Section 80JJAA: Deduction to businesses for employing new employees

Eligibility:

  • Applicable to Assessees:
    • Indian companies or individuals, HUFs, partnerships, or other entities engaged in business.
    • Assessee must have income from business and must be liable for audit under Section 44AB (Tax Audit).
  • Eligible Business:
    • All businesses except businesses engaged in manufacturing or production of apparel, footwear, or leather products (for which separate provisions apply).

Quantum of Deduction:

  • Deduction Amount:
    • 30% of additional employee cost for three assessment years, including the year in which the employment is created.

Key Definitions:

  • Additional Employee:
    • A person employed during the financial year.
    • Excludes:
      • Employees whose total monthly emoluments exceed ₹25,000.
      • Apprentices under the Apprentices Act, 1961.
      • Employees working for less than 240 days in a year (150 days for businesses in the manufacturing of apparel, footwear, or leather products).
      • Rehired employees or employees transferred from another business.
  • Additional Employee Cost:
    • Total emoluments paid or payable to additional employees during the financial year.
    • For existing businesses: Only the increase in employee cost over the previous financial year is considered.
    • For new businesses: The total emoluments paid or payable are treated as additional employee cost.
  • Emoluments:
    • Wages paid or payable to employees but excludes:
      • Employer contributions to provident funds or other funds.
      • Perquisites as defined in Section 17(2).
      • Any lump-sum payments like gratuity or severance pay.

Conditions for Claiming Deduction:

  • Payment through Banking Channels:
    • Salary or wages must be paid through bank transfers or account payee cheques to qualify.
  • Statutory Compliance:
    • Employers must comply with statutory obligations like provident fund and employee welfare contributions.
  • Audit Requirement:
    • The deduction can only be claimed if the taxpayer’s accounts are audited, and the auditor certifies the details in the prescribed Form 10DA.
  • Threshold for Days of Employment:
    • Employees must work for at least:
      • 240 days in the financial year (general).
      • 150 days for businesses in manufacturing apparel, footwear, or leather products.

Exclusions:

  • Employees employed by a business in case of reconstruction or reorganization of an existing business.
  • Employees in cases where the business takes over another business.

Illustration:

  • Suppose a business employs 50 new employees, each with a monthly salary of ₹20,000.
  • The annual emoluments for these employees = ₹20,000 × 12 × 50 = ₹1,20,00,000.
  • Deduction: 30% of ₹1,20,00,000 = ₹36,00,000 (for 3 consecutive years).

Important Points:

  • Carry Forward of Unclaimed Deduction:
    • No provision exists for carrying forward this deduction if not claimed in the respective assessment year.
  • Applicability to Startups:
    • Startups also benefit from this deduction as long as they meet the criteria.
  • Misreporting or Non-Compliance:
    • Any misreporting in claiming this deduction may result in penalties or disallowance of the deduction.

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Income Tax Provisions on Sale of Listed Equity Shares

  • Income Tax Provisions on Sale of Listed Equity Shares:
    • Short-Term Capital Gains (STCG):
      • Applicable if shares are held for 12 months or less.
      • Tax Rate: 20% (under Section 111A) + surcharge + cess.
      • Condition: Sale must take place on a recognized stock exchange and attract Securities Transaction Tax (STT).
    • Long-Term Capital Gains (LTCG):
      • Applicable if shares are held for more than 12 months.
      • Tax Rate: 12.5% (under Section 112A) on gains exceeding ₹1,25,000 in a financial year, without indexation benefit.
      • Condition: Sale must take place on a recognized stock exchange and STT must be paid.
  • Exemptions Available Under the Capital Gains Head:
    • Under Section 54F:
      • Applicable if the entire net sale consideration (not just capital gain) is reinvested in a residential house property within the specified time limits:
        • Purchase: Within 1 year before or 2 years after the sale.
        • Construction: Completed within 3 years of the sale.
      • Conditions:
        • The taxpayer should not own more than one residential house (other than the new house) on the date of transfer.
        • Exemption is proportionate if only part of the sale consideration is invested.
  • Set-Off of Capital Gains:
    • STCG can be set off against any capital loss (short-term or long-term).
    • LTCG can be set off only against long-term capital loss.
  • Special Cases and Notes:
    • Non-Resident Taxation:
      • For non-residents, tax on LTCG and STCG is the same, but exemptions under Sections 54F and 112A may not apply unless specified in Double Taxation Avoidance Agreements (DTAAs).

