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Tax Holiday - FREE TRADE ZONE (FTZ)[ Section 10A]

 

1.         Free Trade Zone (FTZ) – Special Provision in respect of Newly Established Undertaking in Free Trade Zone.    

            1.   Conditions to be satisfied

            2.   Amount of Deduction-General Provisions

            3.   Period and Rate of Deduction

            4.   Transfer under a Scheme of Amalgamation or Demerger

 

A5.    FREE TRADE ZONE (FTZ)[ Section 10A]

 

(SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE)

 

1.   CONDITIONS TO BE SATISFIED :

 

In order to get deduction, an undertaking must satisfy the following conditions :

 

Condition 1:

It must begin manufacture or production in free trade zone :

It has begun or begins to manufacture or produce during the previous year relevant to the assessment year—

(a) commencing on or after 1-4-1981, in any free trade zone; or

(b) commencing on or after 1-04-1994, in any software technology park  or electronic hardware technology park or;

(c) commencing on or after the 1-04-2001 in any special economic zone;

Conditions 2 :

It should not be formed by splitting / reconstruction of business.:

Conditions 3 :

It should not be formed by transfer of old machinery:

it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

  1. 20% of second value machinery allowed : Where in the  case of an undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed 20% of the total value of the machinery or plant used in the business, then, the condition specified therein shall be deemed to have been complied with.
  2. Imported Machinery allowed : Any machinery or plant whish was used outside India by any person  other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namele :
    1. such machinery or plant was not previously used in India
    2. such machinery or plant is imported into India from any county outside India ; and
    3. no deduction on account of depreciation in respect of such machinery or plant has been allowed or it allowable under the provisions of the Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the assessee.

(Value of imported machine can exceed 20% of the Total Value of Machine)

Conditions 4 :

Sale construction should be remitted to India in convertible foreign exchange.:

Sale consideration should be remitted to India in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.

Condition 5 :

Report of Chartered Accountant :

The deduction under [this section] shall not be admissible for any assessment year beginning on or after the 1st day of April, 2001, unless the assessee furnishes in the prescribed Form 56 , along with the return of income, the report of an Chartered Accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.                

Condition 6 :

Return of income should be submitted in time.:

 

2.   AMOUNT OF DEDUCTION – GENERAL PROVISIONS :

 

If the aforesaid conditions are satisfied , the deduction u/s 10A may be computed as under :

 

                                                               Export Turnover of eligible undertaking
Profits of the business of eligible undertaking
=_______________________________
                                                               
                                                               Total Turnover of eligible undertaking

'Export Turnover'':  means the consideration of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include…

    1. freight,

    2. telecommunication charges or

    3. 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

 

3.   PERIOD AND RATE OF DEDUCTION : 

 

Out of the total income of an assessee a deduction of 90% of such profits and gains as are derived by an undertaking from the export of articles, or things or computer software shall be allowed.

 

Rate of deduction for unit set up in Special Economic Zone on or after 1-4-2003 shall be as follows for first 10 assessment years :

 

8 First 5 Years – 100 % of profits and gains derived from the export of such articles or things or computer software for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, and thereafter,

 

8 Next 2 Years : 50% of such Profit and Gains is deductible for further 2 assessment years.

 

8 Next 3 Years :  for the next three consecutive assessment years, so much of the amount not exceeding 50% of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the ''Special Economic Zone Re-investment Allowance Reserve Account'') to be created and utilised for the purposes of the business of the assessee

 

4    TRANSFER UNDER A SCHEME OF AMALGAMATION OR DEMERGER :

 

In case an undertaking eligible for deduction under this section is transferred, before the expiry of the specified period, to another Indian company in a scheme of amalgamation or demerger –

 

(a)        no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or demerger takes place ; and

 

(b)        the provisions of this section shall apply to the amalgamated or the resulting company as if the amalgamation or demerger had not taken place.

 

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