SPECIAL PROVISION RELATED TO FREE TRADE ZONE

Sec 10 A provides a deduction of such profits and gains as are derived by an undertaking from
the export of the articles or things or computer software for certain consecutive assessment
years.

FORM OF ORGANIZATION:

Deduction u/s 10A is available to an undertaking from export of articles etc. this section does
not provide any particular form of organization for undertaking. Thus undertaking can be
operated as sole proprietorship, partnership firm, company etc.

ESSENTIAL CONDITION TO BE FULLFILLED:

 The undertaking must manufacture or produce articles or things or computer software

etc under section 10 A (2)(i). It has begun or begins to manufacture or produce during
the previous year relevant to the assessment year—
i. Commencing on or after 1-4-1981, in any free trade zone; or

ii. Commencing on or after 1-04-1994, in any software technology park or

electronic hardware technology park or;

iii. Commencing on or after the 1-04-2001 in any special economic zone;

 The location of undertaking should be any zones notified by central government of

India as FTZs.

 Export out of India Undertaking must export out of India, the articles or things or
computer software manufactured or produce.

 Undertaking not to be formed by the splitting up or the reconstruction under section

10A (2) (ii) undertaking shall not be formed by the splitting up or the reconstruction of
a business already in existence.

 Undertaking not to be formed by transfer of old machinery under section 10A (2) (iii).
 i. 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.

ii. Imported Machinery allowed : Any machinery or plant which was used outside
India by any person other than the assesse shall not be regarded as machinery
or plant previously used for any purpose, if the following conditions are
fulfilled, namely :

a) such machinery or plant was not previously used in India

b) such machinery or plant is imported into India from any county outside
India ; and
c) 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 assesse.

 Receipt in India/ Repatriation to India of convertible foreign exchange [Sec 10A (3)]
the sale proceeds of the articles or things or computer software etc exported out of India
must be received in India and if not received in India, then must be bought into India,
in convertible foreign exchange within 6 months from the end of relevant previous year.
This period can be extended by competent authority.

 Report of charted accountant under Section 10 A (5). 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 assesse 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.

 Furnishing of the return on or before due date u/s 139 (1)

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

Profit of the business 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 assesse in convertible foreign exchange in accordance
with sub-section (3), but does not include:

a) freight,
b) telecommunication charges or
c) 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

SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED HUNDRED

PERCENT EXPORT ORIENTED UNDERTAKING U/S 10B

The benefit in respect of newly established 100% Export Oriented Units is Available
to all Assesses on Export of Certain Articles or things or software

ESSENTIAL CONDITION TO BE FOLLOWED:

 Undertaking must be approved as a 100% EOU.

 The Income Tax Return must be filed on or before the due date under
Section139 (1).
 The assesse has a choice not to claim the deduction for any particular AY if he
makes a declaration before the AO, before the due date of filing of return for
that AY.
 Manufacture of any article thing or software
  Should not be formed by splitting up or reconstruction of unit already in
existence
 Should not be formed by transferring machinery or plant previously used. In
certain conditions as specified in the Act second hand machinery is allowed.
 There must be repatriation of sale proceeds into India within 6 months.
 Report in Form No.56G
 Audit of Books of Accounts.

PERIOD AND RATE OF DEDUCTION:

 For units which have begun prior to AY 2003-04,100% profit from export of such
article, thing, software for 10 consecutive A.Y. from the A.Y. relevant to P.Y. in which
it begun to manufacture subject to some conditions and restrictions mentioned in the
Act. However for AY 2003-04 it is 90%

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:

i. 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.

ii. 50% of profit and gains from export is allowed as deduction for next 2
consecutive years.

iii. 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 assesse.

 No deduction for A.Y.2012 – 13 or thereafter.

  No deduction shall be allowed under Section 80HH or Section 80HHA or Section 80-I
or Section 80-IA or Section 80-IB in relation to the profits and gains of the undertaking.

 No loss referred to in sub-section (1) of Section 72 or subsection (1) or sub-section (3)

of Section 74, in so far as such loss relates to the business of the undertaking, shall be
carried forward or set off where such loss relates to any of the relevant assessment years
[ending before the 1st day of April, 2001].

 In computing the depreciation allowance under Section 32, the written down value of
any asset used for the purposes of the business of the undertaking shall be computed as
if the assesse had claimed and been actually allowed the deduction in respect of
depreciation for each of the relevant assessment year.

