Tax Consideration in Project Finances

TAX CONSIDERATION IN
PROJECT FINANCES &

FOREIGN COLLABORATION
PRESENTED BY :
Neetika Bhan(0405)
Ashima Aggarwal(0406)
Kishmish Koul(0407)
Rishab Kohli(0408)
Tax Incentives and Project Investment
Decisions
Fiscal policy
Monetary policy
Commercial policy
Fiscal policy
Fiscal is an important instrument to overcome recession
and control inflation in the economy. In India, fiscal
policy of the government are announced through
budgets. Budget proposals are eventually enacted as
statutes by the parliament and periodical amendments
are made thereof. (example: Income tax act)
Examples of incentives that result due to fiscal policy are

as under:
Depreciation
Tax holiday
Investment allowance
Amortisation of preliminary expenses
Monetary policy
Monetary policy is concerned with changing the supply of
money stock and the rate of interest, for the purpose of
stabilising the economy at full potential out put level.
At times of recession, monetary policy is used to
increase the money supply and reduce the interest rate
in order to stimulate aggregate demand in the economy.
At times of inflation, monetary policy is used to reduce
the aggregate spending by reducing the money supply
and raising the interest rate.
Examples of incentives that result due to monetary policy are

as under:
Interest rate concession
Repayment moratorium
Commercial policy
Central govt. announces major commercial policies. These
apart, Central & State governments announce selective,
adhoc policies.
Examples of incentives that result due to commercial policy

are as under:
Octroi exemptions
Subsidised rate for electric power consumed by
industries
Capital investment subsidy
Sale tax incentives for new industries
Tax Planning for Project Investment
Decisions
The Income Tax Act
The Income Tax Act, 1922, 1961 and the periodical amendments
there of attempt to serve the objectives of the government by
way of giving preferential treatment to selected sectors of the
economy, in tune with the economic policy of the government.
The prevailing income tax structure is as under:
Firms: A firm assessed as such is taxable at the rate of 30%
for the assessment year 2006-07. Apart from this, surcharge
at the rate of 10% of the income tax and an additional
surcharge (i.e., Education cess) of 2% on income tax and
surcharge is also payable.
Companies : The following rates of income tax are
applicable for the assessment year 2006-07.
Domestic company: Surcharge on income tax =10%
and additional surcharge on income tax and
surcharge=2%.
Foreign company: Surcharge charge on income
tax=2.5% and additional surcharge on income tax and
surcharge=2%.
Co-operative societies:
Section 30: In respect of premises taken on rent, the actual
rent paid by the assessee and, if he has taken to bear the
cost of repairs, the expenditure on repairs are permissible
deductions against profits and gains of business. In respect
of premises owned by the assessee, no deduction is
allowable on account of notional rent; amount spent on
current repairs is, however, allowed as deduction.
Section 31: The expenditure incurred current repairs in respect of the
plant, machinery and furniture used for business purposes is allowable
as deduction under this section. If however, expenditure is incurred to
bring into existence an advantage of an enduring nature, or a new
capital asset, it can not be regarded as an expenditure on current
repairs. Similarly, the premium paid in respect of insurance against
risk of damage of destruction of such assets is an allowable deduction.
Set off and Carry Forward of Unabsorbed Depreciation
Section 80-IB: Section 80-IB provides tax concessions to certain

industrial undertakings other than infrastructure developments
undertakings. Deductions under this section is available for the
following:
Business of an industrial undertaking
Operation of ship
Hotels
Industrial research
Production of mineral oil
Developing and building house projects
Income tax relief to exporters and foreign exchange
earners
Section 80RRA: Any remuneration received in foreign
currency from any employer or for any service rendered
outside India is entitled to specified rebates on such
remuneration as is brought into India in convertible foreign
exchange with in period of six months from the end of the
previous year.
Some other sections of income tax act that are relevant as
under:
Section 33 AC: Deals with deductions available to an Indian
Public Limited Company engaged in the business of
operation of ship.
Section 35: deals with deductions available for
expenditure on scientific research.
Section 35-A: deals with deductions available for

expenditure on acquisition of patent rights and copy rights
Section 35-AB: Deals with deductions available for

expenditure on know-how.
Section 36(1)iii: interest paid on capital borrowed for the

purposes of business or profession is allowed as deduction.
Foreign Collaboration
Foreign collaboration is an alliance

incorporated to carry on the agreed
task collectively with the participation
(role) of resident and non-resident
entities.
EXAMPLES OF FOREIGN COLLABORATION
1. ICICI Lombard GIC (General Insurance Company)

Limited is a financial foreign collaboration between ICICI
Bank Ltd., India and Fairfax Financial Holdings Ltd.,
Canada.
2. ING Vysya Bank Ltd. is a financial foreign collaboration
formed between ING Group from Netherlands and Vysya
Bank from India.
3. Tata DOCOMO is a technical foreign collaboration
between Tata Teleservices from India and NTT Docomo,
Inc. from Japan.
EXAMPLES OF FOREIGN
COLLABORATION
ADVANTAGES OF FOREIGN
COLLABORATION
GOVT. REGULATION OF
FOREIGN COLLABORATION IN
INDIA
The regulatory and government policy with respect the foreign

investment and collaboration were spelt out in July 1980
along with the industrial policy statement presented in
parliament .The policy was modified in may 1990, and a
new policy initiative Announcement in July 1991.
BENEFITS OF FOREIGN
COLLABORATION
OBJECTIVES OF FOREIGN
COLLABORATION
THANKYOU

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TAX CONSIDERATION IN

PROJECT FINANCES &

Examples of incentives that result due to fiscal policy are

Examples of incentives that result due to monetary policy are

Examples of incentives that result due to commercial policy

Set off and Carry Forward of Unabsorbed Depreciation

Section 80-IB: Section 80-IB provides tax concessions to certain

Section 35-A: deals with deductions available for

Section 35-AB: Deals with deductions available for

Section 36(1)iii: interest paid on capital borrowed for the

Foreign collaboration is an alliance

1. ICICI Lombard GIC (General Insurance Company)

The regulatory and government policy with respect the foreign

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