Income that is exempt from tax

About the authors A few words from the authors

Basic Concepts Residential Status Income that is exempt from tax Salary Profits and gains of business or profession Capital Gains Set-off and carry forward of losses Permissible deductions from gross total income and tax liability

UNIT I

1. Introduction 2. Tax planning/avoidance/evasion - Concept in brief 3. What is tax planning 4. What is tax avoidance 5. What is tax evasion 6. Tax avoidance v. Tax evasion 7. Tax planning v. Tax management

I-9

CONTENTS

UNIT II

16. Company [Sec. 2(17)] 17. Indian company [Sec. 2(26)] 18. Domestic company 18.1 Arrangement for declaration and payment of dividend - Meaning of 19. Foreign company 20. Industrial company 20.1 Other points 21. Company in which the public are substantially interested [Sec. 2(18)] 21.1 Onus to prove 22. Investment company 23. Widely-held company 24. Closely-held company 25. Case study

MULTIPLE CHOICE QUESTIONS

28. Residential status of a company [Sec. 6(3)] 28.1 Place of effective management (POEM) as per Circular No. 6/2017 29. Incidence of tax [Sec. 5] 29.1 Indian income and foreign income 29.2 Incidence of tax 29.3 Conclusions 30. Receipt of income 30.1 Receipt v. Remittance 30.2 Actual receipt v. Deemed receipt 30.3 Cash v. Kind 30.4 Receipt v. Accrual 31. Accrual of income

MULTIPLE CHOICE QUESTIONS

40. Carry forward and set-off of losses in the cases of certain companies [Sec. 79] 40.1 Normal provisions 40.2 Special provisions 40.3 Exceptions 41. Taxable income - How computed 42. Tax liability - How computed 42.1 Income taxable at special rate

CONTENTS

43. Minimum alternate tax [Sec. 115JB] 43.1 When applicable 43.2 Book profit - How to determine [Sec. 115JB] 43.3 Minimum income and tax 43.4 Report from a chartered accountant 43.5 Carry forward and set-off of tax credit 43.6 Hints for tax planning 44. Dividend tax 45. Alternative tax regime for domestic companies under section 115BAA 45.1 Conditions and restrictions 45.2 Tax rate 45.3 Option 45.4 MAT not applicable 46. Alternative tax regime for new manufacturing domestic companies under section 115BAB 46.1 Conditions 46.2 Mode of computation of income 46.3 Computation of tax liability under section 115BAB 46.4 Option 46.5 MAT not applicable 47. Case studies

MULTIPLE CHOICE QUESTIONS

UNIT III

57. Location of new business

MULTIPLE CHOICE QUESTIONS

68. Nature of new business 127 69. Investment allowance for acquisition and installation of new plant and machinery [Sec. 32AC] 127 70. Investment allowance in backward area in Andhra Pradesh, Bihar, Telangana or West Bengal [Sec. 32AD] 128 71. Tea/coffee/rubber development account [Sec. 33AB] 128 71.1 Conditions 128 71.2 Amount of deduction 128 71.3 Amount can be withdrawn for the purpose of the scheme 129 71.4 Consequences in the case of closure of business 129 71.5 Withdrawal from the special account cannot be utilised for certain purposes 129 71.6 Consequences if the new asset is transferred within 8 years 129 71.7 Double deduction not permissible 130 72. Telecom licence fees [Sec. 35ABB] 130 72.1 Conditions 130

CONTENTS

72.2 Amount of deduction 72.3 Profit or loss on sale of telecom licence 72.4 Consequences in the case of amalgamation or demerger 72.5 Depreciation under section 32 not available 73. Expenditure on specified business [Sec. 35AD] 73.1 Conditions 73.2 Amount of deduction 73.3 Consequences of claiming deduction under section 35AD 74. Computing business profits on presumptive basis [Sec. 44AD] 74.1 Consequences if the above conditions are satisfied 74.2 Is it possible to declare lower income [Sec. 44AD(4)] 74A. Computation of professional income of estimated basis under section 44ADA 75. Transport operators [Sec. 44AE] 75.1 Who is covered by the scheme of section 44AE 75.2 Consequences if section 44AE is applicable 75.3 Other points 76. Employment of new workmen [Sec. 80JJAA] 76.1 Conditions 76.2 Amount of deduction 77. Tonnage Tax Scheme [Secs. 115V to 115VZC] 77.1 Salient features