 Market value of goods to be transferred to be as per market rate on the date of transfer
and as per arm’s length price as per the provisions of sub-section (8) and sub-section
(10) of Section 80-IA.

 The provisions of this section does not apply to any undertaking, being a Unit referred
to in clause (zc) of section 2 of the Special Economic Zones Act, 2005, which has begun
or begins to manufacture or produce articles or things or computer software during the
previous year relevant to the assessment year commencing on or after AY 2006-07 in
any Special Economic Zone.

TAX PROVISION RELATED TO 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.
 SPECIAL PROVISION RELATED TO INFRASTRUCTURAL SECTOR

Rationale & Purpose of deduction: Infrastructure facilities are the backbone of any economy.
The existence of these facilities is very essential for industrial growth and economic
development of economy.

Section 80IA of the Income Tax Act, provides tax holiday for certain period to an industrial
undertaking or enterprises carrying on the business of developing, maintaining & operating any
infrastructure facility.

ELIGIBLE BUSINESS: -

 Carrying on the business of

a) developing;
b) operating & maintaining, or
c) developing, operating & maintaining, any infrastructure facility.
 Providing telecommunication services
 developing, operating or maintaining an Industrial park -Generation or/and distribution
of power
 Natural gas distribution.

1. DEDUCTION FOR BUISNESS

CONDITION TO CLAIM DEDUCTION:

 It must be owned by
i. An Indian company or a consortium of such companies; or
ii. An authority or a board or a corporation or any other body established or
constituted under any Central or State Act.
 There should be an agreement with any Government or a local authority or statutory
body for developing (etc.) a new infrastructure facility.

 Operating and maintenance of such infrastructure facility starts on or after 1st April,
1995.
DEDUCTION AMOUNT

100% of profits and gains derived from such business are allowed as deduction for a period
of any 10 consecutive years out of 20 years from the year in which it starts its operations
except in case of port, airport, inland waterway or inland port or navigational channel in the
sea where deduction allowed is for any 10 consecutive years out of 15 years.

2. DEDUCTION FOR BUISNESS FOR TELECOMUNICATION SERVICE:

Any undertaking, who starts providing telecommunication services, basic or cellular,

including radio paging, domestic satellite service or network of trunking (not), broadband
network and internet services on or after 1st April 1995 but before 1st April 2005.

CONDITION TO CLAIM DEDUCTION

A. It is not formed by splitting up or reconstruction of a business already in existence.

Exceptions

Undertaking formed as a result of reconstruction of any business:

i. Discontinued due to extensive damage or destruction of any building, machinery,
plant or furniture owned and used for such business due to
a) flood, typhoon, hurricane, cyclone, earthquake or other natural calamities, or
b) riot or civil disturbance, or
c) accidental fire or explosion, or
d) Enemy action or action taken in combat.
ii. Such business is re-established or revived within 3 years from the end of such
previous year.

B. It is not formed by the transfer of machinery or plant previously used for any purpose.

Exceptions
iii. Transfer (whole or part), of machinery or plant previously used by a State Electricity
Board.
iv. Import of second-hand machinery or plant, if the following conditions are fulfilled:
 a) Such machinery or plant was not used in India prior to the date of installation by
the assesse.
b) No deduction on account of depreciation was allowed to any person prior to the
date of installation by the assesse. Total value of second-hand plant or machinery
previously does not exceed 20% of the total value of the machinery or plant used
in the new business.

DEDUCTION AMOUNT

100% of profits for the first 5 assessment-years is allowed as a deduction and 30% for the
next 5 assessment years out of 15 years from the year in which it starts its services.

3. BUISNESS INVOLVED IN THE DEVELOPMENT OF BUISNESS PARKs AND

SEZs
 Any undertaking which:

i. Develops, or
ii. Develops and operates, or
iii. Maintains and operates

an industrial park or a Special Economic Zone (SEZ) notified by the Central Government.

CONDITION TO CLAIM DEDUCTION

 It shall start to operate in accordance with the scheme framed and notified by the C.G.
for the period starting from 1st April, 1997 and ending on

i. 31st March, 2006 for SEZs.

ii. 31st March, 2011 for industrial parks.
However, deduction shall not be available for any SEZ notified on or after 1st April, 2005.

