DEDUCTION U/S 10AA

S.NO

CONDITIONS

1.     

The deduction is available only to businesses which are newly set up in an SEZ. Existing businesses moving into an SEZ or expanding their operations are not eligible unless it involves setting up a completely new unit.

2.     

The entity must earn revenue from the export of goods or services. The tax benefits are computed precisely on the profits derived from such exports.

3.     

The unit shall not be formed by splitting up or by reconstruction of an existing business, unless prescribed under the Act. It shall not be formed by transferring used plant & machinery; however, if the value of used assets does not exceed 20% of the total plant & machinery used in the unit, the said conditions can be relaxed.

4.     

The incentives under this section are available to businesses who have taken necessary approval upto 31.03.2020 and begins manufacturing or production of articles or things or providing services upto 31.03.2021.

5.     

For claiming the deductions, businesses shall maintain proper documentation and file their return with details of export turnover, total turnover, and a report from Chartered Accountant certifying compliance with the conditions of Section 10AA.

6.     

Applicable to an undertaking which begins to manufacture or to produce article or things or computer software in any SEZ.

AMOUNT OF DEDUCTION

For First 5 Assessment Years

100% of export profits

For next 5 Assessment Years

50% of export profits

For next 5 Assessment Year

Amount debited to P&L a/c & credited to SEZ reinvestment allowance reserve a/c.

OR

50% of Export profits.

Whichever is lower.

NOTE NO.

EXPLANTAION

1.     

Export Profit:

(PGBP of unit located in SEZ * Export Turnover)/ Total Turnover.

2.     

Export Turnover:

Export turnover means the consideration in respect of exports brought into India in convertible foreign currency within 6 months from the end of P.Y or time permitted by the RBI.

3.     

Sales amount deemed to have been received in India if such amount is credited to a separate A/c maintained by assessee outside India with approval of RBI.

4.     

Amount credited to SEZ Re-investment allowance reserves A/c shall be utilized for acquiring new plant & machinery & put to use within 3 years from the end of P.Y. in which such reserved was created. If the amount is mis-utilized or un-utilized, then deduction claimed earlier shall be taxable as PGBP.

5.     

Deemed Income:

               i.          If reserves has been utilized for non-specified purpose: of the year in which wrongly utilized.

            ii.          If reserves has not been utilized till the expiry of time limit: of the year immediately following the period of 3 years.

6.     

Export turnover does not include freight, telecommunication charges, Insurance, or expenses for providing service outside India. Further export turnover shall not include cash compensatory support, Duty drawback and profit on sale of import entitlement license.

7.     

Total turnover shall not include freight, telecommunication charges, Insurance, or expenses for providing service outside India. Further it shall not include cash compensatory support, Duty drawback and profit on sale of import entitlement license. Total turnover includes export turnover and domestic turnover, and it further includes even that portion of export turnover which is not received in convertible foreign exchange.

8.     

Deduction u/s 10AA available after claiming deduction u/s VI-A from gross total income.

9.     

Assessee shall obtain a report from a CA and furnish it before the due date specified u/s 44AB.

10.                    

Deduction u/s 10AA not available if it is formed by splitting up/ reconstruction of existing business:

Exceptions: In case of software industry, development of technical manpower from existing units to SEZ unit shall not be treated as splitting up of business provided:

               i.          Technical manpower transferred to SEZ unit is upto 50% of the total manpower delayed in SEZ unit in the first year of business, or

            ii.          Net additions of technical manpower employed in all units atleast 50% or more of technical manpower in SEZ unit in such P.Y

11.                    

Plant & Machinery used should be new: –

Exception:

               i.          20% of the total value of Plant & Machinery used in the undertaking can be second hand.

            ii.          Plant & Machinery imported from outside India for the first time shall be treated as new Plant & Machinery.

S.NO

EXPLANATION

1.     

It is clarified that the software developed outside abroad at client place would be eligible for 10AA pursuant to a contact between client and SEZ unit.

2.     

It is further clarified that the profits earned as a result of deployment of technical manpower at client place abroad specifically for software development shall be eligible for 10AA pursuant to a contact between client and SEZ unit.

3.     

It is clarified that in case of change in ownership deduction shall be available during the unexpired period at applicable rates subject to fulfilment of prescribed conditions.

4.     

It has been clarified that the tax holiday should not be denied merely on ground of physical relocation of an eligible SEZ unit from one place to another SEZ unit.