Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

[Section 10AA]- Special Provisions on Deduction Allowed to newly established Units in Special Economic Zones (SEZ)

[Section 10AA]- Special Provisions on Deduction Allowed to newly established Units in Special Economic Zones (SEZ)
[Section 10AA]- Special Provisions on Deduction Allowed to newly established Units in Special Economic Zones (SEZ)

1. Assessees who are eligible for deduction:

Deduction under this section is available to all  categories of assessees being entrepreneurs viz., individuals, firms, companies, etc. who derive any  profits or gains from an undertaking being a unit engaged in the export of articles or things or  providing any service.

2. Essential conditions to claim deduction:

The deduction shall apply to an undertaking which  fulfils the following conditions:

(i)            It has begun or begins to manufacture or produce articles or things or provide any service  during the previous year 2005-06 or thereafter but before 1.4.2020 in any Special Economic  Zone.

(ii)           It should not be formed by the splitting up or reconstruction of a business already in  existence. However, deduction is provided if the unit is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of the undertaking as  is referred to and satisfying the conditions in section 33B.

(iii)          It should also not be formed by the transfer of machinery or plant, previously used for any  purpose, to a new business. However, the following are the two exceptions to this condition:

(1)          Machinery or plant which 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:

(a)           The machinery or plant should not be previously used in India.

(b)          The machinery or plant should be imported into India from a foreign country.

See also  Advance Payment of Tax [Section 207-211, 218, & 219]

(c)           No deduction on account of depreciation in respect of such machinery or plant has  been allowed or is allowable under the provisions of this Act to any person  previously.

(2)          Deduction under section 10AA will, be available if the total value of the second hand  machinery or plant transferred to the new undertaking does not exceed 20% of the total  value of the machinery or plant used in the industrial unit.

(iv)          The assessee should furnish in the prescribed form [Form No. 56F], alongwith the return of  income the report of a chartered accountant certifying that the deduction has been correctly  claimed in accordance with the provisions of this section.

Amendment made by the Finance Act, 2020

Due date of furnishing the report in Form No. 56F [Section 10AA] [W.e.f. A.Y.  2020-21] 

The report is to be furnished at least one month prior to the due date for furnishing  the return of income under section 139(1) i.e. by 30th September of the assessment  year as the date for furnishing the return of income has been extended to 31st  October of the assessment year. However, in the case of an assessee who is  required to furnish a report referred to in section 92E, the due date of furnishing the  audit report in Form No. 56F shall be 31st October.

(v)           If there is any inter unit transfer of goods or services, it should be done at the market value.

3. Period for which Deduction is available

The deduction under this section shall be allowed as under for a total period of 15 relevant  assessment years.

1. For the first 5 consecutive  assessment years beginning with the  assessment year relevant to the  previous year in which the unit  begins to manufacture such articles  or things or provide services 100% of the profits and gains derived from the export of  such articles or things or from services
2. Next 5 consecutive assessment years 50% of such profits or gains
3. Next 5 consecutive assessment years So much of the amount not exceeding 50% of the profits  as is debited to profit and loss account of the previous  year in respect of which the deduction is to be allowed  and credited to Special Economic Zone Reinvestment  Reserve Account to be created and utilised for the  purpose of acquiring new machinery or plant which  should be put to use before the expiry of a period of 3  years next following the previous year in which the  reserve was created.

4.   [Section 10AA(7)]- How to compute Deduction for such undertakings

Deduction under this section shall be calculated as under :

1.            Profit from business is to be computed as per provisions of computing the income under the head profits  and gains of business or profession.

2.            “Export turnover” means the consideration in respect of export by the undertaking, being the unit of  articles or things or services received in, or brought into, India by the assessee but does not include  freight, telecommunication charges or insurance attributable to the delivery of the articles or things  outside India or expenses, if any, incurred in foreign exchange in rendering of services (including  computer software) outside India. [Explanation 1(i) to section 10AA]

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