by or under the laws of a country outside India, or
(iii) Any institution, association or body which is or was assessable or was assessed as a company for any
assessment year on or before 1-4-1970, or

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 (iv) Any institution, association or body, whether incorporated or not and whether Indian or non-Indian,
which is declared by general or special order of the CBDT to be a company.
Types of Companies:
1) Company in which the public are substantially interested: According to Sec. 2(18) a company is said to
be a company in which the public are substantially interested:
a) Owned by Government/RBI: A company owned by the Government or the RBI or in which not less
than 40% of shares held by the Government or the RBI or a corporation owned by that bank.
b) Section 25 or 8 Companies: A company registered u/s 25 of the Companies Act, 1956 or Sec. 8 of the
Companies Act, 2013 i.e., Non-profit companies having limited liability and intended for charitable
purposes.
c) Company without share capital: A company having no share capital and regarding its objects, nature
and composition of its membership and other relevant considerations is declared by the order of the
Board to be a company in which public are substantially interested.
d) Nidhi or Mutual Benefit Society: A mutual benefit Finance Company, which carries on its principle
business of acceptance of deposits from its members and which is declared by the Central Government
u/s 620A of the Companies Act, 1956, to be a Nidhi or Mutual Benefit Company.
e) Company owned by co-operative society: A company wherein shares not less than 50% of the voting
power have been allotted unconditionally to, or acquired unconditionally by one or more cooperative
societies.
f) Listed Companies: A company, not being a private company and its shares as on last day of the
relevant previous year are listed in a recognised stock exchange in India.
g) Public Limited Company owned by Government and/or widely-held company: A company, not
being a private company and its shares carrying not less than 50% of shares are held by the Government
or a Corporation established by a Central, State or Provincial Act or any company or any subsidiary
company to which this clause applies.
2) Demerged Company: According to Sec. 2(19AAA), “demerged company” means the company whose
undertaking is transferred, pursuant to a demerger, to a resulting company.
3) Domestic Company: It means an Indian company, or any other company which, in respect of its income is
liable to tax under this Act, has made the arrangements for the declaration and payment of dividends within
India.
4) Foreign Company: According to Sec. 2(23A), “foreign company” means a company which is not a
domestic company.
5) Indian Company: According to Sec. 2(26), “Indian Company” means a company formed and registered
under Companies Act, 1956, or any other former Acts or under any law for a company of J & K or in case of
UTs under any law.
6) Infrastructure Capital Company: It means the company which makes investments by way of acquiring
shares or providing long-term finance to any business as referred to in Sec. 80-IA(4) or 80-IAB(1) or 80-
IB(10) or a project for constructing a three-star hotel (at least) or for constructing a hospital with at least 100
beds.
7) Public Sector Company: It means any corporation established by or under any Central, State or Provincial
Act or a Government company as defined in Sec. 617 of the Companies Act, 1956.

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8) Investment Company: It means a company whose gross total income consists mainly of income which is
chargeable under the heads “Income from House Property”, “Capital Gain” and “Income from Other
Sources”.
9) Widely-held Company: A company in which public are substantially interested as defined u/s 2(18) is also
known as widely-held company.
10) Closely-held Company: A company in which the public are not substantially interested.

Residential Status of Company:

Residential
Status

Indian Foreign
Company Company

Turnover > Rs. 50 Turnover <= Rs. 50

Always
Cr. & POEM in India: Cr.: Always Non-
Resident
Resident Resident

According to Section 6(3), a company is said to be a resident in India in any previous year, if:
(i) It is an Indian Company; or
(ii) Its Place of Effective Management (POEM), in that year, is in India.
Place of Effective Management (POEM) means a place where key management and commercial decisions
that are necessary for the conduct of business of an entity as a whole.
Determination of Place of Effective Management (POEM):
➢ Identification or ascertainment of the person or persons who actually make the key management and
commercial decisions for the conduct of the company’s business as a whole.
➢ Determination of place where above decisions are implemented.
Conditions when POEM in India is not applicable:
➢ Not applicable to a foreign company having turnover or gross receipts of Rs. 50 Crores or less in a financial
year.
➢ Company is engaged in active business outside India.
➢ Majority of Board Meetings are held outside India.

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 Active Business Outside India:
A Company is said to be active business outside India if its passive income is not more than 50% of the total
income of such Company, and:
i. Assets in India are < 50% of the total assets. (Average of opening and closing assets)
ii. Employees in India are < 50% of the total employees. (Average of opening and closing no. of
employees)
iii. Payroll expenses in India are < 50% of the total payroll expenses.
Passive Income:
It means Income in relation to transactions of purchase and sale with Associated Enterprises (AEs) or Income
generated from Royalty, Dividend, Interest, Rental or Capital Gains.

