DEDUCTION UNDER SECTION 80IE – AN OPPORTUNITY

RELEVANT PROVISIONS
Sl. No. Criteria Conditions
1. NATURE OF BUSINESS (a) Manufacture or produce an eligible articles or thing; or

(b) Undertakes Substantial Expansion to manufacture or produce eligible articles or thing; and

(c) Carries on ‘eligible business’

2. COMMENCEMENT OF

BUSINESS

Between – 1 April 2007 To 31 March 2017
3. LOCATION OF

UNDERTAKING

NORTH-EASTERN STATES being the states of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim & Tripura.
4. RESTRICTIONS (a) Should not be formed by SPLITTING UP, or the  RECONSTRUCTION of a business already in existence; or

(b) Not formed by TRANSFER of Plant & Machinery used for any purpose.

However, if any ‘second-hand’ Plant & Machinery, used outside India by any person other than the assessee, & imported into India, shall not be regarded as Transfer of Plant & Machinery.

Further, where, the total value of the Plant & Machinery, transferred does not exceed 20% of the Total Value of Plant & Machinery used in the Business, the above condition is deemed to be complied with.

5. SEPARATE ACCOUNTS &

AUDIT
  • Separate Accounts are required for Eligible Business.
  • Accounts are required to be Audited by a Chartered Accountant.
  • To furnish Audit Report in Form No. 10CCB, alongwith Return of Income.
6. RELATED PARTY

TRANSACTIONS

POWER OF AO TO RECOMPUTE PROFITS:

  • Transfer of any goods or services held for the purpose of any other business to the eligible
  • Business other than Fair Market Value (FMV).
  • Owing to close connection between the assessee & any other person, the course of business is so
  • Arranged that the business between them produces more than ‘ordinary profits.’
7. AMOUNT OF DEDUCTION 100% of the Profits & Gains DERIVED from such business
8. PERIOD OF DEDUCTION 10 Consecutive Assessment Years Commencing with the Assessment Year in which the undertaking begins to Manufacture or Produce Articles or Things, or Completes Substantial Expansion.
TAX PLANNING
1. RECOMMENDED

BUSINESS

ORGANISATION

[STATUS]

1ST Preference Partnership Firm

No provision for Interest on Capital & Remuneration To Working Partners

2ND Preference Company – considering Capital Requirements.

3RD Preference Sole Proprietorship – Only if Capital Requirements can be met by Proprietor without borrowings from Related Parties.

INTERPRETATION

“Eligible Articles or Things” include any article or thing, excluding – Tobacco & Manufactured Tobacco Substitutes, Pan Masala, Plastic Carry Bags (Less than 20 Microns), & Certain Goods produced by Petroleum Oil or Gas Refineries.

“Eligible Business” includes – Hotel (Not Below 2 Star Category), Adventure & Leisure Sports including Ropeways, Nursing Homes (Minimum 25 Beds), Old-age Home, Information Technology related Training Center, Manufacturing Information Technology related Hardware, and Vocational Training Institute (Hotel Management, Food Craft, Entrepreneurship Development, Nursing & Para Medical, Civil Aviation & Fashion Design & Industrial Training.

“Substantial Expansion” means investment in the plant & machinery by at least 25% of the book value of plant & machinery (before taking depreciation in any year), as on the 1st Day of the year in which Substantial Expansion takes place.

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8 thoughts on “DEDUCTION UNDER SECTION 80IE – AN OPPORTUNITY

  1. Can you please clarify whether Excise Duty is also exempted for units that are started for manufacture under section 80IE ? What about Service Tax ? Is this also exempted, for services ( for example IT services) – for both services rendered within the NE states and also to outside , to rest of Country ?

    • 1st Preference is given to partnership firms without provision for distribution of profits as salary / interest to partners to avail 100% exemption in the hands of the firm. Distribution as interest / salary to partners will attract tax at normal rates in the hands of the partners. 2. Earlier Alternative Minimum Tax (AMT) was not applicable on Partnership Firms (when the article was written).

      In case of companies, Corporate Dividend Tax is applicable in case of distribution of profits to shareholders and Minimum Alternative Tax (MAT) is also applicable.

      Therefore, effective tax rate as applicable on Companies is higher than that applicable on Partnership Firms and hence Partnership Firm is a preferred choice with respect to Tax Planning in case of Deduction u/s 80IE to avail maximum Tax Benefit.

  2. The Finance Bill, 2012 proposes to introduce:

    1. Alternative Minimum Tax on all persons other than company where gross total income exceeds Rs. 20 lakhs. Income Exempt under Section 80IE is liable to Alternative Minimum Tax in case of persons other than company.

    Note: Minimum Alternative Tax on companies was always there.

    2. Transfer pricing provisions are proposed to be introduced for Related Party Transactions in respect of undertaking claiming exemption u/s 80IE.

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