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Section 79-Carry forward and set-off of losses in Income Tax

Section 79 of the Income Tax Act pertains to the carry forward and set-off of losses in case of certain companies, primarily addressing restrictions on carrying forward losses when there is a change in the company’s shareholding. Below is a summary:

  1. General Restriction:
    Losses incurred in prior years cannot be carried forward if there is a significant change in shareholding during the previous year. Specifically, shares carrying at least 51% of voting power must be held beneficially by the same persons on:
    • The last day of the year when the loss was incurred, and
    • The last day of the previous year.
  2. Exceptions to General Restriction:
    • Eligible Startups: For companies qualifying under Section 80-IAC, losses can be carried forward if all shareholders of the year in which the loss was incurred remain shareholders in the year of set-off.
    • Family Transfers: Changes due to death or gifts to relatives are excluded.
    • Foreign Subsidiaries: Changes due to the merger or demerger of a foreign company are exempt if 51% of shareholders remain in the merged company.
    • IB Code Resolution Plans: Changes in shareholding approved under the Insolvency and Bankruptcy Code, 2016, are exempt.
    • Government Intervention: Shareholding changes in companies under Central Government’s intervention due to mismanagement are excluded.
    • Strategic Disinvestment: Former public-sector companies continue to carry forward losses if 51% of voting power remains with the original government-linked ultimate holding company​.

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Foreign Direct Investment in India

Introduction

A Foreign Direct Investment (FDI) is an investment in one country in the form of control of an entity in another country. For this reason, it differs from foreign portfolio investments with its direct management approach. In general, foreign direct investment includes “mergers and acquisitions, construction of new facilities, investment of foreign business profits, and bank loans.” FDI is capital inflow into the balance of payments, long-term investment and short-term investment. Foreign direct investment often involves cooperative management, joint ventures, and the transfer of technology and expertise. These investments are flowing into India due to the government’s supportive policies, enabling business environment, global competitiveness and trade.

Types of Foreign Direct Investment:

  • Horizontal: Depending on the type of foreign direct investment, the business expands domestically to other countries. Businesses do the same business in abroad.
  • Vertical: In this case, a business expands to other countries by moving to different levels of the chain. Therefore, companies work abroad, but these activities are related to big business.
  • Joint Venture: When investing in two different companies in different markets, the work done is called Joint Venture Foreign Direct Investment. Therefore, foreign direct investment is not directly linked to the economic activity of the investor.
  • Platform: Here, a business opens to other countries, but the products produced by the business are later exported to our country

Foreign Direct Investment Route

  • Automatic Route: In this route, foreign direct investment is allowed without prior approval of the Government of India or the Reserve Bank of India.
  • Government Route: According to the government method, approval of the Government of India is required before investment. Foreign direct investment proposals under the government’s route are decided by department/department managers.

Government Initiatives

In recent years, India has emerged as an attractive destination for foreign direct investment due to positive government policies. India has developed various schemes and policies that have helped to boost India’s FDI. These schemes have prompted India’s FDI investment, especially in upcoming sectors such as defence manufacturing, real estate, and research and development. Some of the major government initiatives are:

  • Due to the Make in India Initiative, FDI equity inflow in the manufacturing sector has increased by 57% over the previous 8 years.
  • The Foreign Investment Facilitation Portal (FIFP) is a new online single-point interface of the government for investors to facilitate Foreign Direct Investment proposals to evaluate and further authorise them under the Government approval route.
  • In the civil aviation sector, 100% FDI is allowed under automatic routes in brownfield airport projects.
  • For single-brand retail trading, local sourcing norms have been relaxed for up to 3 years and 100% FDI is allowed under automatic route.
  • The government has amended the Foreign Exchange Management Act (FEMA) rules, allowing up to 20% FDI in insurance company LIC through the automatic route.
  • In September 2021, the Union Cabinet announced that to boost the telecom sector, it will allow 100% FDI via the automatic route, up from the previous 49%.
  • Many reforms like National Technical Textiles, Silk Samagra-2 scheme, Seven Pradhan Mantri Mega Integrated Textile Region and Apparel (PM MITRA) Parks, Production Linked Incentive (PLI) Scheme for Textiles to promote the production of Man-Made Fibre (MMF) Apparel, MMF Fabrics and Products of Technical Textiles, and more initiatives are taken by the government to enhance export and to promote FDI in the textile sector.

Sectors

  • Infrastructure: 10% of India’s GDP is based on construction activity. 100% FDI under automatic route is permitted in construction sector for cities and townships.
  • Electronics system design and manufacturing: The Electronics system design and manufacturing (ESDM) sector in India is rapidly growing and India is poised to become a global electronics manufacturing hub in the future.
  • Information technology: FDI in IT sector is one of the biggest in India. Lots of global companies got their R&D offices in India. Bengaluru, Pune, Mumbai and Hyderabad are considered global IT hubs.
  • Railways: 100% FDI is allowed under Automatic route in most of areas of Railways, other than the operations like, High-speed trains, electric trains, passenger cars, high-speed passenger cars, etc.
  • Chemicals: India has cancelled the production licenses of all chemicals except hydrocyanic acid, phosgene, isocyanates and their derivatives. 100% FDI is allowed in Chemical sector under automatic route.
  • Airlines: 100% foreign investment is allowed in scheduled or regional air transportation services or scheduled domestic passengers.

