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Tax Holiday : SPECIAL ECONOMIC ZONE [ SECTION 10AA]

 

2.         Special Economic Zone (SEZ)- Special Provisions in respect of newly established units in special economic zone.

            1.   Conditions to be satisfied

            2.   Amount of Deduction

            3.   Consequence for mercer and demerger.

SPECIAL ECONOMIC ZONE [ SECTION 10AA]

 

(SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNITS IN SPECIAL ECONOMIC ZONE)

 

1.   CONDITIONS TO BE SATISFIED :

 

The following conditions should be satisfied to claim deduction u/s 10AA :

 

Condition 1 :  Assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005. Entrepreneur is a person who has been granted a letter of approval by the Development Commissioner to set a unit in a Special Economic Zone.

 

Conditions 2 :  The Unit in Special Economic Zone who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006.

 

Conditions 3 :  It is not formed by the splitting up, or reconstruction, of a business already an existence.

 

Conditions 4 :  It not formed by the transfer to a new business, of old plant and machinery. However, it can be formed by transfer of old plant or machinery to the extent of 20%.

 

Condition 5 :   The assessee has income from export of articles or thing or from services from such unit. In other words, the assessee has exported goods or provided services out of India from the Special Economic Zone by land, sea , air, or by any other mode, whether physical or otherwise.

 

Conditions 6 :  Books of Accounts of the taxpayer should be audited. The Tax payer should submit Audit Report in Form No.56F along with the return of income.

 

2    AMOUNT OF DEDUCTION :        

 

Deduction depends upon quantum of Profit derived from Export of Articles or things or services ( including computer software). It is calculated as under –

 

Profit of the Business of the undertaking X Export turnover

Total Turnover of the business

 

8 Deduction for First 5 Assessment Years –   100% of Profits and Gains derived for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services.

 

8 Deduction for 6th Assessment Year to 10th Assessment Years :         50% of such Profits and Gains for further five assessment years and thereafter;

 

8 Deduction for 11th Assessment Year to 15th Assessment Year :  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 Reserve Account”) to be created and utilized for the purposes of the business of the assessee.

 

3.   CONSEQUENCES FOR MERGER AND DEMERGER :

          

Where any undertaking is transferred, before the expiry of the period specified in this section, to another undertaking, under a scheme of amalgamation or demerger,—

 

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

 

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