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Unit 7: Deductions: For Special Conditions

7. The section empowers the Central Government to declare any class of industrial undertaking Notes
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 notifi ed on
or after 1.4.2005 in accordance with the Industrial Park Scheme, 2002 and notifi ed 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 Benefi ts, 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 Indian
Tcompanies. 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, profi ts
earned by SEZ developers and units operating in these SEZs were exempt from tax.
In addition, the dividend paid by these SEZ units was exempt from tax, compared to other
companies who paid a dividend distribution tax of 15%. This will go. The exemption of

tax on dividends ends from June 2011 itself. This again does not affect their profits but will

reduce the profits available for distributing to shareholders.
Contd...

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