SPECIAL PROVISION IN RESPECT OF NEWLY
ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE, STP ETC. [SECTION 10 A]
!
UNIT IV
NOT RELEVANT FOR ASSESSMENT YEAR 2012-13 AND SUBSEQUENT ASSESSMENT
YEARS
Section 10 A
Provides a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or c o m p u t e r s o f t w a r e f o r c e r t a i n consecutive assessment years. Such undertakings are required to be set up in FTZ, Electronic hardware technology park, software technology park or special economic zone etc.
Form of organization
This section does not provide any particular form of organization for undertaking. Thus, undertaking hardware can be operated as sole proprietorship firm, Company etc.
ESSENTIAL CONDITION TO BE FULFILLED
1. What to manufacture and produce ? [sec 10A (2) (i)]
Undertaking must manufacture or produce articles or things or computer software etc.
!
“ computer software ” means
• Any computer programme recorded on any disc,
tape, perforated media or other information storage servives; or
• Any customized electronic data or any prodict or services of similar nature as may be notified to the board, which is transmitted or exported from India to any place outside by any means.
Notified Information Technology enabled products or services under section 10A
In exercise of powers conferred by clause (b) of item (i) of explanation 2 of Section 10A, of Income Tax Act 1961, the CBDT has specified the following products or services as ‘ Information Technology enabled products & services ’ :
• Bank office operation
• Call centres
• Content development and animation
• Data processing
• Engineering and Design
• Geographic information system services
• Human resource services
• Legal Databases
• Medical Transcription
• Payroll
• Remote Maintenance
• Revenue Accounting
• Support centres and
• Insurance claim Processing
• Web-site services
2. Location of undertaking
Undertaking must be located in Free Trade Zone, Electronic Hardware Technology park, software technology park or special Economic zones etc.
Meaning of Free Trade Zone :- Free trade zone means the :- - Kandla Free Trade Zone ;
- Santacruz Electronics Exports Processing Zone;
- Falta Export processing Zone ; - Madras Export Processing Zone;
- cochin Export Processing Zone;
- Noida Export Processing Zone;
- Or any other notified by the central Govt.
Note : Out of the above, the followings have been converted into ‘special Economic Zones’
Santacruz (Mumbai) Electronic Export processing Zone.
Kandla (Gujrat) free trade Zone.
Cochin (Kerela) Export Processing Zone.
3. Commencement of operations [ Sec. 10A (2) (i) ]
Location of
undertaking
• In any Free trade zone
!
• In Electronic
hardware Technology park or software
technology park
• In any special economic zone
Year of starting of manufacturing or production
• Previous year relevant to A.Y 1981-82 or thereafter
!
• P.Y relevant to A.Y 1994- 95 or therafter
!
!
!
• P.Y relevant to A.Y 2001-02 or thereafter
4. Export out of India
Undertaking must export out of the India, the articles or things or computer software manufactured or produced.
On site development of computer software
• The profits and gains derived from on-site development of computer software ( including services for development of software ) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.
5. Undertaking not to be formed by the splitting up or the reconstruction [ sec 10A (2) (ii) ]
EXCEPTION
Provisions contained in Sec 33B
• The business of an industrial undertaking carried or in India is discontinued in any previous year by reason of expensive
damage to or destruction of, any building, machinery, plant or furniture owned by the assessee being used for business purpose.
• Such damage was caused due to :
• Flood , typhoon, hurricane, cyclone, earthquake or other conclusive of nature ; or
• Riot or civil disturbance ; or
• Accidental fire or explosion ; or
• Action by an enemy or action taken in combating an enemy (whether with or without a declaration of war )
6. Undertaking not to be formed by
transfer of old Machinery [ Sec 10A (2) (iii) ]
7. Receipt in India/Repatriation to India of convertible foreign exchange [ Sec 10A (3) ]
8. Report of chartered Accountant [Sec 10A (5)]
9. Amount of deduction
Undertaking; Rate of Deduction; Period of Deduction
A. setup in any FTZ or
• B. Setup in EHTP or STP, or
• C. setup
100 % of profit and
gains
derived by an
undertaking from export of articles or things or
computer
available for a period of
10
consecutive assessment
years
beginning with the assessment
year
relevant to the previous
years in
which
Undertaking; Rate of Deduction; Period of Deduction
Undertakings which begin operations on or after 1-4-2005 in
any special economic zone
100 % of profits by an undertaking
from export.
50% of the profits 50% of the profits
For a period of 5 consecutive assessment years beginning with the
assessment year relevant to the previous years in which undertakings
begins to manufacture or produce such articles or things or computer.
For next 2 conconsecutive A.Ys!
