Q2. Define the term tax holidays.

What are the different tax incentives for new units established in SEZ? ANS: A tax holiday is a temporary reduction or elimination of a tax. Governments usually
create tax holidays as incentives for business investment. The taxes that are most commonly reduced by national and local governments are sales taxes. In developing countries, governments sometimes reduce or eliminate corporate taxes for the purpose of attracting Foreign Direct Investment or stimulating growth in selected industries. Tax holiday is given in respect of particular activities, and sometimes also only in particular areas with a view to develop that area of business. Or If an assessee is permitted or given exemption for not to pay tax for certain number of year/ years then that particular year or years will be termed as Tax holiday. The following are the some of provisions mentioned by income tax department regarding tax holidays. 1. 100% export oriented units 10 year tax holiday is allowed for 100% of the income. 2. For newly established industrial undertaking in Free trade zones , electronic hardware technology park, software technology park or special economic zone- 10 year tax holiday is allowed for 100% of the profits(except for SEZ) For SEZ the deduction is as follows a) For the first 5 years 100% of export profit b) For the next 2 years 50% of export profit c) For the next 3 years 50% of export profit

Tax incentives for new units established in SEZ:

In India, SEZs are the special zones created by the Government and run by GovernmentPrivate or solely Private ownership, to provide special provisions to develop industrial growth in that particular area. The government of India launched its first SEZ in 1965, in Kandla, Gujarat. The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include: Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. Exemption from minimum alternate tax under section 115JB of the Income Tax Act. External Commercial Borrowing by SEZ units up to US $ 12500 billion in a year without any maturity restriction through recognized banking channels.

Exemption from Central Sales Tax. Exemption from Service Tax. Single window clearance for Central and State level approvals. Exemption from State sales tax and other levies as extended by the respective State Governments.

The major incentives and facilities available to SEZ developers include: Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA. Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act. Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act. Exemption from dividend distribution tax under Section 115O of the Income Tax Act. Exemption from Central Sales Tax (CST). Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

Currently there are 114(as on Oct 2010) SEZs operating throughout India in the following states. Karnataka - 18; Kerala - 6; Chandigarh - 1; Gujarat - 8; Haryana - 3; Maharashtra 14; Rajastan - 1; Orissa - 1 TamilNadu - 16; Utter Pradesh - 4; West Bengal - 2. Additionally, more than 500 SEZs are formally approved (as on Oct 2010) by the Govt of India in the following states. Andhra Pradesh - 109; Chandigarh - 2; Chattisgarh - 2; Dadra Nagar Haveli - 4; Delhi- 3; Goa - 7; Gujarath - 45; Haryana - 45; Jharkand - 1; Karnataka 56; Kerala - 28; Madhya Pradesh - 14; Mahrashtra - 105; Nagaland - 1; Orissa - 11; Pondicherry - 1; Punjab - 8; Rajasthan - 8; TamilNadu - 70; Uttarankhand - 3; Utter Pradesh 33; West Bengal - 22;

Q3. What are the key steps to calculate the tax liability of an individual ? ANS: Steps to calculate the tax liability of an individual are: Determine residential status- First of all to determine the residential status of the assessee. The incomes are taxed according to residential status i.e. Resident in India, Not Ordinarily resident, or Non resident. Calculation of gross total income- For the calculation of the gross total income we should have to calculate the income of five heads according to the provisions of Income Tax Act.

Exempted Incomes- While calculating the incomes of the different heads, the incomes which are exempted will not be included. Income of other persons to be included in the income of assessee- Few incomes of other persons (Sec. 64) includes in the income of assessee. Set-off of losses- If there is negative income in a particular head then it is to be set off according to the provisions of Income Tax Act. Deductions u/s 80- After the above steps, the aggregate amount of income is known as Gross Total Income. From the gross total income few deductions which are provided under section 80 of income tax act will be deducted. After deductions, the balance of income is known as Total Income or Taxable Income. The list of deductions available to an individual are as follows: 1. Investments and deposits (sec 80C) 2. Contribution to certain pension funds (sec 80CCC) 3. Contribution of new pension scheme (sec 80CCD) 4. Payment to medical insurance premium (sec 80D) 5. Medical treatment of handicapped dependents and amount deposited for maintenance of handicapped dependents (sec 80DD) 6. Expenditure on medical treatment of certain diseases (sec 80DDB) 7. Repayment of loan and interest thereon taken for higher education (sec 80E) 8. Donations to certain funds/charitable institutions etc. (sec 80G) 9. Deductions in respect of rent paid (sec 80GG) 10. Donations for scientific research and rural development (sec 80GGA) 11. Contribution to political parties (80GGC) 12. Profit and gain of new industrial undertaking set up for infrastructure development (sec 80IA) 13. Profit and gains of new industrial undertakings (sec 80IB) 14. profit and specific industrial undertakings establish in specific states (sec 80IC) 15. Deduction in respect of profits and gains from business of collecting and processing of bio gradable waste (sec 80JJA) 16. Deduction in respect of certain incomes of offshore banking unit (sec 80LA) 17. Deduction in respect of royalty income to authors (80QQB) 18. Deduction in respect of royalty on patent (sec 80RRB) 19. Deduction in case of person with disability (sec 80U) Total Income rounded off in the multiple of ` 10 The total income calculated will rounded off in multiple of Rs. 10. For this rupee five or more than Rs. 5 will be treated as Rs. 10 and less than Rs. 5 will be deleted.

Question.2:- Detail death cum retirement gratuity under Sec 17(1)iii of IT Act. Is commutation of pension a viable option in terms of tax planning?

Answer: Death-cum-retirement gratuity or any other gratuity which is exempt to the extent specified from inclusion in computing the total income under clause (10) of Section 10. cumAny death--retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or ho lders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil po sts under a State or to the employees of a local authority or any payment of retiring gratuity receive d under the Pension Code or Regulations applicable to the members of the defence service. Gratuity received in cases other than above on retirement, termination etc is exempt up to the limit as prescribed by the Board. Under the provisio ns of Section 10(10) of the IT Act, any death-cum-retireme nt gratuity of a government servant is complete ly exempt from income tax. However, in respect of private sector employees gratuity received on retirement or on becoming incapacitate d or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions The maximum amount of exemption is Rs. 3,50,000;. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10). Any payment in commutation o f pension received under the Civil Pension(Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the civil services of the Union, or holders of civil posts/posts connected with de fence, under the Union,or civil posts under a State, or to the members of the All India Services/Defence Services, or, to the employees of a local authority or a corporation established by a Central,State or Provincial Act, is exempt under sub-clause (i) of clause (10A) of Section 10. As regards payments in commutation of pension received under any scheme of any other employer, exemption will be governed by the provisions of sub-clause (ii) o f clause (10A) of section 10. Also, any payment in commutation of pension received from a Regimental Fund or Non-Public Fund established by the Armed Forces of the Union referred to in Section 10(23AAB) is exempt under sub-clause (iii) of clause (10A) of Section 10. The entire amount of any commutation of pension from LIC [Get Quote] pension fund is exempt from income tax under Section 10(10A) of IT Act However, in respect of private sector employees, only the following amount of commuted pension is exempt, name ly: (a) Where the employee receive d any gratuity, the commute d value of one-third of the pension which he is normally entitled to receive; and (b) In any other case, the commuted value of half of such pension. It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a Tax payer under Section 10(10A) of IT Act payment in commutation o f pension by a government servant or any payment in commutation of pension from LIC [Get Quote] pension fund is exempt from income tax