Incidence of Tax:

Scope of
Total
Income

Non-
Resident
Resident
Company
Company

Indian Foreign
Indian Income
Income Income
Indian Income: Any of the following three is an Indian Income:
(i) If income is received (or deemed to be received) in India during the previous and at the same time it
accrues (or arises or is deemed to accrue or arise) in India during the previous year;
(ii) If income is received (or deemed to be received) in India during the previous year but it accrues (or
arises) outside India during the previous year;
(iii) If income is received outside India during the previous year but it accrues (or arises or is deemed to
accrue or arise) in India during the previous year.
Foreign Income: Any income which satisfies the following conditions is a foreign income:
(i) Income is not received (or not deemed to be received) in India; and
(ii) Income does not accrue or arise (or does not deemed to accrue or arise) in India.

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Income Tax Rate:
A.Y. 2021-22 A.Y. 2022-23

Domestic Company

Total Turnover or Gross Receipt of the Company does not exceed Rs. 400 Crores in the P.Y. 25% 25%
2018-19 and P.Y. 2019-20 respectively

Any other Domestic Company 30% 30%

Foreign Company

Royalty received from Govt. or an Indian concern in pursuance of an agreement made after March 50% 50%
31, 1961, but before April 1, 1976, or fees for rendering technical services in pursuance of an
agreement made after February 29, 1964 but before April 1, 1976 and where such agreement has,
in either case, been approved by the Central Government.

Other Income 40% 40%

Specified Tax Rate

Short term capital gain (normal) Normal Rate
Short term capital gain (STT paid) 15%
Long Term capital gain 20%
Casual Income 30%

Surcharge Rate (Marginal Relief Applicable)

Net Income Less than Rs. 1 Rs. 1 Cr. To Rs. 10 More than Rs. 10
Cr. Cr. Cr.
Domestic Company Nil 7% 12%
Foreign Company Nil 2% 5%

Cess Rate (% on Tax plus Surcharge)

Cess A.Y. 2021-22 A.Y. 2022-23
Education Cess 2% 2%
Secondary and Higher Education Cess 1% 1%
Health Cess 1% 1%
Total Cess 4% 4%

Minimum Alternate Tax (MAT):

Minimum Alternative Tax is payable under the Income Tax Act. The concept of MAT was introduced to target
those companies that make huge profits and pay the dividend to their shareholders but pay no/minimal tax under
the normal provisions of the Income Tax Act, by taking advantage of the various deductions, and exemptions
allowed under the Act. But with the introduction of MAT, the companies have to pay a fixed percentage of their
profits as Minimum Alternate Tax. MAT is applicable to all companies including foreign companies.
Section 115JB:
➢ If the income tax payable on the total income as computed under normal tax rate in any A.Y. commencing
on or after 1-4-2012 is less than 15% of its book profit, such book profit shall be deemed to be the total
income of the assesse.
➢ Such company is liable to pay income tax @ 15% (plus surcharge and cess) of such book profit.

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➢ The objective of introduction of MAT is to bring the “zero tax companies” into tax net because they earn
substantial book profits and pay handsome dividends but do not pay tax due to various tax concessions and
incentives provided under Income Tax Law.
Basic Provisions of MAT:
MAT is calculated under Section 115JB of the Income-tax Act. Every company should pay higher of the tax
calculated under the following two provisions:
1. Tax liability as per the Normal provisions of Income Tax Act (tax rate 30% plus 4% Health & Education
cess plus surcharge (if applicable).
2. Tax liability as per the MAT provisions are given in Sec 115JB (15 % of Book Profits Plus 4 % Health &
Education cess plus a surcharge if applicable).
Calculation of MAT: MAT is equal to 15% of Book profits (Plus Surcharge and cess as applicable).
Meaning of Book Profit:
Book profit means the net profit as shown in the profit & loss account for the year as increased and
decreased by the following items:
Additions to the Net Profit (If debited to the Profit and Loss Account):
1. Income Tax paid or payable if any calculated as per normal provisions of income tax act.
2. Transfer made to any reserve
3. Dividend proposed or paid
4. Provision for loss of subsidiary companies
5. Depreciation including depreciation on account of revaluation of assets
6. Amount/provision of deferred tax
7. Provision for unascertained liabilities e.g. provision for bad debts
8. Amount of expense relating to exempt income under sections 10,11,12 (except sec 10AA and 10(38) This
means income under section 10AA & long term capital gain exempt under section 10(38) are subject to
MAT.Provision made for diminution in the value of any asset

Deletions to the Net Profit (If credited to the Profit and Loss Account)
1. Amount withdrawn from any reserves or provisions
2. The amount of income to which any of the provisions of section 10, 11 & 12 except 10AA & 10(38)
applies.
3. Amount withdrawn from revaluation reserve and credited to profit & loss account to the extent of
depreciation on account of revaluation of asset.
4. Amount of loss brought forward or unabsorbed depreciation, whichever is less as per the books of account.
However, the loss shall not include the depreciation. (if loss brought forward or unabsorbed depreciation is
nil then nothing shall be deducted.)
5. Amount of Deferred Tax, is any such amount is credited in the profit & loss account
6. Amount of depreciation debited to the Profit and Loss Account (excluding the depreciation on revaluation
of Assets)