For next 3 consecutive A.Y if certain conditions are fulfilled*secutive A.Ys
*Conditions for claiming extended deduction for 3 years.
i. Credit of the amount to special Account.
ii. Utilisation of Reserve
iii.Furnishing particulars of new plant &
Machinary :
10. Furnishing of return of Income on
or before due date (Applicable w.e.f
A.Y 2006-07)
Calculation of profit from Exports [Sec 10A (4) ]
The profit derived from export of articles or things or computer shall be the amount which bears to the profits of the business of the undertakings, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the asseessee
!In other words, profits of the undertaking eligible for benefit u/s 10A shall be :-
• Profits of the business of the undertaking X export turnover Total
turnover
Meaning of stock turnover
Export turnover means the consideration in
respect of export by the undertaking of articles or things or computer software received in, or
brought into India by the assessee in
convertible foreign exchange within stipulated time (including amount deposited outside India with the RBI approval).
However, it shall not include freight, telecommunication charges or insurance
attributable to the delivery of the articles or things or computer software outside India or
Expenses, if any, incurred in foreign exchange in providing the technical services outside India
Meaning of total turnover
Total turnover shall not include :-
• freight, telecommunication charges or
insurance attributable to the delivery of the
articles or things or computer software outside India; and
• Expenses, if any, incurred in foreign exchange in providing the technical services outside India
• Any sum received as export incentives such as export subsidy , duty drawback etc
Question
Syndicate Ltd. Manufactures leather shoes which are sold in domestic market as well as in foreign market. The company is eligible to claim deduction u/s 10A as the unit is located in free trade zone, following is P/L account for the year ended 31-03-2011.
*PROFIT AND LOSS ACCOUNT FOR THE P.Y. 2010-2011
! !
Other Information
• Sales proceed from exports brought into India in convertible foreign exchange upto sept. 30, 2011 to the extent of 40,00,000. The co. applied to RBI for
extension of time but the application was rejected.
• Out of other expenses debited to P/L account Rs. 1,00,000 is on account of penalty under excise law.
• The export to USA has been made on CIF basis and the export bill includes Rs.
1,50,000 on account of freight and insurance on transport of goods To USA.
Calculate deduction u/s 10A
PROFIT AND LOSS ACCOUNT FOR THE P.Y. 2010-2011
Manufacturing expenses 30,00,000
Other expenses 18,00,000
Net profit 21,00,000
69,00,000
By sales
Domestic 20,00,000
Export to U.S.A 49,00,000 69,00,000
69,00,000
OTHER IMPORTANT PROVISIONS
1. Carry forward and setoff of certain
unabsorbed expenses related to Tax Holiday period. Sec 10 A (6) (i)
With effect from assesment year 2001-02 the following shall be allowed to be carried
forward and setoff in assessment years subsequent to tax holiday period:
• Depriciation u/s 32
• Expenditure on scientific research u/s 35
• Expenditure in relation to family planning u/s 36 (i) (ix)
2. Carry forward and setoff of losses relating to Tax Holiday Period Sec 10 A (6) (ii)
With effect from A.Y. 2001-02, the
following losses of such undertaking relating to tax holiday period shall be allowed to be carried forward and set off in assesment
year subsequent to tax holiday period:
• Non speculation business loss u/s 72 (1)
• Loss under the head ‘Capital gain’ u/s 74 (1)
3. Duplication of deduction not allowed [ Sec 10 A (6) (iii)]
Undertaking claiming deduction u/s 10 A shall not be allowed to claim any
deduction u/s 80 HH or Sec HHA or 801 A or 801IB or Sec. 80IB in relation to such profits.
5. Calculation of W.D.V. of asset [Sec 10A (6)(iv)]
5. Re-computation of profits by the assessing offer [Sec 10A (7)]
In the following two cases, the assessing officer has the power to recompute profits of the undertaking:
A. Transfer transaction between two undertakings of the same assessee
• Circumstances to exist
• How to re-compute profits? The profits of eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date.
B. Transfer Transaction between undertakings of different persons
• For the purpose of deduction u/s 10A the assessing officer shall take the amount of profits as may be reasonably deemed to have been derived therefrom.
6.Transfer of goods or services, [Section 10A(7)]
Where any goods or services held for the purpose of the eligible business are transferred to any other business of assessee or vice-versa. The consideration, if any, shall be recorded in the books of eligible business at market value of such goods or services on the date of transfer.
7. Transfer of undertaking in
amalgamation or demerger [Sec 10A (7A)]
(a) No deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year (b) the provisions of the this section shall
apply to the amalagated or the resulting company.
8. Undertaking not eligible to claim deductionU/S 10A
Essential conditions to be fulfilled:
1. Form of organization
Deduction under section 10AA is available to an assessee/
undertaking manufacturing & exporting articles or services.
Undetaking can be operated as sole proprietorship, partnership firm, company etc.
2. Location of undertaking[Sec 10aa(1)] !
Undertaking must be located in any ‘Special Economic Zone’.
3. Undertaking not Eligible to claim deduction U/S 10AA. !
The deduction under this section shall not be available to an
undertaking being the unit, which had already availed , before the commencement of the Special Economic Zone Act, 2005, the
deduction referred to in section 10A for ten consecutive assessement years.