DEDUCTION AMOUNT

100% of profits derived from such business for any 10 consecutive years out of 15 years from
the year in which it starts its services.
4. BUSINESS INVOLVED IN THE GENERATION AND DISTRIBUTION OF
POWER

Any undertaking which:

a. Is set up in India for the generation or generation and distribution of power (started
generating power between 1st April, 1999 to 31st March, 2011).

b. Starts transmission or distribution by laying new transmission and distribution lines at

any time between 1st April, 1999 and 31st March, 2011.

c. Undertakes substantial renovation and modernization of the existing network, at any

time between 1st April, 2004 and 31st March, 2011.
Renovation and Modernisation means an increase in the plant and machinery in the
network by at least 50% of the book value of such plant and machinery as on 1st April,
2004.

CONDITION TO CLAIM DEDUCTION

A. It is not formed by splitting up or reconstruction of a business already in existence.

Exceptions

Undertaking formed as a result of reconstruction of any business:

i. Discontinued due to extensive damage or destruction of any building, machinery,
plant or furniture owned and used for such business due to
a) flood, typhoon, hurricane, cyclone, earthquake or other natural calamities, or
b) riot or civil disturbance, or
c) accidental fire or explosion, or
d) Enemy action or action taken in combat.
ii. Such business is re-established or revived within 3 years from the end of such
previous year.

B. It is not formed by the transfer of machinery or plant previously used for any purpose.
Exceptions
iii. Transfer (whole or part), of machinery or plant previously used by a State
Electricity Board.
iv. Import of second-hand machinery or plant, if the following conditions are
fulfilled:
a) Such machinery or plant was not used in India prior to the date of installation by
the assesse.
b) No deduction on account of depreciation was allowed to any person prior to the
date of installation by the assesse. Total value of second-hand plant or machinery
previously does not exceed 20% of the total value of the machinery or plant used
in the new business.

DEDUCTION AMOUNT:

100% of profits derived from such business for any 10 consecutive years out of 15 years from
the year in which it starts its services.

5. BUSINESS INVOLVED IN THE RECONSTRUCTION OF POWER PLANT

An undertaking:

a) owned by an Indian company and

b) set up for reconstruction or revival of a power generating plant.

CONDITION TO CLAIM DEDUCTION

i. Formed before 30th November 2005 and notified by C.G. before 31st December
2005.
ii. It starts to generate or transmit or distribute power before 31st March 2011.

DEDUCTION ALLOWED

100% of profits derived from such business are allowed as a deduction for any 10
consecutive years out of 15 years from the year in which it starts its services.
6. BUSINESS INVOLVED IN THE DISTRIBUTION OF NATURAL GAS

An undertaking which lays and begins to operate a cross-country natural gas distribution
network, including pipelines and storage facilities being an integral part of such network.

CONDITIONS TO CLAIM DEDUCTION

A. It is not formed by splitting up or reconstruction of a business already in existence.

Exceptions

Undertaking formed as a result of reconstruction of any business:

i. Discontinued due to extensive damage or destruction of any building, machinery,
plant or furniture owned and used for such business due to
a) flood, typhoon, hurricane, cyclone, earthquake or other natural calamities, or
b) riot or civil disturbance, or
c) accidental fire or explosion, or
d) Enemy action or action taken in combat.
ii. Such business is re-established or revived within 3 years from the end of such
previous year.

B. It is not formed by the transfer of machinery or plant previously used for any purpose.

Exceptions
iii. Transfer (whole or part), of machinery or plant previously used by a State
Electricity Board.
iv. Import of second-hand machinery or plant, if the following conditions are
fulfilled:
a) Such machinery or plant was not used in India prior to the date of installation by
the assesse.
b) No deduction on account of depreciation was allowed to any person prior to the
date of installation by the assesse. Total value of second-hand plant or machinery
previously does not exceed 20% of the total value of the machinery or plant used
in the new business.
C. It must be owned by an Indian company or a consortium of such companies or a board or
corporation established or constituted under any Act.

D. It must be approved by the Petroleum and Natural Gas Regulatory Board.

E. 1/3 of its total pipeline capacity must be available for use on common carrier basis by any
person other than the assesse or an associated person.

F. It starts to operate on or after 1st April 2007.

G. Any other condition as may be prescribed.

 Here, associated person means a person who:

i. Participates in the management or control or capital of the assesse.
ii. Holds shares of the assesse having more than 20% voting rights.
iii. Appoints more than half of the BOD, or one or more executive directors or
executive members of the governing board of the assessee.
iv. Guarantees at least 10% of the total borrowings.

DEDUCTION AMOUNT

100% of profits derived from such business are allowed as a deduction for any 10
consecutive years out of 15 years from the year in which it starts its services.