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Applicability of MAT:
Applicable to all companies except:-
➢ Income accruing or arising to a company from life insurance business
➢ Shipping income liable to tonnage taxation
➢ Not applicable to a foreign company, if:
a) The assesse is a resident of a country with which India has an agreement as referred to in Sec. 90(1) or
Sec. 90A (1).
b) The assesse is a resident of a country with which India does not have any agreement and the assesse is
not required to seek registration under any law for the time being in force relating to companies.
➢ Not applicable to foreign companies whose total income comprises of profits and gains arising from
business referred to in Sec. 44AB, 44BB, 44BBA, or 44BBB.
MAT Credit Utilisation:
➢ A company has to pay higher of normal tax liability or liability as per MAT provisions.
➢ If in any year the company pays as per MAT, it is entitled to claim credit of MAT paid over and above the
normal tax liability in subsequent year(s).
➢ Provided that if the amount of Foreign Tax Credit (FTC) allowed against MAT exceeds the amount of such
FTC admissible then such excess amount shall be ignored.
➢ As per Sec. 115JAA the credit can be adjusted in the year in which liability of the company as per normal
provisions is more than the MAT liability.
➢ The MAT credit can be carried forward only for a period of 15 years.
➢ No interest is paid to the taxpayer in respect of such credit.

Allowable Tax Credit: Tax paid as per MAT calculation — Income tax payable under normal provision of
Income-tax Act, 1961.
MAT credit can be better explained with the help of an illustration.
Assessment Tax Payable Tax Payable as Actual Tax Tax Credit Tax Credit Set Total Tax
Year under MAT per normal payable Available u/s off/ adjusted Credit
provisions 115JAA Available
2017-18 8,00,000 5,00,000 8,00,000 3,00,000 – 3,00,000
2018-19 9,00,000 6,50,000 9,00,000 2,50,000 – 5,50,000
2019-20 10,00,000 7,00,000 10,00,000 3,00,000 – 8,50,000
2020-21 7,00,000 10,00,000 7,00,000 – 3,00,000 5,50,000
2021-22 6,00,000 11,00,000 6,00,000 – 5,00,000 50,000

Tax on Distributed Profits/Dividend Distribution Tax (DDT):

Meaning of Dividend-Section 2(22)

It includes:
1) any distribution by a company of accumulated profits, whether capitalized or not, if such distribution
entails the release by the company to its shareholders of all or any part of the assets of the company;

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 2) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates
in any form, whether with or without interest, and any distribution to its preference shareholders of
shares by way of bonus, to the extent to which the company possesses accumulated profits, whether
capitalized or not ;
3) any distribution made to the shareholders of a company on its liquidation, to the extent to which the
distribution is attributable to the accumulated profits of the company immediately before its liquidation,
whether capitalized or not;
4) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which
the company possesses accumulated profits which arose after the end of the previous year ending next
before 1-4-1933, whether such accumulated profits have been capitalized or not;
5) any payment by a company, not being a company in which the public are substantially interested, of any
sum (whether as representing a part of the assets of the company or otherwise) made after 31-5-1987, by
way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being
shares entitled to a fixed rate of dividend whether with or without a right to participate in profits)
holding not less than 10% of the voting power, or to any concern in which such shareholder is a member
or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said
concern) or any payment by any such company on behalf, or for the individual benefit, of any such
shareholder, to the extent to which the company in either case possesses accumulated profits;

Applicability of DDT

With effect from 1-4-2018, dividend also includes any amount distributed as refereed under section 2(22)(e)
but the DDT shall be 30% instead of 15%.

Important Note:
Any dividend distributed by companies to their shareholders on or after 1 April 2020 are not liable to
Dividend Distribution Tax (DDT) as the Finance Act 2020 has introduced the abolition of DDT for the
companies. Instead, dividends are taxable in the hands of the shareholders with effect from 01-04-2020.

Deductions from GTI of Company

The following are the deductions that can be claimed by a corporate assessee. The details of these
sections are discussed in the following chapters.

Section 80G Deduction in respect of donations to certain funds, charitable institutions, etc.
Section 80GGA Deduction in respect of certain donations for scientific research or rural development
Section 80GGB Deduction in respect of contributions given by companies to political parties or an
electoral trust

Section 80IA Deductions in respect of profits and gains from industrial undertakings or enterprises
engaged in infrastructure development, etc.

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 Section 80IAB Deductions in respect of profits and gains by an undertaking or enterprise engaged in
development of Special Economic Zone

Section 80IAC Special provision in respect of specified business.

