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Chapter 10- Business Concessions & Facilities

Notes:
The rates of tax taken on this chapter are as applicable for IY 2072/73. Please note the same.
Question 1- Page 82
a. As it is a special industry, the applicable tax rate for the income where 25% rate is applied is 20%. In
case of attributable income exceeding 25L, the effective tax rate for such excess income would be
28%.
b. In case of export income, the applicable tax rate for the income where 25% rate is applied is 11.25%.
In case of attributable income exceeding 25L, the effective tax rate for such excess income would be
15.75%.
Calculation of Business Income attributable to Export Sales and Local Sales:
Total Sales
Total Cost of Sales
(Assuming all costs is deductible under Income Tax Act, 2058)
Income from Business
Business Income from Export Sales (25%)
(Assuming indirect costs are also incurred for export sales in the same proportion
as incurred for local sales)

15,000,000
(9,500,000)
5,500,000
1,375,000

The total taxable income and balance taxable income of Mr. Ramhari is equal to business income
calculated above in absence of information related to employment and investment income and deductions
and reductions as per Income Tax Act.
Calculation of Tax Liability (Individual assessment as suggested by question)
1st Rs. 250,000
0%
Next Rs. 100,000
15%
15,000
Next Rs. 2,150,000
20%
430,000
Next Rs. 1,625,000 (5,500,000-1,375,000-2,500,000)
28%
455,000
Balance Rs. 1,375,000
15.75%
216,562.50
Note that the calculation is based on minimum tax liability to taxpayers; there are other two approaches to
calculation of tax liability as suggested in Chapter 9 of the book through an illustration.
Question 2- Page 82
Relevant information:
a. Its a jute mill, which means its a special industry as defined by Sec. 11 of the Act. The applicable tax
rate is 20% as per Sec. 2 (3) of Schedule 1 of the Act.
b. Its a 100% export based industry, which means the concessions to export based special industry is
applicable to it.
c. It employs 1200+ Nepalese national throughout the year, which means concessions on the basis of
direct employment is also applicable to it.
d. As per Sec. 11 (6) and 11 (7), if there are two or more exemptions or concessions are applicable to a
person; the person can choose one out of those options available. Students should note that every
taxpayer is rational, which means the taxpayers choose the alternative having less cash outlay as tax.
Based on above information, the effective tax rate on alternative (b) or (c) above shall be:

Chapter 10- Business Concessions & Facilities

Alternative (b) = There shall be rebate of 25% tax on the applicable tax rate, which means the effective
tax rate shall be 75% of applicable tax rate. That means, the effective tax rate as per this alternative is
15% (75% of 20%)
Alternative (c) = the effective tax rate shall be 80% of the applicable tax rate. That means, the effective
tax rate as per this alternative is 16% (80% of 20%)
Out of above two alternatives, the minimum tax liability will be on alternative (b) explained above, i.e.
Worthy Jute Industries Limited is entitled to pay tax at 15% of taxable income.
In the given question, the taxable income is Rs. 12,550,000. The tax liability shall be Rs. 1,882,500
instead of Rs. 2,008,000.
The accountant failed to identify its possibility of reducing tax liability.
Question 3- Page 82
As per Sec. 11 (1), there shall be no tax on agricultural income except in the following cases:
(See Page 77 of the book)
As any of the above criteria is not fulfilled in case of Mr. Ram Prasad, the income is exempted from tax
u/s 11 (1) of the Act.
In case of conduct of agricultural business through partnership concern after registering it, the amount is
taxable and the entity would be liable to pay tax.
Question 4- Page 82
As per Sec. 11 (2Ka) of the Act, the tax on the interest income derived by an individual up to Rs. 25,000
during any Income Year is exempted in case the interest is paid by Micro Finance Institutions, rural
development banks, post office saving banks and cooperatives based on rural areas.
In the given case, Ram Kumar in Parbat received Rs. 16,000 as interest from Grameen Bikas Bank which
is exempted from tax as per above provisions.
In case Mr. Ram Kumar received Rs. 30,000, which is above Rs. 25,000; the amount would be taxable.
Question 5- Page 82
The cooperative is in the list of exempted cooperatives (See Page 77, point 2.1 of the book), and hence,
the amount is not taxable.
In case of dividend distributed by such cooperatives, the applicable tax is also exempted.
Question 6- Page 82
The applicable tax rate for the management fee or technology transfer fee shall be exempted by 50% in
case of industries established in SEZ. Hence, the foreign investors are entitled to pay tax at half the
applicable rate on such fees. The rate shall be 7.5% after applying the concessions.
Question 7- Page 82
See page 80 (point 6.2 of the book)
Question 8- Page 82
a. The applicable tax rate is 20% as it is a special industry.

Chapter 10- Business Concessions & Facilities

b. As it provides direct employment to 300+ Nepalese nationals throughout the Year, the effective
tax rate shall be 90% of applicable tax rate, i.e. 18%
c. As it is based on underdeveloped area, it is entitled to effective tax rate of 30% of applicable tax
rate for 1st ten Income Years including the Income Year of first operation; which means the
effective tax rate for first ten Income Years shall be 6%.
Based on above analysis, ABC Ltd. is required to pay tax at 6% for first ten Income Years including
the first Income year of Operation and 18% thereafter, provided the information given in the question
is not changed.