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8.
Under section 48 of the Income Tax Act, if the investments in shares are sold after being held for not less
than twelve months, the gains, if any (in case not covered under section 10(38) of the Income Tax Act), will
be treated as long-term capital gains and the gains will be calculated by deducting from the gross
consideration, the indexed cost of acquisition. The indexed cost of acquisition/ improvement means an
amount which bears to the cost of acquisition/improvement the same proportion as cost inflation index for
the year in which the asset is transferred bears to the cost inflation index for the first year in which the asset
was held/ for the year in which the improvement to the asset took place.
9.
Under Section 54EC of the Income Tax Act, capital gain arising from transfer of long-term capital assets
(other than those exempt under section 10(38) of the Income Tax Act) is exempt from tax, if the capital
gains are invested in certain notified bonds within a period of six months from the date of transfer, up to a
maximum limit of Rs. 5 million during any financial year for a period of three years. For investments made
on or after 1 April 2007, the notified bonds are:
National Highways Authority of India (“NHAI”) constituted under section 3 of National
Highways
Authority of India Act, 1988 and notified by the Central Government in the
Official Gazette for the
purpose of this section;
or
Rural Electrification Corporation Limited (“RECL”), a company formed and registered
under the
Companies Act and notified by the Central Government in the Official
Gazette for the purpose of this
section;
If only part of the capital gain is invested, the exemption will be proportionately reduced. However, if the
new bonds are transferred or converted into money within three years from the date of their acquisition, the
amount so exempted will be chargeable to tax.
10.
The Company is entitled to a deduction under section 80G of the Income Tax Act in respect of amounts
contributed as donations to various charitable institutions and funds covered under that section, subject to
fulfilment of conditions therein.
11.
The Company is eligible for deduction under section 80-IB (10) of the Income Tax Act, in case of certain
projects. The deduction is equivalent to 100% of profits derived from developing and building housing
projects approved before 31 March 2007 by a local authority, subject to fulfilment of specified conditions.
12.
Under section 111A of the Income Tax Act, short-term capital gains (i.e., if the shares are held for a period
not exceeding twelve months), arising on sale of listed equity shares are taxed at the rate of 15% (plus
applicable surcharge and cess) in cases where securities transaction tax has been levied. Further, if the gross
total income of the Company includes any short term capital gains referred to above, deduction under
Chapter VI-A of the Income Tax Act shall be allowed from the gross total income as reduced by such short
term capital gains.
13.
Under section 112 of the Income Tax Act, long-term capital gains are subject to tax at a rate of 20% (plus
applicable surcharge and cess) after indexation, as provided in the second proviso to section 48 of the
Income Tax Act. However, in case of listed securities or units, the amount of such tax could be limited to
10% (plus applicable surcharge and cess), without indexation benefit, at the option of the Company in cases
where securities transaction tax is not levied.
14.
Under section 115JAA(1A) of the Income Tax Act, credit is allowed in respect of any Minimum Alternate
Tax (“MAT”) paid under section 115JB of the Income Tax Act for any assessment year commencing on or
after 1 April 2006. Tax credit eligible to be carried forward will be the difference between MAT paid and
the tax computed as per the normal provisions of the Income Tax Act for that assessment year. Such MAT
credit is allowed to be carried forward for set off purposes for up to 7 years succeeding the year in which
the MAT credit is first allowed.
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Special Tax Benefits
There are no special tax benefits available under the Income Tax Act, 1961 to the Company.
B.
Benefits to the Company under the Wealth Tax Act, 1957:
General Tax Benefits
1.
As per the provisions of section 2(m) of the Wealth tax Act, 1957, the Company is entitled to reduce debts
owed in relation to the assets which are chargeable to wealth tax in computing the net taxable wealth
Special Tax Benefits
There are no special tax benefits available under the Wealth Tax Act to the Company.
C.
Benefits to the Shareholders of the Company under the Income-Tax Act, 1961:
General Tax Benefits
1.
Under section 10(32) of the Income Tax Act, any income of minor children clubbed in the total income of
the parent under section 64(1A) of the Income Tax Act, will be exempt from tax to the extent of Rs 1,500
per minor child.
2.
Under section 10(34) of the Income Tax Act, any income by way of dividends referred to in Section 115-O
(i.e. dividends declared, distributed or paid on or after 1 April 2003) received on the shares of the
Company, is exempt from tax.
3.
Under section 10(38) of the Income Tax Act, any long term capital gains arising to a shareholder from
transfer of long term capital asset being an equity share in a company will not be liable to tax in the hands
of the shareholder if the following conditions are satisfied:
The transaction of sale of such equity share is entered into on or after October 1, 2004;
and
The transaction is chargeable to securities transaction tax.
4.
Section 14A of the Income Tax Act restricts claim for deduction of expenses incurred in relation to income
which does not form part of the total income under the Income Tax Act viz income received under sections
10(34), 10(35), etc. Thus, any expenditure incurred to earn the said income is not a tax-deductible
expenditure.
5.
Under section 36(1) (xv) of the Income Tax Act, securities transaction tax paid by a shareholder in respect
of the taxable securities transactions entered into in the course of his business, would be allowed as a
deduction if the income arising from such taxable securities transactions is included in the income
computed under the head “Profit and gains of business or profession”. Where such deduction is claimed, no
further deduction in respect of the said amount will be allowed in computing the income chargeable to tax
as capital gains.
6.
Under section 48 of the Income Tax Act, if the Company’s shares are sold after being held for not less than
twelve months, the gains (in case not covered under section 10(38) of the Income Tax Act), if any, will be
treated as long term capital gains and the gains shall be calculated by deducting from the gross
consideration, the indexed cost of acquisition. The indexed cost of acquisition/ improvement means an
amount which bears to the cost of acquisition/improvement the same proportion as cost inflation index for
the year in which the asset is transferred bears to the cost inflation index for the first year in which the asset
was held/ for the year in which the improvement to the asset took place.
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