Bank of baroda

STATEMENT OF TAX BENEFITS
The information provided below sets out the possible tax benefits available to the Bank and its shareholders under the
current tax laws presently in force in India, as provided by the Auditors by their ‘statement of tax benefits, dated October,
1 2005. Several of these benefits are dependent on the Bank or its shareholders fulfilling the conditions prescribed under
the relevant tax laws. Hence, the ability of the Bank or its shareholders to derive the tax benefits is dependent upon
fulfilling conditions, as may be necessary, and is based on business imperatives the Bank faces in the future. It may be
also kept in mind that the Bank may or may not choose to fully utilize the benefits. It may be also noted that the benefits
discussed below are not exhaustive and this statement is only intended to provide general information to the investors
and is neither designed nor intended to be substitute for professional tax advice.
Under the Income Tax Act, 1961
1.
TO THE BANK:
Under the Income Tax Act, 1961 (the “Act”) the Bank is entitled to various deductions as is applicable to an Indian
Resident Company. The following are the important beneficial provisions, which are presently applicable to Bank of
Baroda (the “Bank”):
The following incomes earned are exempt from Income Tax:
1.
Under Section 10(15)(i) of the Act, income earned by way of interest, premium on redemption or any other
payment on certain notified securities issued by the Central Government and deposits with the Central
Government;
2.
Under Section 10(15)(iv), interest earned from a Government or a local authority on moneys’ borrowed by it
before the 1st day of June, 2001, or debts owed by it before the 1st day of June, 2001 or an industrial
undertaking on moneys borrowed by it under loan agreement entered into before the 1st day of June,
2001and approved by the Central Government;
3.
Under Section 10(15)(vii), interest earned on notified bonds issued by a local authority;
4.
Under Section 10(23F), income by way of dividends or long-term capital gains of an approved venture capital
fund/ company from investments in equity shares before the 1st day of April, 1999;
5.
Under Section 10(23FA), income by way of dividends (other than dividends referred to in section 115-O),
long-term capital gains of an approved venture capital fund/company from investments in equity shares in a
venture capital undertaking made by the bank before the 31st day of March, 2000;
6.
Under section 10(23G), income by way of dividends (other than dividends referred to in section 115-O),
interest or long-term capital gains of an infrastructure capital fund/ company or a co-operative bank, from
investments made on or after the 1st day of June, 1998, by way of shares or long-term finance in any
enterprise or undertaking wholly engaged in the business referred to in section 80IA(4) or a project referred
to in 80IB(10);
7.
Under Section 10(34), income by way of dividends referred to in section 115 O of the Income Tax Act, 1961;
8.
Under Section 10(35), income received in respect of the units of a Mutual Fund specified under Section
10(23D) or income received in respect of units from the Administrator (“Administrator” means the Administrator
as referred to in clause (a) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act,
2002) of the specified undertaking; or income received in respect of units from the specified company (“specified
company” means a company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of
Undertaking and Repeal) Act, 2002);
9.
Under Section 10(38), income arising from the transfer of a Long Term Capital Asset, being equity shares in
a company or units of an equity oriented fund (i.e. a fund where the investible funds are invested by way of
equity shares in domestic companies to the extent of more than fifty per cent of the total proceeds of such
fund and which has been set up under a scheme of a mutual fund specified under section 10(23D)) and
where the transaction is chargeable to Securities Transaction Tax under Chapter VII of the Finance (No. 2) Act,
2004.

---

29
The following are the special deductions available to the Bank in computing the Gross Total Income of the Bank:
1.
Under Section 36 (1) (viia) of the Act, the Bank is eligible to claim a deduction in respect of any provision for
bad and doubtful debts made by it of an amount not exceeding seven and one half per cent of the total
income (computed before making any deduction under this clause and under Chapter VIA) and an amount
not exceeding ten per cent of the aggregate average advances made by the rural branches (“rural branch”
means a branch of a scheduled bank or a non-scheduled bank situated in a place which has a population of
not more than ten thousand according to the last preceding census of which the relevant figures have been
published before the first day of the previous year) of the Bank. Further, the Bank can, at its option, claim, a
deduction in respect of any provision made by it for assets classified as per the regulations of the Reserve
Bank of India as Doubtful Assets or Loss Assets, an amount not exceeding five per cent of the amount of
such assets shown in the books of account of the Bank on the last day of the previous year. Apart from the
above, the Bank, at its option, can claim a further deduction for an amount not exceeding the income derived
from the redemption of securities in accordance with a scheme framed by the Central Government, subject to
the condition that such income has been disclosed in the return of income under the head “Profits and Gains
from Business”;
2.
Under Section 36(1) (vii) of the Act, the amount of any bad debt or part thereof which is written off as
irrecoverable in the accounts of the Bank for the previous year. However, the amount of the deduction relating
to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the
credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia).
3.
As per Section 43D of the Act, interest income on a Non Performing Asset (recognized as such having regard
to the guidelines issued by Reserve Bank of India) shall be chargeable to tax, only in the year in which it is
actually received or the year in which it is credited to the Profit and Loss Account by the Bank, whichever is
earlier.
4.
The Bank is also eligible to claim deduction under Section 80-LA of the Act, from its Gross Total Income,
income (received in convertible foreign exchange in accordance with the Foreign Exchange Management Act,
1999) from an Offshore Banking Unit (OBU) operated by it in a Special Economic Zone in respect of transactions
with an undertaking located in a Special Economic Zone or any other undertaking which develops, develops
and operates or operates and maintains a Special Economic Zone, of an amount equal to:
(a)
one hundred per cent of such income for three consecutive assessment years beginning with the
assessment year relevant to the previous year in which the permission, under clause (a) of sub-section
(1) of section 23 of the Banking Regulation Act, 1949 (10 of 1949), was obtained, and thereafter;
(b)
fifty per cent of such income for the next two consecutive assessment years;
5.
DOUBLE TAXATION RELIEF:
The Government of India has entered into Double Taxation Avoidance Agreement with various Governments
where the Bank has branches for the granting of relief in respect of income on which have been paid both
income-tax under the Act and income-tax in that country; or income-tax chargeable under the Act and under
the corresponding law in force in that country to promote mutual economic relations, trade and investment, or
for the avoidance of double taxation of income under the Act and under the corresponding law in force in that
country and may, by notification in the Official Gazette, make such provisions as may be necessary for
implementing the agreement.
Under Section 90(2) of the Act where the Central Government has entered into an agreement with the
Government of any country outside India under section 90 (1) of the Act for granting relief of tax, or as the
case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement
applies, the provisions of the Act shall apply to the extent they are more beneficial to that assessee.
As the Bank is having branches outside India including countries in which the Government has entered into
Double Taxation Avoidance Agreements, it is entitled to benefits under the Double Taxation Avoidance
Agreements in respect income to which the Double Taxation Avoidance Agreements applies.

---

30