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G.H.

PATEL POST GRADUATE INSTITUTE OF


BUSINESS MANAGEMENT

A
Report on
“Corporate Tax Planning at NCC Limited”

Subject: - Corporate Tax Planning

MBA SEMESTER 3

Division:- A

Batch:- 2017-19

Submitted To
Dr. Ashish Mehta

Submitted By
Sagar Patel (17F33)
Yash Dave (17F43)
NCC LIMITED:- Brief about Company

M/s Nagarjuna Construction Corporation was established in 1978 as a partnership firm. It was a
firm promoted by AVS Raju and his associates, which later converted into a limited company in
1990. NCC was incorporated on March 22, 1990 as Public Limited Company. . It took over the
business of the erstwhile partnership firm, Nagarjuna Construction Corporation. NCC has
progressed consistently over past three decades. It is among the top three construction companies
in India in terms of revenue. NCC was born from a vision to provide world class construction
solutions with focus on quality, timely completion, customer satisfaction, continuous learning
and enhancement of stakeholder’s value. The company is mainly engaged in construction and
allied activities. It operates across 9 verticals: buildings and housing; transportation; water and
environment; electrical; irrigation; international operations; power; oil and gas; metals; mining;
and railways. It also has a presence in the Middle East where it currently undertakes works in
roads, buildings, and water segments.

It handles EPC contracts in these sectors and BOT projects in the areas of roads and power. In
2010, NCC’s order book crossed Rs 150 billion. The company has gained credibility owing to its
quick turnaround time, in time and within cost deliveries, organisational strength and financial
stability and, above all, quality of world standards. All these have earned appreciative clients for
NCC.

In fact, the company’s repertoire is rapidly growing to include overseas companies and
governments too. In 2010, Chairman Emeritus Dr AVS Raju was awarded the Padmashri in the
trade and industry category. NCC was also recognised as one of CW’s Most Admired
Construction Companies in 2009 and its annual report and accounts for the year ended March 31,
2009, were adjudged 2nd best under the category ‘Infrastructure & Construction Sector’ by ICAI
Awards for Excellence in Financial Reporting. These are just a few in a long line of accolades.
Interestingly, NCC’s construction of a combined water supply scheme in Amaravati district for
156 villages and augmentation of water supply scheme in two towns for the Maharashtra Jeevan
Pradhikaran was featured in the Limca Book of Records for design and execution of the largest
regional scheme to supply pure drinking water right to the consumer’s tap, with the help of
gravity alone, without the use of electricity or pumps.

In 2011, Company has changed its name from Nagarjuna Construction Co. Ltd. to NCC Ltd. -
Registered Office of the Company has been shifted from 41, Nagarjuna Hills, Punjagutta,
Hyderabad-500082 to "NCC House", at, Madhapur, Hyderabad-500081.

The company is also doing CSR activities through NCC Foundation.

To ensure that CSR remains an ongoing activity and receives maximum attention, NCC Limited
set up the NCC Foundation, earmarking a portion of NCC Limited’s net profit every year for the
social and philanthropic activities of NCC Foundation. With a wide range of socio-economic and
educational initiatives, NCC Foundation touches the lives of the unheard and unserved.
NCC Foundation will:

(a) Create, maintain and support need-based and region-specific services to the poor and
needy in the areas of:
  Housing
  Healthcare
  Education
  Training
(b) Undertake rural and community development projects

This foundation also under takes projects like NCC - Indiramma Housing Colony where NCC
Foundation extended cooperation to the Govt. of Andra Pradesh’s Indiramma Housing Scheme
by facilitating housing for 155 beneficiaries in Antarvedipalem in East Godavari Dist. of Andhra
Pradesh.

UNDERSTANDING ABOUT DIFFERENT TERMS USED IN THE PROJECT


RELATED TO TAX.

1. Corporate Tax Planning: - Corporate tax planning is a means of reducing tax liabilities
on a registered company. The common ways to do this includes taking deductions on
business transport, health insurance of employees, office expenses, retirement planning,
child care, charitable contributions etc. Through the various tax deductions and
exemptions provided under the Income Tax Act, a company can substantially reduce its
tax burden in a legal way. Once again, tax planning should not be confused with tax
avoidance and all the planning should be done within the framework of law.

A good tax planning results out of:

 Disclosing correct information to relevant IT departments.


 Not being ignorant of applicable tax laws as well as court judgements regarding the
same.
 Legal tax planning should be done which is under the purview of law.
 Planning must be done with business objectives in mind and should be flexible
enough to incorporate possible changes in the future.
TAX Benefits available to NCC Limited under different business

1. Building and Housing


 NCC is in the business of Construction of Building and housing. With a view to
encourage affordable housing sectors, it is proposed in 2016 finance bill to amend the
Income-tax Act so as to provide for hundred per cent deduction of the profits of an
assesses developing and building affordable housing projects if the housing project is
approved by the competent authority before the 31st March, 2019 subject to certain
conditions. Clause 43 of the finance bill 2016 has inserted new section 80IBA in
Income tax act. Here project should be approved between june, 2016 to march, 2017.