Section 80IB Deduction in respect of profits and gains from certain industrial undertakings other than
infrastructure development undertakings

Section 80IBA Deductions in respect of profits and gains from housing projects.

Section 80IC Special provisions in respect of certain undertakings or enterprises in certain special
category States

Section 80ID Deduction in respect of profits and gains from business of hotels and convention centres in
specified area

Section 80IE Special provisions in respect of certain undertakings in North-Eastern States

Section 80JJA Deduction in respect of profits and gains from business of collecting and processing of
bio-degradable waste

Section 80JJAA Deduction in respect of employment of new employees

Section 80LA Deductions in respect of certain incomes of Offshore Banking Units and International
Financial Services Centre

Deductions in Respect of Donations Section – 80G

Deduction under this section is available to any assessee and the quantum of actual deduction varies from 100%
to 50% of the qualifying amount.

Further, no deduction under this section shall be allowed in respect of any donation exceeding ` 10,000 unless it
is paid by any mode other than cash.

The Qualifying amount U/s 80G will be Gross Total Income for this purpose shall be reduced by following
amounts:-

• deductions allowable u/s 80-C to 80-U (except 80-G)

• Rebateable Income
• Long term capital gains
• Short term capital gains on shares which are subject to STT.

The tax payer can claim 100% deduction or 50% deduction in case of donation made to certain notified
institutions.

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The qualifying amount of deductions of donations are classified in 4 categories as under:-

CATEGORY NO. 1:- Can claim 100% deduction in respect of the amount of donation paid to the certain
notified institutions even the amount of donation is more than 10% of gross total income i.e., deduction is
without any qualifying limit.

Example: You paid Rs.50000 as donation to a notified institution against which you can claim 100% deduction.
Your gross total income is Rs.300000. You can claim Rs.50000 as deduction under section 80G though you are
exceeding the qualifying amount i.e. 10% of Rs.300000.

Following are the name of those institutions against which you can claim 100% deductions irrespective of
qualifying amount:-

• National Defence Fund

• Prime Minister’s National Relief Fund.
• Armenia Earthquake Relief Fund.
• Africa (Public Contribution India) Fund.
• National Children’s Fund.
• National Foundation for Communal Harmony.
• An approved University or Educational Institution of National Eminence.
• Chief Minister Earthquake Relief Fund, Maharashtra.
• Any Fund set up by the Government of Gujrat Exclusively for Providing Relief to Earthquake Victims.
• A Zila Saksharata Samiti Constituted for Improvement of Primary Education and Literacy in Villages
and Towns.
• The National Blood Transfusion Council or any State Blood Transfusion Council.
• Any State Government Fund for Providing Medical Relief to the poor.
• The Army Central Welfare Fund/ Indian Naval Benevolent/ Air Force Central Welfare Fund.
• The Andhra Pradesh Chief Minister’s Cyclone Relief Fund,1996.
• The National Illness Assistance Fund.
• The Chief Minister’s Relief Fund/ Lieutenant Governor’s Relief Fund or any State or Union Territory.
• The National Sports Fund.
• The National Cultural Fund.
• The Fund for Technology Development and Application.
• The National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and
Multiple Disabilities.
• Swachh Bharat Kosh.
• The Clean Ganga Fund.

CATEGORY NO. 2:- Can claim 50% deduction in respect of the amount of donation paid to the certain
notified institutions even if the amount of donation is more than 10% of gross total income.

Example: You paid Rs.80000 as donation to a notified institution against which you can claim 50% deduction.
Your gross total income is Rs.300000. You can claim Rs.40000 as deduction under section 80G though you are
exceeding the qualifying amount i.e. 10% of Rs.300000.

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Following are the name of those institutions against which you can claim 50% deductions irrespective of
qualifying amount:-

• Jawahar Lal Nehru Memorial Fund.

• Prime Minister’s Drought Relief Fund.
• Indira Gandhi Memorial Trust.
• Rajiv Gandhi Foundation.
• Donation During 26.01.2001 to 30.09.2001 for Providing Relief to Earthquake Victims in Gujrat, to any
trust, Institution or Fund Established for a Charitable Purpose u/s 80G(5C).

CATEGORY NO. 3:- Can claim 100% deduction in respect of the amount of donation paid to the certain
notified institutions subject to a maximum limit of 10% of gross income.

Example: You paid Rs.50000 as donation to a notified institution against which you can claim 100% deduction.
Your gross total income is Rs.300000. You can claim Rs.30000 as deduction under section 80G because
qualifying amount is Rs.30000 i.e. 10% of your Gross Total Income of Rs.300000.

Following are the name of those institutions against which you can claim 100% deductions subject to the
qualifying amount i.e. 10% of your Gross Total Income:-

• The Government or any Approved Local Authority, Institution or Association for Promoting Family
Planning.
• Indian Olympic Association or any other Notified Association/Institution for Development of
Infrastructure of Sponsorship of Sports and Games in India (Donation by Company).