Road Ahead

Additionally, India lowered corporate taxes and simplified labour laws. India continues to be an attractive market for international investors in terms of both short and long-term prospects. India’s low productivity is one of the most promising opportunities for foreign direct investment. The work of the government in India is also very good. Improvements in government efficiency could benefit public finances (albeit strained by the pandemic) and India’s business partners’ prospects regarding government finances and subsidies to private companies. All these factors could enable India to attract $120-160 billion in foreign direct investment annually by 2025.

Why Engage Professionals for Valuation Services: The Importance of Experience and Expertise

Why Engage Professionals for Valuation Services: The Importance of Experience and Expertise

As a business owner, you may be familiar with the concept of share valuation and the importance of knowing the true value of your shares. Valuation not only helps you make sound business decisions but also provides a foundation for negotiations, fundraising, or mergers and acquisitions. While there are various ways to approach share valuation, one thing is clear: Engaging professionals for valuation services can make a significant difference in the accuracy and credibility of the valuation exercise.

Experience and Expertise: The Value of Professional Valuers

When it comes to share valuation, experience and expertise matter. Professional valuers are trained and certified individuals who have dedicated their careers to the art and science of valuing businesses. They possess in-depth knowledge about the principles and practices of valuation and have extensive experience working with businesses across different industries.

Their expertise enables them to assess the nuances of your business and its unique characteristics to arrive at a fair and accurate value. Unlike a DIY valuation, where you may rely on generic formulas or assumptions, professionals bring a refined analytical approach that takes into account industry dynamics, market trends, and specific financial data. By leveraging their expertise and experience, professional valuers can provide you with a comprehensive and reliable valuation report.

Objectivity: Trustworthy Valuation Opinions

Another key benefit of engaging professionals for valuation services is the objectivity they bring to the process. Valuations need to be credible, unbiased, and independent to gain acceptance by regulatory authorities, investors, or other stakeholders. Professional valuers adhere to a strict code of conduct and are bound by ethical guidelines that require them to provide objective opinions.

Working with a professional valuer ensures that your valuation is conducted without any conflicts of interest. They are committed to providing factual and impartial opinions that are based on robust analysis and reliable data. This objectivity not only enhances the credibility of the valuation report but also instils confidence in your stakeholders, who can trust the results to be free from any influence or bias.

Comprehensive Analysis: Beyond the Numbers

Valuation is not just about crunching numbers; it requires a comprehensive analysis of various factors that influence your business’s value. Professional valuers have a deep understanding of these factors and take them into account during the valuation process. They analyze historical and projected financials, industry and market conditions, business risks, intellectual property, management capabilities, and more to determine an accurate value for your shares.

Professional valuers go beyond superficial calculations and take a holistic approach to valuation. They understand that the value of a business is not solely determined by its financial statements but is influenced by a range of intangible and qualitative factors. By considering all relevant aspects, they provide you with a thorough and robust valuation that captures the true worth of your shares.

Time and Cost Savings: Outsourcing Valuation Work

Outsourcing your valuation work to professionals can also lead to time and cost savings, particularly for smaller businesses. Share valuation is a complex task that requires a considerable amount of time and expertise. Many business owners find it challenging to allocate the necessary resources to conduct a valuation while managing day-to-day operations.

By engaging professionals, you can offload the burden of valuation and focus on your core business activities. Professional valuers have the knowledge, tools, and processes in place to efficiently conduct the valuation process within the agreed-upon timelines. They ensure that all necessary data is collected, analyzed, and documented professionally, allowing you to save valuable time and resources.

Moreover, outsourcing valuation work can help you avoid costly mistakes or penalties associated with non-compliance. Professional valuers are well-versed in the relevant regulations and standards governing valuation practices and ensure that your valuation is conducted in a compliant manner. This can save you from potential legal disputes, penalties, or the need for costly re-evaluations.

Conclusion: Unlocking the Benefits of Professional Valuation Services

In conclusion, engaging professionals for valuation services is crucial for any business seeking an accurate, well-supported, and trustworthy valuation. Professional valuers bring the experience, expertise, and objectivity necessary to navigate the complex valuation process. Their thorough analysis considers both quantitative and qualitative elements, providing a comprehensive view of your business’s value.

By outsourcing valuation work, you can also save valuable time and resources, allowing you to focus on driving your business forward. Furthermore, professional valuers ensure compliance with regulatory standards, reducing the risk of costly mistakes or penalties.

At GroomTax, we specialise in professional valuation services that deliver excellence, accuracy, and reliability. Our team of experienced valuers is committed to helping businesses like yours gain a clear understanding of their share value. Contact us today to schedule your valuation and unlock the benefits of professional valuation services.