NCC has approved 11 projects U/S 80IBA which provide 100% deduction on profit or
gain from such projects. Major projects are as under

 Construction of Affordable Housing in Nellore, East Godavari, Krishna, Chitoor &


Kadapa districts in Andhra Pradesh.
 Construction (Redevelopment) of Type-IV quarters and dispensary along with the
other allied services for Kidwai Nagar (East), New Delhi.
 Multistoried Residential Flats in Sarayu Enclave at Lucknow.

2. Road Development projects


 NCC Limited is one of the prominent player in road development business and it ihas
been getting good road development projects which comes under infrastructure
development. NCC Limited can claim deduction under section 80IA for constructing
roads, bridges and flyovers. They adopted BOT approach.

 U/S 80IA, Deduction is available upto 100% of profit and gain from Infrastructure
project for 10 consecutive years within 15 years from the year in which it began to
operate.

Construction of toll roads, sea ports, airports, bridges, railway systems, highway projects
and water supply and irrigation projects now come under Section 35AD of the Income
Tax Act that allows deduction of capital expenditure incurred on these activities from the
earnings while calculating taxable income in the subsequent year.

So, U/S 35AD is also available for deduction to NCC Limited.

 Some of Key projects are as under


 Construction of Ahmedabad – Vadodara Access Controlled National Expressway NE-1,
Gujarat
 8 Lane Access Controlled Expressway with 2x2 lane service roads for Outer Ring Road
Project in Hyderabad City, Telangana
 Six Lane Agra – Lucknow Access Controlled Expressway Project, Uttar Pradesh
 Construction of Smart Trunk infrastructure in Amaravathi (New Capital City), Andhra
Pradesh
 Six Lane Nagpur – Mumbai Access Controlled Expressway Project, Maharashtra
 4 Lane Elevated Highway Project on NH-7 in Bangalore City on EPC basis, Karnataka.
 Design & Construction of Metro Rail Viaduct at Navi Mumbai, Maharashtra.
 Design and Construction of Viaduct in Reach-1 between New Airport and Sitabuldi
Stations on the North – South Corridor of Nagpur Metro Rail Project, Maharashtra
 Construction of Double Deck Flyover from Gandhi Chowk to Nagarpalika Chowk in
Chhapra Town, Bihar

3. Power Transmission and Distribution Business


 NCC Limited carries on the business of transmission and distribution. This business is
also supported by government of India as it aims to electrify every house of our country
where such power transmission and distribution companies are vital for the success of the
Central government’s mission.
 Income tax law provides deduction U/s 80 IA to Power undertaking.

POWER UNDERTAKING eligible for deductions are

Any undertaking which

i) is set up in India for the generation or generation and distribution of power (begin to
generate power during 1.4.1993 to 31.3.2017

(ii) starts transmission or distribution by laying a network at any time during 1.4.1999 to
31.3.2017. (deduction in respect of profits from the laying of such network of new lines only)

iii) undertakes substantial renovation and modernization of the existing network, at any time
during 1.4.2004 to 31.3.2017.

Power undertaking companies can get deduction up to 100% of Profit for 10 consecutive
years within 15 years of starting business.

NCC limited is in business power transmission and distribution. So they are getting benefits
of deduction on the project executed by them. Some of the recent projects on which NCC
limited is getting benefits of deduction U/S 80 IA are as follows

 Rural Electrification works of Dumka Package Comprising of Dumka & Jamtara Districts in
Jharkhand State under Deen Dayal Upadhyay Gram Jyothi Yojana (DDUGJY) Ranchi.
 Rural Electrification works of Ranchi District in Jharkhand State under Deen Dayal
Upadhyay Gram Jyothi Yojana (DDUGJY).
 Urban Electrification works of Deogarh Electric Supply Circle of JBVNL covering three towns
(Deoagarh, Godda & Madhupur) in Deogarh & Godda districts in Jharkhand
 Rural Electrification and other related works on Turnkey basis in district Mirzapur, Sant
Ravidas Nagar & Sonbhadra in Varanasi under Saubhagya Yojna of Govt of India.
 Rural/Urban Electrification Works Of Cluster -14 (Behraich) District Of Uttar Pradesh Under
Pradhan Mantri Sahaj Bijli Har Ghar Yojana “ Saubhagya”
 Rural Electrification works of package-6 (Comprising of Palamu, Latehar & Garhwa) districts in
Jharkhand State under Jharkhand Sampurna Bijli Achchhadan Yojana (JSBAY)

4. Water Distribution and Sanitation Infrastructure


 With the phenomenal and incessant growth in population, urbanization and rapid
industrialization, the need for water has overtaken its supply.