CATEGORY NO. 4:- Can claim 50% deduction in respect of the amount of donation paid to the certain
notified institutions subject to a maximum limit of 10% of gross income.

Example: You paid Rs.50000 as donation to a notified institution against which you can claim 50% deduction.
Your gross total income is Rs.300000. You can claim Rs.25000 as deduction under section 80G because
qualifying amount is Rs.30000 i.e. 10% of your Gross Total Income of Rs.300000.

Following are the name of those institutions against which you can claim 50% deductions subject to the
qualifying amount i.e. 10% of your Gross Total Income:

• Any Fund or Institution Established in India for a Charitable Purpose as is referred to u/s 80G(5).
• Any Fund or Institution Established in India for a Charitable Purpose Which Incurs Expenditure,
Maximum 5% of Its Income for a Religious Purpose u/s 80G(5B)
• Government or Local Authority for Charitable Purposes (Other than Family Planning).
• An Authority for Town Planning and Housing etc.
• Any Corporation Established by the Central/State Government for Promoting the Interest of the Member
of a Minority Community.
• Any Temple, Mosque, Gurdwara, Church or Other Place of Worship Which is of Historic,
Archaeological or Artistic Importance.

Industrial Undertaking/Enterprises engaged in Infrastructure Development – Sec. 80IA:

Infrastructure Facilities:
The infrastructure facilities include toll roads, bridges or rail systems and housing and other activities that are
related to highway projects. Water projects like water treatment system, irrigation project, sanitation, and

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sewerage system or solid waste management system and traveling means like a port, airport, inland waterway or
inland port or navigational channel in the sea can also avail this deduction under the infrastructure facilities.
Requirements:
➢ The deduction for the infrastructure facilities is applicable to a company that is owned by an Indian
company or a company that is owned by an authority/board/corporation/institution that comes under the
Central or State Act.
➢ For a new Infrastructure facility, there should be an agreement made to the Government or a local
authority or statutory body for developmental purposes.
Deduction Amount:
100% profits and gains obtained from the businesses for a time period of 10 consecutive years out of 15 years
from the date of its commencement.
Telecommunication Services:
Telecommunication services include all agencies that provide telecommunication services such as basic or
cellular for radio paging, domestic satellite service or network of trunking, broadband network and internet
services. The time limit for this is from 1st April 1995 to 1st April 2005.
Requirements:
There are two kinds of limitations for the requirements of telecommunication services.
(i) It is not developed by splitting up or reconstruction of a business that has already been in use.
(ii) The second kind of limitation is not developed by the transfer of machinery or plant that has already
been in use.
Deduction Amount:
100% profits for the first 5 assessment years is permitted as a deduction and 30% for the next 5 assessment
years for a total of 15 years from the year of its commencement.
Industrial Parks and SEZ:
The industrial parks consist of companies that develops, maintains and operates an industrial park that is
recognized by the Central Government.
Requirements:
The company operates according to the rules of the Central Government. The duration for the SEZ and
Industrial Parks varies. For SEZ it is from 1st April 1999 to 31st March 2006 and for Industrial parks it 1st
April 1999 to 31st March 2011.
Deduction Amount:
100% profits and gains obtained from the businesses for a time period of 10 consecutive years out of 20 years
from the date of its commencement.
Generation and Distribution of Power:
A Power Plant established in India for generation and distribution of power for duration from 1st April 1993 to
31st March 2017. The power plant offers restoration and improvement of the network for the duration of 1st
April 2004 to 31st March 2017.

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Requirements:
There are two kinds of limitations for the requirements of telecommunication services:
(i) It is not developed by splitting up or reconstruction of a business that has already been in use.
(ii) It is not developed by the transfer of machinery or plant that has already been in use.
Deduction Amount:
100% profits and gains obtained from the businesses for a time period of 10 consecutive years out of 20 years
from the date of its commencement.
Reconstruction of Power Plant:
Reconstruction of a power plant is established to initiate the revival of a power generating plant that is owned
by an Indian company.
Requirements:
The Power Plant should have been developed before 30th November 2005 and should have been recognized by
the Central Government before 31st December 2005. It should start to generate, transmit or distribute power
before 31st March 2011.
Deduction Allowed:
100% profits and gains obtained from the businesses for a time period of 10 consecutive years out of 20 years
from the date of its commencement.
Undertaking/Enterprise engaged in Development of SEZ – Section 80IAB:

Conditions: The following conditions should be satisfied:

(i) An assesseee is eligible for deduction if he is engaged in business of developing an SEZ on or after 1-4-
2005 but before 1-4-2017.
(ii) The books of account of the tax payer are audited.
(iii) The return of income should be submitted on or before the due date of submission of return of income
given by section 139(1). If return is not submitted or return is submitted belatedly, deduction under this
section is not available.
(iv) Deduction under this section is not available unless it is claimed in the return of income. In other words,
if the assesseee fails to make a claim in his return of income of this deduction, the same will not be
allowed.
Amount of Deduction:100% of the Profits and Gains for 10 consecutive assessment yearsout of 15 years
beginning from the year in which the special economic zone has been notified by the Central Govt.