MULTIPLE CHOICE QUESTIONS

86. Form of organisation 87. Whether sole proprietorship is a better alternative 88. Firm v. Company 88.1 How to reduce tax incidence on companies 89. Limited liability partnership (LLP) 89.1 LLP is taxed like traditional partnership firm 89.2 Firm, LLP and company - A comparison of tax benefits 89.3 LLP v. Company

MULTIPLE CHOICE QUESTIONS

90. Capital structure decision 91. Dividend policy 92. Meaning of dividend [Sec. 2(22)] 92.1 Accumulated profits 92.2 Distribution of accumulated profits entailing release of company’s assets [Sec. 2(22)(a)] 92.3 Distribution of accumulated profits in the form of debentures, debenture stock [Sec. 2(22)(b)] 92.4 Distribution of accumulated profits at the time of liquidation [Sec. 2(22)(c)] 92.5 Distribution of accumulated profits on the reduction of its capital [Sec. 2(22)(d)]

CONTENTS

92.6 Distribution of accumulated profits by way of advance or loan [Sec. 2(22)(e)] 92.7 Tax treatment in the hands of shareholders 93. Bonus shares 93.1 Bonus shares to equity shareholders

MULTIPLE CHOICE QUESTIONS

100. Purchase of asset 101. Lease v. Purchase 102. Purchase by instalment v. Hire 103. Sale of assets used for scientific research 104. Make or buy 105. Repairs, replace, renewal or renovation

MULTIPLE CHOICE QUESTIONS

109. Factors which require consideration 110. Deduction of remuneration in the hand of employer 111. Tax incidence in the hands of employees 112. Fringe benefit tax 113. Remuneration planning 113.1 Broad hints 113.2 Other points 114. Case studies 115. Alternative tax regime [Sec. 115BAC] 115.1 Rate of income-tax under the alternative tax regime 115.2 Conditions and restrictions 115.3 Option

MULTIPLE CHOICE QUESTIONS

116. Sale of scientific research assets

MULTIPLE CHOICE QUESTIONS

118. Insurance claim 119. When section 45(1A) is attracted 119.1 Consequences where section 45(1A) is applicable 120. When section 45(1A) is not applicable

CONTENTS

120.1 When insurance compensation is a capital receipt 120.2 When insurance compensation is a revenue receipt 121. Case studies

MULTIPLE CHOICE QUESTIONS

125. Liquidation of a company 125.1 Tax treatment in the hands of the company [Sec. 46(1)] 126. Tax treatment in the hands of shareholders [Sec. 46(2)] 127. Case study

MULTIPLE CHOICE QUESTIONS

UNIT IV

142. Residential status 143. Income taxable in the hands of non-resident in India 144. Income deemed to accrue or arise in India [Sec. 9] 144.1 Income from business connection [Sec. 9(1)(i)] 144.2 Income through or from any property, asset or source of income in India [Sec. 9(1)(i)] 144.3 Transfer of capital asset situated in India [Sec. 9(1)(i)] 144.4 Income under the head “Salaries” [Sec. 9(1)(ii)] 144.5 Salary payable abroad [Sec. 9(1)(iii)] 197

144.6 Dividend paid by an Indian company [Sec. 9(1)(iv)] 144.7 Income by way of interest [Sec. 9(1)(v)] 144.8 Income by way of royalty [Sec. 9(1)(vi)]

197 197 197 144.9 Income by way of fees for technical services [Sec. 9(1)(vii)] 198 144.10 Deemed accrual of Gift of money to a non-resident/Foreign Company [Sec. 9(1)(viii)] 198 145. Hints for tax planning in respect of residential status 198 146. Interest to non-residents [Sec. 10(4), (4B)] 199 147. Salaries of foreigncitizens 199 147.1 Salary of diplomatic personnel [Sec. 10(6)(ii)] 199 147.2 Salary of foreign employees [Sec. 10(6)(vi)] 199 147.3 Salary received by a ship’s crew [Sec. 10(6)(viii)] 199 147.4 Remuneration of a foreign trainee [Sec. 10(6)(xi)] 200 148. Exemption from tax paid on behalf of foreign companies in respect of certain income [Sec. 10(6A)] 200 149. Tax paid on behalf of non-resident [Sec. 10(6B)] 200 150. Technical fees received by a notified foreign company [Sec. 10(6C)] 200 151. Foreign Government employee under co-operative programmes [Sec. 10(8)] 201 152. Non-resident consultants 201