Essential conditions ………….
4. What to manufacture or produce[Sec 10aa(1)]
Manufacture or produce articles or things or provide any service.
!5. Commencement of operations[Sec 10AA(4)(i)]
The undertaking must begin to manufacture or produce articles or things or provide any service during previous year relevant to assessment year 2006-07 or thereafter.
!6. No Spilt up or reconstruction[sec 10AA(4)(ii)]
7. Restrictions on use of old plant & machinery [Sec 10AA(4)(iii)]
8. Export out of India
9. Receipt in India/Repatriation to India of convertible foreign exchange
10 .Report of Charted Accountant
11. Amount of deduction
Rate of deduction
a. 100% of profit & gains derived from the export of articles or things or from services;
!!
b. 50 % of such profit gains;
!c. So much of amount not exceeding 50 % of the profits as is debited to profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to ‘Special Economic Zone’ Reinvestment Reserve Account to be created and utilised for the purpose of the business of the assessee in the manner laid down in sub-section(2)
Period of deduction
a. 5 consecutive assessment years Beginning with the assessment year relavent to the previous year in which the unit begins to manufacture or produce such as articles or things or provide services.
b. For next 5 consecutive assessment years;
!
c. For next 5 consecutive assessment years;
12. Calculation of profit derived from export [Sec 10 AA (7)]
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!
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Profits of the business of undertaking eligible for deduction u/s 10AA
!
= [profit of the business of undertaking]*Export Turnover
Total Turnover
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SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED 100% EXPORT-ORIENTED
UNDER-TAKINGS [SECTION 10B]
Note: relevant for assessment year 2012-13 and subsequent assessed years.
Section 10B provides a deduction of such profits and gains as are derived by a 100% export oriented undertaking from the export of articles or things or computer software for a period of certain consecutive assessment years.
This section was introduced with effect from A.Y 1989-90. Thus to give a boost to export, Govt. of India introduced the scheme of 100% Export industrial units and at the same time provided 10 years tax holidays u/s 10B to such undertakings. These 100% EOUs have also been given many other incentives as discussed below :-
• Custom duty free import of raw material and other capital equipment required for production or manufacturing.
• Refund of excise duties
• Refund of central sales tax
• Assured regular supply of power, water etc.
ESSENTIAL CONDITION TO BE FULFILLED
• What to manufacture/produce [sec 10B (2) (i) ]
• 100% Export oriented units [sec 10B (1)]
• Undertaking not to be formed by the splitting up/or the reconstruction [sec 10B (2) (ii)]
• Amount of deduction (for A.Y 2011-12) :100%
of the profit & gains of the business of the undertaking………
SPECIAL PROVISIONS IN RESPECT OF EXPORT OF CERTAIN ARTICLES
OR THINGS [SEC.10BA] [DELETED
W.E.F. A.Y 2010-11]
• Who can claim ? The deduction u/s 10BA is available to an undertaking deriving profits
from the export of eligible handmade wooden articles or things.
• Commencement of deduction. The deduction u/s 10BA is available with effect from
assessment year 2004-05.
• Form of organization. Here undertaking can be operated as sole proprietorship,
partnership firm, company etc.
Essential conditions to be fulfilled :
A. What to manufacture/produce 10BA (I ) ? Articles or things, which are of artistic value and which requires the use of wood as the main raw material.
B. Imported raw material not to be used.
C. Export out of India [10BA (i)]. 90 percent or more of the sales of the undertaking during the previous year should be by way of export.
D. Undertaking not be formed by splitting up or the reconstruction. [10BA (i)]
E. Undertaking not be formed by transfer of old machinery or plant [10BA (i)]
F. Employment of 20 or more workers [10BA (ii)]
G. Receipt in India/ Repatriation of India to convertible foreign exchange [10BA (i)]
H. Report of chartered Accountant [sec 10BA (5)]
Essential conditions ……….
5. Amount of deduction. 100% of the profits and gains derived by the undertaking from the export of
eligible articles.
6. Period of deduction. The deduction u/s 10BA is
available upto assessement year 2009-2010. Hence no deduction u/s 10BA shall be allowed for the
assessment year 2010-2011 and subsequent years.
7. Calculation of profits from Exports [sec 10BA (4)]
Profits of the business of the undertaking X Export turnover
Total turnover
OTHER IMPORTANT PROVISIONS:
• Undertakings engaged in Infrastructure, telecommunication, power sector and industrial parks;
!• Undertakings or enterprises engaged in development of special economic zone;
• !Undertakings located in backward areas and other notified areas;
• !Undertakings engaged in the business of hotels & convention centers in National capital territory of Delhi and the districts of Faridabad, Gurgaon, Gautam budh nagar & Ghaziabad;
!• Undertakings set up in North- Eastern states.
