Tax Holiday- Deduction (Sections – 80-IAB)

[Deductions In Respect Of Profits And Gains By An Undertaking Or Enterprise Engaged In Development Of Special Economic Zone]

The provisions are given below –

(A) Conditions – The following conditions should be satisfied—

  1. The taxpayer is a developer of a Special Economic Zone (SEZ).
  2. The gross total income of the taxpayer includes profits and gains derived by an undertaking from any business of developing a special economic zone.
  3. Such special economic zone is notified on or after April 1, 2005 and the development of special economic zone should begin on or before March 31, 2017.

(B) Amount and Period of Deducation Under Section 80-IAB

The deduction shall be allowed of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive assessment years.

The deduction may, at the option of the assessee, be claimed by him for any 10 consecutive assessment years, out of 15 years beginning from the year in which a Special Economic Zone has been notified by the Central Government.

(C) Conditions prescribed under section 80-IA(7) to (12) to be applicable to undertaking for claiming deduction under section 80-IAB [Section 80-IAB(3)]:

The provision contained in section 80-IA(7) to (12) shall so far as may be, apply to the eligible business under this section. These provisions relate to following:

1. Audit of accounts [Section 80-IA(7)]:

The deduction under section 80-IA from profits and gains derived from an undertaking shall not be admissible unless the accounts of the undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by a chartered accountant and the assessee furnishes, alongwith his return of income, the report of such audit in Form No. 10CCB duly signed and verified by such accountant.

2. Inter-unit transfer of goods or services [Section 80-IA(8)]:

Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such 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:

However, where in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. “Market value” in relation to any goods or service, means the price that such goods or service, would ordinarily fetch on sale in the open market.

3. Double deduction not allowed [Section 80-IA(9)]:

Where any amount of profits and gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under the heading “deductions in respect of certain incomes”, and shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be.

4. Restriction of excessive profits [Section 80-IA(10)]:

Where it appears to the Assessing Officer that, owing to the (i) close connection between the assessee carrying on the eligible business to which this section applies and any other person, or (ii) for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as maybe reasonably deemed to have been derived therefrom.

5. Power of Central Government to notify undertakings to which section 80-IAB shall not apply [Section 80-IA(11)]:

The Central Govt. may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification.

6. Deduction not to be allowed in cases where return is not filed within the specified time limit [Section 80AC]:

No deduction shall be allowed to the assessee under this section unless he furnishes a return of his income of the relevant assessment year on or before the due date specified u/s 139(1).