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Unit 6: Deductions: For Special Conditions

7. The section empowers the Central Government to declare any class of industrial Notes
undertaking or enterprise as not being entitled to deduction under this section. The denial
of exemption shall be with effect from such date as may be specified in the notification
issued in the Official Gazette (Sub-section (11)).
8. In the case of any amalgamation or demerger, by virtue of which the Indian company
carrying on the eligible business is transferred to another Indian company, deduction
under this section will be available as follows:

a. No deduction will be available to the amalgamating company or the demerged
company, as the case may be, in the year of amalgamation or demerger.
b. The provisions of this section will apply to the amalgamated or resulting company
as they would have applied to the amalgamating or demerged company if the
amalgamation or demerger had not taken place (Sub-section (12)).

However, such transfer of benefit of deduction to the amalgamated/resulting company
would not be available in respect of any enterprise or undertaking which is transferred in
a scheme of amalgamation or demerger affected on or after 1.4.2007 (Sub-section (12A)).
9. The deduction under section 80-IA would not be available in respect of any SEZ notified
on or after 1.4.2005 in accordance with the Industrial Park Scheme, 2002 and notified
schemes for SEZs, referred to in section 80-IA(4)(c)(iii) (Sub-section (13)).
10. The tax holiday under section 80-IA would not be available in relation to a business
referred to in sub-section (4) which is in the nature of a works contract awarded by any
person (including the Central or State Government) and executed by the undertaking or
enterprise referred to in section 80-IA(1).

Caselet Corporate Income Tax: Small Benefits, but SEZs Dealt
a MAT Blow

he corporate surcharge has been lowered from 7.5% to 5%. That reduces the effective
corporate tax rate from 33.2% to 32.4%, which is a nice, even if small, relief for
TIndian companies. The new rate will be 30% plus a 5% surcharge, which works out
to 31.5%, and after adding the education cess of 3%, it works out to 32.4%.
But the Minimum Alternate Tax (MAT) which is levied on firms has been increased to
18.5% of book profits from 18% earlier. This was to compensate for the lower surcharge,
according to the FM. MAT is levied on those firms whose profits as per the Income Tax Act,
is lower than that in their books prepared under the Companies Act.
So, companies will have to pay 18.5% of their book profits or tax as per the Income Tax Act,
whichever is higher. But this tax is adjustable against future taxes payable. That is, when
the company exits the tax holiday, or any other situation, which is lowering its tax incidence,
it will be able to set off its MAT credit against the tax liability. This is in the nature of an
advance tax, which lowers the cash flow of the company and in turn, hikes the cash flows
of the government.

The Special Economic Zone Act has come under fire on several fronts. Earlier, profits
earned by SEZ developers and units operating in these SEZs were exempt from tax.

Contd...

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