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Section 36(1)(viii) - Transfer to Special Reserve - Income Tax - Ready Reckoner - Income Tax
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Section 36(1)(viii) : TRANSFER TO SPECIAL RESERVE ELIGIBLE ASSESSEE Deduction u/s 36(1)(viii) is available to the following specified entity Financial Corporation specified in section 4A of companies Act (ICICI, IDBI, IFCI, etc.) Financial Corporation which is a public sector company (PFC, REC, TFC, etc.) A housing finance company engaged in business of providing long term finance for construction of purchase of houses in India for residential purposes. Any other Financial corporation including a public company engaged in the business of providing long term finance for development of infrastructure facility in India. Banking Company including co-operative banks engaged in the business of providing long term finance for: Industrial or agricultural development Development of infrastructure facility in India Development of housing in India QUANTUM OF DEDUCTION: Amount of deduction under section 36(1)(viii) is as follows The amount transferred during the previous year to the special reserve account created for the purpose of section 36(1)(viii) OR 20% of the profits derived from the business activities mentioned above, which is computed under section 28 to 44D but before claiming deduction under section 36(1)(viii) OR 200% of paid up share capital and general reserve as on the last day of the previous year minus the balance of the special reserve account on the first day of the previous year. WHICHEVER IS LOWER. Note:- Any amount withdrawn from reserve shall be taxable as PGBP. Further, where the amount is withdrawn in the year in which business is not in existence, the provisions of this section shall apply as if the business is in existence for that year. Provisions regarding creation of deferred tax If Provision created u/s 36(1)(viii) , is the same as being deducted in taxable income, there is no need to create deferred tax on it. If Provision created u/s 36(1)(viii) is more than being deducted in taxable income, there is no need to create deferred tax on it. As additional created Special Reserve will be added to taxable income and will be taxed in current year, which is permanent difference. If Provision created u/s 36(1)(viii) is lower than allowable deduction, in taxable income there is no need to create deferred tax on it as actually allowed deduction will be lower amount and surplus allowable will be ignored.