NCC Ltd have made their presence felt through prestigious water and sanitation projects -
including the unique Limca Book of Records entry, the 820 kms.’ gravity-based water
supply system in Amaravati, Maharashtra. Over the next few years, water supply and
sanitation projects are expected to witness significant outlays. their past experience and
excellent credentials will help them cruise through this space successfully.

 For Promoting Water supply and distribution, Government provides tax incentive under
section 35AD. U/S 35AD, Deduction is available upto 100% of capital expenditure
incurred incurred on development of infrastructure for water supply.

 Some of the key projects undertaken by NCC Limited and eligible for deduction U/S
35AD are as follows

 Construction of Intake PS at river Chambal near Bhaisrodgarh, under CHAMBAL-


BHILWARA
 WATER SUPPLY PROJECT PHASE-I on Single Point Responsibility Turnkey basis.
 Sauni Yojna Link 3, Package 1 at Wadhwan Bhogavo II Reservoir and Supplying and laying
of twin MS pipeline (pumping)
 Maharashtra Airport Development Company Ltd.: Designing, providing and constructing
Water Supply and Underground Sewerage System in MIHAN Project Area, Nagpur
 Providing Drinking Water to Chevella, Vikarabad, Pargi, Tandur and Maheshwaram
Constituencies in Rangareddy from Srisailam Reservoir under Telangana drinking Water
supply project (TDWSP)" including operation and maintenance for 10 Years under
Telangana drinking Water supply project (TDWSP).
 Providing Drinking Water supply to habitations in HMWSSB Segment in Warangal District
under Telangana Drinking Water Supply Project
5. Irrigation Projects
 Agriculture and allied activities like forestry, accounting for a significant share in GDP
and employment, play a critical role in India’s socio-economic development. Investment
in Irrigation and Watershed Management is a critical part of rural infrastructure.
Adequate Irrigation enhances productivity and accelerates growth. In executing
Irrigation projects, we bring into action the entire gamut of our resources and expertise.

 NCC Limited can get deduction under section 35AD for developing infrastructure for
irrigation projects which is 100% of capital expenditure

 Key projects undertaken by NCC Limited for creating irrigation infrastructure are as
follows and the company has claimed deduction U/S35AD on following projects.

 P R L I S Package No-9, Telangana.


 Baswapur Reservoir Project, Telangana.
 Mid Pennar South Canal, Package -43 Andhra Pradesh.
 Mid Pennar South Canal, Package -44 Andhra Pradesh.
 Katchchh Branch Canal, Gujarat.
 Thotapalli Barrage Project, Andhra Pradesh
 Gundlakamma Reservoir Project, Andhra Pradesh.

6. Railway Infrastructure Projects


 Indian Railways is a major catalyst in the socio-economic growth of the economy.
With increasing passenger population and ambitious plans for infrastructure
upgradation and expansion, Indian Railways is on NCC’s high-priority list. Further,
areas ranging from dedicated freight corridors to port connectivity projects are all
opening up for private investment.

 Indian Railway provides many infrastructure projects to NCC Limited. Some of the
recent projects are as follows
 Vellore Gauge Conversion Project
 Construction of 3rd line between Habibganj and Sanchi, near Bhopal
 Doubling works between Jakapura and Basantpur, near Bhubaneswar, Odisha
 3610 m long elevated viaduct having 7220 m of precast parapet casting and erection for
Bangalore Metro Rail Corporation, Karnataka
 Railway line for Delhi Metro Rail Corporation Limited
 Railway siding for NTPC, Korba

Deduction U/S 35 AD is allowed at 100% of capital expenditure incurred on the project.


NCC Limited may be currently claiming deduction under this section.
7. Metal Business
 NCC Limited’s Metals Division acts as the connecting link to the Steel industry’s
requirements by undertaking Engineering, Procurement and Construction (EPC)
projects. To exploit the potential of the sector, NCC Limited have entered into
strategic alliances with POSCO E&C of South Korea, Siemens VAI of Linz and
China Min-Metal Engineering of China for various technologies of Steel plants.
Riding on these partnerships, we are confident of business prospects in the EPC
sector of the Metals / Steel industry.
 Government offers tax incentives to the companies invest in Research and
development. U/S 179 of the income tax act provide for deduction of 150% of in-
house research and development expenditure.

