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TAX Holidays & MAT for IT

Muruganandam M

1011037

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Presentation Brief

Company Profile: Manufacturing and

marketing mass consumption items

Target Audience: Middle level managers Topic: Tax holidays and MAT for IT

Objective: Basic concepts about Tax holidays

and MAT in IT sector relate it to their work

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Actual presentation starting

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About Presenter

Muruganandam M

Management Trainee

Business Development Department PGP in MBA, IIM Bangalore Batch 2010

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Why are we investing a part of our earningsin instruments such as

Government Bonds

PPF

Government Infrastructure bonds

National Security Certificate

Equity linked Provident Fund

TO SAVE TAX More money in our pocket

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Why?

Government is always interested in Collecting

Tax to run its machineries. Then, why it is

giving away the tax?

To encourage Investments in specific areas to

stimulate the growth in that particular area

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TAX HOLIDAY

A tax holiday is a temporary reduction or elimination of a tax

A Tax slashing Device Import Excise Duty

Custom duty

Sales Tax

Corporate Tax

Example:

Tax deductions of 100 per cent of export profits.

Deduction of 30 per cent of net (total) income for 10 years for new industrialundertakings.

Deduction of 50 per cent on foreign exchange earnings by construction

companies, hotels and on royalty, commission etc. earned in foreign exchange 100 % tax deduction for the IT investments in tier II and tier III cities

These benefits will differ industry to industry

Condition: Deductions under tax holiday

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Why Tax Holiday?

Incentive for business investments

FDI Foreign Direct Investments

Stimulating growth in selected industry Less 'pinch' on the pockets and a good fast

growth of economy

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Tax Holiday

Information and Technology Sector

Income Tax holiday

100% customs duty exemption on imports ofcapital equipments (Lease/Loan/Paid)

100% Depreciation on capital goods over aperiod of five years

Central Sales Tax reimbursement

Are we benefiting from this? YES New IT service company in STPI Hubli, to export

software to our companies in Europe and USA

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MAT - Minimum Alternate Tax

Taxable income calculation Companies Act

Income Tax Act

Minimum of this should be paid as Tax to Income taxdepartment

Example:

We bought the following new items at the beginning of thisfinancial year computers worth Rs. 50000 Expected life is 5 years

Printers worth Rs. 30000 Expected life is 3 years Companies Act - SLM method to calculate the depreciation expenses

Income Tax Act WDV method to calculate the depreciation expenses It allows 100% depreciation for these items

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Understanding MAT

Companies Act, India Amt (Rs.) Income Tax Act, India Amt(Rs.)

Net Sales 500000 Net Sales 500000

Expenses 420000 Expenses 420000

Less Dep. Charge-Computer

= 50000/5

10000 Less Dep. Charge-Computer

= 50000*100%

50000

Less Dep. Charge Printer

=30000/3

10000 Less Dep. Charge Printer

=30000*100%

30000

Taxable Income 60000 Taxable Income 0

Tax payable at 30% 1800 Tax Payable 0

Before MAT we paid Rs. 0 as Income Tax

After MAT we pay Rs. 1800 as Income Tax

Is government take away our hard earned money???

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