Specified Business/Start Up – Section 80IAC:

This section applies to a start-up which fulfils the following conditions, namely:—

(i) The assesseee is a company or a limited liability partnership (LLP) and engaged in an eligible business.
(“eligible business” means a business carried out by an eligible start up 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).
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 (ii) The above company or LLP is incorporated after March 31, 2016 but before April 1, 2021.
(iii) Annual business turnover of the company or LLP does not exceed Rs. 25 crore in the previous year
relevant to the assessment year for which deduction is claimed under section 80-IAC.
(iv) It holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in
the Official Gazette by the Central Government.
(v) The above company or LLP is not formed by splitting up, or the reconstruction, of a business already in
existence. However, this condition is not applicable in respect of a start-up which is formed as a result of
the reestablishment, reconstruction or revival by the assesseee of the business of any such undertaking as
referred to in section 33B.
(vi) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose
[it is subject to a few exception].
(vii) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that
this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment,
reconstruction or revival by the assesseee of the business of any such undertaking as referred to in
section 33B, in the circumstances and within the period specified in that section;
(viii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

Deduction Amount: 100% of the Profits and Gains for 3 consecutive assessment years out of 7 years.

Undertakings other than Infrastructure Development – Section 80IB:

Eligibility Entity:

An undertaking / enterprise:
(i) Including an SSI undertaking in J & K.
(ii) Which begins commercial production or refining of mineral oil or commercial production of natural gas
in licensed blocks.
(iii)Engaged in the business of processing, preservation and packaging of fruits or vegetables or meat or
poultry or marine or dairy products.
(iv) Engaged in operating or maintaining a hospital anywhere in India, other than the excluded area.
Amount of Deduction:
(i) Small Scale Industrial Undertaking: 25% (30% for company assesseee) for 10 consecutive assessment
years (or 12 consecutive assessment years if assesseee is a co-operative society)
(ii) Industrial Undertaking in an Industrially Backward Area:
▪ 100% for 5 consecutive assessment years for Category ‘A’ districts and 25% (30% for company assesseee)
for 5 consecutive assessment years thereafter.
▪ 100% for 3 consecutive assessment years for Category ‘B’ districts and 25% (30% for company assesseee)
for 5 consecutive assessment years thereafter.

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(iii) Business of Ship: For Indian Company deduction of 30% of profits and gains for 10 consecutive
assessment years.
(iv) Business of Hotel:
▪ 50% for 10 consecutive assessment years for hotels located in a hilly area or rural area or a place of
pilgrimage
▪ 30% for 10 consecutive assessment years for hotels located in any other place as mentioned above
(v) Multiplex Theatre: 50% of profits and gains for 5 consecutive years in any place other than Chennai,
Delhi, Mumbai or Kolkata.
(vi) Convention Centre: 50% of profits and gains for 5 consecutive years.
(vii) Company carrying on Scientific R & D: 100% of profits and gains for 5 assessment years if approval
from the prescribed authority is obtained before 1-4-1999 whereas, 100% of profits and gains for 10
consecutive assessment years if approval from the prescribed authority is obtained after 31-3-2000 but
before 1-4-2007.
(viii) Undertaking at North-Eastern Region: 100% of profits and gains for 7 consecutive assessment years if
the undertaking is engaged in commercial production or refining of mineral oil or commercial production
of natural gas in licensed blocks
(ix) Undertaking developing and Building Housing Projects: 100% of profits and gains
(x) Business of Processing, Preservation and Packaging of Fruits or vegetables or meat or poultry or
marine or dairy products: 100% of profits and gains for 5 assessment years and 25% (30% for company
assesseee) for 5 consecutive assessment years thereafter.
(xi) Business of Operating or Maintaining a Hospital of at least 100 beds for Patients: 100% of profits
and gains for 5 consecutive assessment years.