 Some of the key projects recently completed by NCC Limited are as follows

  SAIL - ISP: Blast Furnace (in consortium with POSCO E&C)


  SAIL - ISP: Fabrication and erection of building structurals for BOF, CCP
and Rolling Mill totalling to 75000 MT
  NMDC - Sinter Plant: 460 sq.mt. Sinter Plant with rotary cooler of 40 m diameter
in consortium with Siemens VAI .

8. Mining business
 To address the widening gap between demand and supply of coal and the
increased demand for power, Government of India has allocated captive coal
blocks to private companies. This will generate greater possibilities for
investment and growth in Mining.

NCC Limited’s Mining division focuses on businesses for Mine Developer-cum-


Operator (MDO), removal of overburden and extraction of Coal / Lignite / other
minerals from Open Cast Mines in India with the subsidiaries of Coal India
Limited, Steel Authority of India Limited, Gujarat Mineral Development
Corporation, Singareni Collieries Company Limited, Maha Tamil Collieries
Limited and other Private Mine Operators. Further, the division participates in
tenders for design, supply and erection of coal handling plants, silos etc., with
subsidiaries of Coal India Limited, NTPC, NALCO etc.

 Some of the key projects undertaken by NCC Limited related to mining business
are as follows

  Project with Singareni Colliers Company limited, Ramagundam,


Telangana State
 Project with West Bengal State Power Development Corporation,
Kolkata.
 Mine Developer & Operator (MDO) project for development and
operation of the Pachhwara North Coal Block located in Pakur Dist of
Jharkhand.

No specific deduction is available for mining business under income tax Act.

NCC Limited planned their business activities keeping in view tax benefits available in
different business. They are claiming this tax benefits while filling return of income U/S
139. If company does not claim deduction in return of income, even though they are
eligible to get deduction, deduction benefit will not be available to the firm.
TAXES PAID BY NCC LTD IN LAST 5 YEARS

Profit & loss Account


Year 2018 2017 2016 2015 2014
INCOME :

Sales Turnover / 7,559.32 7,981.71 8,414.80 8,296.94 6,117.30


Operating Income

LESS:- Excise Duty 0 0 0 0 0

Net Sales 7,559.32 7,981.71 8,414.80 8,296.94 6,117.30

ADD:-Other Income 128.83 235.2 230.91 195.32 153.69

ADD:- Stock 158.74 -139.8 -17.22 121.76 259.36


Adjustments
Total Income 7,846.89 8,077.11 8,628.49 8,614.02 6,530.35

EXPENDITURE :

Raw Materials 2,935.28 2,995.89 3,861.94 4,555.85 2,868.28

Power and Fuel Cost 5.98 5.48 5.23 4.46 17.74


Other Manufacturing 3,372.31 3,573.27 3,198.11 2,713.39 2,444.46
Expenses
Employee Cost 364.78 332.8 301.88 264.74 240.42

Selling and 131.01 120.34 121.22 127.61 347.38


Administration Exp.
Miscellaneous 174.79 224.4 145.51 84.66 53.76
Expenses
Less: Pre-operative 0 0 0 0 0
Expenses Capitalised
Total Expenditure 6,984.15 7,252.18 7,633.90 7,750.73 5,972.03

Operating Profit 862.76 824.92 994.6 863.31 558.32

Interest 378.96 476.69 562.41 592.43 465.99


Gross Profit 483.8 348.23 432.19 270.88 92.33

Depreciation 117.49 112.17 110.06 111.89 89.86

Profit Before Tax 366.31 236.06 322.13 158.99 2.47

Tax 96.86 94.51 108.16 41.93 -26.99

Deferred Tax -16.04 -51.91 -25.84 5.25 -10.74


TAX PAID 80.94 41.65 82.32 47.24 -37.63
Reported Net Profit 285.48 193.47 239.81 111.82 40.2

Extraordinary Items -58.37 8.66 -9.19 17.81 6.18


Adjusted Net Profit 343.85 184.81 249 94.01 34.02

Adjustment below Net -4.53 -6.79 -4.52 -8.23 0


Profit
P & L Balance brought 399.22 207.3 168.79 318.54 301.34
forward
Appropriations 22.24 33.36 196.78 126.76 21

P & L Balance carried 657.94 360.6 207.3 295.35 320.53


down
Equity Dividend 0 0 0 22.24 5.13

Preference Dividend 0 0 0 0 0

Above profit & loss account, indicates that Tax paid to Profit before tax percentage is different
for different years because of tax deductions that NCC Limited has claimed and get. It can be
seen that tax paid to PBT was 29.71 % in 2014-15 , 25.55% in 2015-16, 15.59% in 2016-17 and
22.01% in 2017-18. Corporate income tax is 30% but NCC limited gets tax benefit every year as
it has undertaken infrastructure development projects for which income tax act provide deduction
in calculating taxable income, therefore their Tax rate is lower than 30%.