From a practical point of view, over 90% of the non-resident Indians will be able to compute their total income as well as their income tax liability in India by having a knowledge of the different provisions of the Income Tax Act, 1961. The NRIs should, therefore, remember these provisions well. They should further remember that they can now enjoy a ten-year tax holiday upto the A.Y. 2011-12 in respect of the profits of new industrial undertakings set up in a Free Trade Zone, etc. under Section 10A of the Income Tax Act. Likewise, they can enjoy a 10-year tax holiday upto the A.Y. 2009-10 in respect of the profits of 100% Export Oriented Units under Section 10B of the Income Tax Act. New industrial undertakings set up in Special Economic Zones on or after 1.4.2002 will be eligible to 100% deduction for five years. For the next two assessment years, however, exemption would be only to the extent of 50% of their profits. A change in the ownership of the industrial undertaking would debar it from getting the exemption. However, when the change is from a proprietary or partnership firm to a company on succession, then the restriction will not apply if not less than 51% voting power is kept with the earlier partners or proprietor. The latter exemption is different from the previous one inasmuch as “manufacturing” by a 100% Export Oriented Undertaking would include any process or assembly or recording of programmes on any disc, tape, perforated media or other information storage device. Likewise, “produce” in relation to any article or thing would include production of computer programmes and export of software for the purposes of exemption under Section 10B, which is not covered under Section 10A.
The Finance Act, 2003 has, w.e.f. the AX. 2004-2005, amended Section 10A and Section 10B to provide that where an undertaking of an Indian company is transferred to another company under a scheme of amalgamation or demerger, the deduction would be allowed in the hands of the amalgamated or the resultant company.
The benefit of deduction under Section IOA and lOB has been extended to the business of cutting and polishing of precious and semiprecious stones from the A.Y. 2004-2005.
As per the Finance Act, 2005 a sun set clause has been inserted to provide that no deduction to an undertaking set up in a Special Economic Zone which begins to manufacture or produce articles or things or computer software after 31.3.2009 in a Special Economic Zone would be allowed as a tax holiday. It is also provided that such undertakings should file income tax return in time to avail of the benefit.
The Taxation Laws (Amendment) Act, 2005 provides that if deduction was not granted u/s 10A, 10B or 10C due to non receipt of convertible foreign exchange which is received later on, then the deduction under the above sections can be granted within four years from the end of the previous year in which the amount is brought in India.
From the A.Y. 2006-07, under Section IOAA newly established units in Special Economic Zones would get a 100% tax holiday for five consecutive assessment years and a 50% tax holiday for the next further five assessment years in respect of export profits with a further tax benefit of 50% tax holiday for the’ next 5 years on the fulfillment of some conditions.
The tax exemption for 100% EOUs u/s 10B and the Software Technology Park of India (STPI) under the fourth proviso to Section 10A(1) has been extended by the Finance (No. 2) Act,, 2009 by one year, i.e. for the AY 2011-2012 also. Thus, the sunset clause will now be applicable from the AY 20 12-2013.
Under the provisions of Section 801B (9) as amended by the Finance Act, 2008, income of a refinery for mineral oil starting operations by 31.3.2012 will also get the 7-year tax holiday.