Profits and Gains from Housing Projects – Section 80IBA:

Eligible Entity: Deduction under this section is applicable from A.Y. 2017-18 to an assessee deriving profits
from the business of developing and building housing projects consisting predominantly of residential units.
Conditions for Claiming Deductions:
(i) The project is approved by the competent authority after 1-6-2016 but on or before 31-3-2019.
(ii) The project is to be completed within 5 years from the date of approval by the competent authority.
(iii) The project is deemed to be completed when a certificate of completion in writing is obtained from the
competent authority.
(iv) Size of the plot, area of residential units and minimum utilization of FAR should satisfy the criteria:

Location of the Project Area of the Plot Carpet Area FAR

Chennai, Delhi, Kolkata, Not less than 1000 Sq. m. Not to exceed 30 Sq. m. Not less than 90%
Mumbai
Other than above places Not less than 2000 Sq. m. Not to exceed 60 Sq. m. Not less than 80%

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(v) If the housing project is not completed within 5 years and in respect of which a deduction has been
claimed and allowed, the total amount of deduction so claimed and allowed shall be deemed to be the
income of the assessee chargeable under the head “Profits and gains of Business or Profession” of the
P.Y. in which the period of completion so expires.
Deduction Amount: 100% of the Profits and Gains is allowed as deduction.

Certain Undertakings or Enterprises in Special Category States – Section 80IC:

Eligibility Entity:
An undertaking / enterprise which begins to manufacture any article or thing in any EPZ or Integrated
Infrastructure Development Centre or Industrial Growth Centre or Industrial Park or STP or Industrial Area.
Conditions for Claiming Deductions:
(i) It is not formed by splitting up, or the reconstruction, of a business already in existence.
(ii) It is not formed by the transfer of machinery or plant to a new business previously used for any purpose.

Deduction Amount:
▪ 100% of the Profits and Gains for 10 consecutive assessment years in case of Sikkim and North Eastern
States.
▪ 100% of the Profits and Gains for 5 consecutive assessment years and 25% (30% for company assesseee)
thereafter in case of Himachal Pradesh and Uttaranchal.

Business of Hotels and Convention Centres in Specified Area – Section 80ID:

Eligibility Entity:
An undertaking / enterprise engaged in the business of Hotel or owning and operating a convention centre in the
specified area or engaged in the business of Hotel in a specified district having a World Heritage Site.
Conditions for Claiming Deductions:
(i) The eligible business is not formed by splitting up, or the reconstruction, of a business already in
existence.
(ii) The eligible business is not formed by the transfer of machinery or plant to a new business previously
used for any purpose.
(iii) The eligible business is not formed by the transfer to a new business of a building previously used as a
hotel or a convention centre as the case may be.
(iv) The assessee furnishes along with the return of income, the report of an audit in such form and containing
such particulars as may be prescribed and duly signed and verified by a chartered accountant certifying
that the deduction has been correctly claimed.

Deduction Amount: 100% of the Profits and Gains for 5 consecutive assessment years beginning from the
initial assessment year.

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Certain Undertaking in North-Eastern States – Section 80IE:

Eligibility Entity:
An undertaking / enterprise engaged in manufacturing any eligible article other than tobacco/pan masala/ plastic
carry bags/ petroleum oil or gas refineries.
Conditions for Claiming Deductions:
(i) It is not formed by splitting up, or the reconstruction, of a business already in existence.
(ii) It is not formed by the transfer of machinery or plant to a new business previously used for any purpose.
Eligible Article or Thing – Means the article or thing other than the following:
(i) Goods which pertains to tobacco and manufactured tobacco substitutes;
(ii) Pan masala
(iii) Plastic carry bags of less than 20 microns
(iv) Goods produced by petroleum oil or gas refineries.
Eligible Business means:
(i) Hotel not below two-star category
(ii) Adventure and leisure sports including ropeways
(iii) Providing medical and health services in the nature of nursing home with a minimum capacity of 25 beds
(iv) Running an old age home
(v) Bio-technology
(vi) Manufacturing of information technology hardware
(vii) Running information technology related training centre
(viii) Operating vocational training institute for hotel management, catering and food craft, entrepreneurship
development, nursing and para-medical, civil aviation related training, fashion designing and industrial
training.

Offshore Banking Units and International Financial Services Centre – Section 80LA:
Eligibility Entity:
A Scheduled Bank/ Foreign Bank having an Offshore Banking Unit in an SEZ or a Unit of an International
Financial Services Centre.
Deduction Amount: 100% of the Profits and Gains for 5 consecutive assessment years and 50% of such
income for next 5 consecutive years.

Important Short Questions (2 marks each):

1. What is meant by Tax Management?

Ans.) Tax management is a part of tax planning. It deals with the maintenance of records, returns, papers,
certificates, payments of taxes, interests, fines, fees etc. and filing returns and rectification of mistakes
related to income tax.

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 Basically, tax management deals with the compliance of tax laws or legal formalities to avail the benefits
of deductions, exemptions, rebate, relief, allowances, concessions etc.

2. What is meant by permissive tax planning?

Ans.) Tax planning applying the deduction, exemption, rebate and relief as permissible in the Act in respect of
amount, time and mode is known as permissive tax planning. For example, deduction u/s 80D for
payment of medi-claim insurance premium.

3. What are the requisites of tax planning?

Ans.) In-depth knowledge of Income Tax laws, Amendments in Annual Finance Act, Circulars and
clarifications issued by CBDT, Various Judgments by High Courts and Supreme Court in relation to
taxation, Fair knowledge of other allied laws like laws related to wealth tax, sales tax, GST, transfer of
property act etc.
Other important parameters like residential status, nature of business or income, capital structure etc.

4. What is meant by Infrastructure Capital Company?

Ans.) It means the company which makes investments by way of acquiring shares or providing long-term
finance to any business as referred to in Sec. 80-IA(4) or 80-IAB(1) or 80-IB(10) or a project for
constructing a three-star hotel (at least) or for constructing a hospital with at least 100 beds.

5. What is meant by Place of Effective Management (POEM)? How it can be determined?

Ans.) Place of Effective Management (POEM) means a place where key management and commercial
decisions that are necessary for the conduct of business of an entity as a whole.
Determination of Place of Effective Management (POEM):
• Identification or ascertainment of the person or persons who actually make the key management and
commercial decisions for the conduct of the company's business as a whole.
• Determination of place where above decisions are implemented.

6. What are the conditions in which POEM is not applicable in India?

Ans.) (a) It is not applicable to a foreign company having turnover or gross receipts of Rs. 50 Crores or less in
a financial year.
(b) Company is engaged in active business outside India.
(c) Majority of Board Meetings are held outside India.

7. What is meant by Active Business outside India?

Ans.) A Company is said to be active business outside India if its passive income is not more than 50% of the
total income of such Company, and:
i. Assets in India are < 50% of the total assets. (Average of opening and closing assets)
ii. Employees in India are < 50% of the total employees. (Average of opening and closing no. of
employees)

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 iii. Payroll expenses in India are < 50% of the total payroll expenses.

8. What is meant by Passive Income?

Ans.) It means Income in relation to transactions of purchase and sale with Associated Enterprises (AEs) or
Income generated from Royalty, Dividend, Interest, Rental or Capital Gains.

9. What is meant by Indian Income?

Ans.) (i) If income is received (or deemed to be received) in India during the previous and at the same time it
accrues (or arises or is deemed to accrue or arise) in India during the previous year;
(ii) If income is received (or deemed to be received) in India during the previous year but it accrues (or
arises) outside India during the previous year;
(iii) If income is received outside India during the previous year but it accrues (or arises or is deemed to
accrue or arise) in India during the previous year.

10. Discuss the concept of Minimum Alternate Tax (MAT)?

Ans.) (i) If the income tax payable on the total income as computed under normal tax rate in any A.Y.
commencing on or after 1-4-2012 is less than 15% of its book profit, such book profit shall be
deemed to be the total income of the assessee.
(ii) Such company is liable to pay income tax @ 15% (plus surcharge and cess) of such book profit.
(iii) The objective of introduction of MAT is to bring the "zero tax companies" into tax net because they
earn substantial book profits and pay handsome dividends but do not pay tax due to various tax
concessions and incentives provided under Income Tax Law.

11. What is meant by Previous Year? [Ans: Page 7 of this study material]
12. What is meant by Assessment Year? [Ans: Page 7 of this study material]
13. Name any four institutions where an assessee can claim 100% deduction without any qualifying limit in
respect of the amount donated to such institutions. [ Ans: Page 16 – Category 1]
14. Name any four institutions where an assessee can claim 50% deduction subject to qualifying limit in
respect of the amount donated to such institutions. [ Ans: Page 17 – Category 4]
15. What are the requirements for an industrial undertaking engaged in infrastructural development to claim
deduction?

Ans) (i) The deduction for the infrastructure facilities is applicable to a company that is owned by an Indian
company or a company that is owned by an authority/board/corporation/institution that comes under
the Central or State Act.

(ii) For a new Infrastructure facility, there should be an agreement made to the Government or a local
authority or statutory body for developmental purposes.

16. State any three categories of entities eligible to claim deduction u/s 80IB. [Ans: Page 20].

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Important Long Questions (10 marks each):
1. Discuss different ways of reducing taxes. Elaborate the most legal approach of reducing tax liability.
2. Write short notes on:
(a) Tax Planning
(b) Tax Avoidance
(c) Tax Evasion
(d) Tax Management
3. Differentiate between:
(a) Tax Planning and Tax Management
(b) Tax Avoidance and Tax Planning
(c) Tax Evasion and Tax Planning
(d) Tax Management and Tax Planning

4. What is mean by Tax Planning? Discuss the prerequisites and limitations of Tax Planning.
5. What is meant by Tax Planning? Discuss the objectives, importance and limitations of Tax Planning.
6. Define a Company. Discuss various types of companies from taxation point of view.
7. Define a Company. Explain the residential status and scope of total income of a Company.
8. What is meant by MAT? Discus its applicability. Explain the utilization of MAT with suitable example.

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