EXPLANATION OF THE TERM INITIAL ASSESSMENT YEAR:

 The deduction under section 80-IA can be claimed for any 10 years at the option of the
assesse out of 15 years or 20 years as may be prescribed for particular cases.
 However, for the purpose of claiming deduction the term initial assessment year means
the first year from which the assesse starts to claim the deduction and not the year in
which the business starts its operations.
 The period of deduction, i.e. 10 years solely depends on the assesse from whichever year
it wants to claim out of 15 years or 20 years as may be prescribed for particular cases.

OTHERR IMPORTANTS POINT TO BE CONSIDERED:

1. The date for the purpose of computing deduction shall be the date from which the business
starts commercial production and not just on trial basis.
And it should also be noted that the date shall be the date of starting the project and not the
date of approval of the project.
2. For computing deduction under this section, the profits and gains of the eligible business
shall be computed as if such eligible business were the only source of income during the
relevant previous years.

3. The industrial undertaking should have begun to manufacture or produce articles or things
on or before March 31, 2004. Licence for manufacturing should have been applied before this
date. The grant of the licence would not relate back to the original date of application.

4. Deduction u/s 80IA shall not be available in relation to an eligible business, in the nature
of a works contract awarded by any person (including any Government) and executed by the
undertaking or enterprise.

5. The accounts of such eligible business are required to be audited by a Chartered

Accountant and the audit report shall be furnished in the prescribed form along with ROI.

6. The deduction under this section shall not exceed the amount of profits or gains of such
business.

7. The Central Government may declare any class of industrial undertaking or enterprise as
not being entitled to deduction under this section.

8. Where an infrastructure facility or SEZ or Industrial park is transferred on or after 1st

April, 1999 by an enterprise who developed it for the purpose of operating and maintaining it
in accordance with the agreement with any Government, local authority or statutory body,
section 80IA shall apply to the transferee enterprise for the unexpired period of deduction
which was available to the first enterprise.
The transferee shall not be eligible for deduction for the entire period.
9. Where housing or other activities are an integral part of a highway project and the profits
and gains have been calculated in accordance with the section, the profits shall be exempt if
the following conditions have been fulfilled, namely-

 The profits have been transferred to a special reserve account; and

 The same is actually utilised for the highway project excluding housing and other
activities before the expiry of 3 years following the year of transfer to the reserve
account.
10. Where any goods or services held for the purposes of the eligible business are transferred
to any other business carried on by the assesse, or vice versa, and if the transfer does not take
place at the market value of the goods or services then the profits and gains of the eligible
business shall be computed as if the transfer was made at market value.

Note:
 If in the opinion of the A.O., such computation presents exceptional difficulties, the A.O.
may compute the profits on such reasonable basis as he may deem fit.
 Market value means the price such goods or services would ordinarily fetch in the open
market.
11. No deduction for the profits or gains of such business shall be allowed under any other
section of this chapter, if the assesse has claimed deduction under section 80IA.

12. Where the A.O. feels that the assesse has derived more than ordinary profits from eligible
business being whatsoever reason, A.O. may consider such amount of profits as he finds
reasonable for the purpose of computing deductions.

13. Transfer of undertaking before the expiry of tax holiday period. Where an undertaking
eligible for deduction under section 80IA has been transferred from one Indian Company to
another Indian Company under the scheme of amalgamation or demerger.

 No deduction to the amalgamating or demerged company, in the year of amalgamation

or demerger.
 The provisions of this section will apply to the amalgamated or resulting company as
they would have applied to the amalgamating or demerged company if the amalgamation
or demerger had not taken place.
Note: The above provision shall not be applicable for transfer on or after 1st April 2007.
 SPECIAL PROVISION RELATED TO BACKWARD AREA

This deduction is in respect of profits and gains from industrial undertakings etc. in certain
areas, where the gross total income of an assesse includes any profits and gains derived from
any business in the specified backward areas.

ELIGIBILITY:

Industrial undertakings:

i. It should be established in the notified backward area

ii. It is not formed by splitting up or the reconstruction
iii. It is not formed by the transfer of the old machinery or plant
iv. Industrial undertakings are setup in north eastern region during 01-04-1991 to
31- 03-2002.
v. Industrial undertakings setup in J&K during 1-4-1995 to 31-3-2007

Amount of deduction: 100% of the profits and gains of such business.

Period of deduction: the deduction is available for a period of 10 consecutive years.

DIFFERENT PROVISIONS FOR TYPE OF INDUSTRIES IN BACKWARD AREA:

 Shipping [80IB (6)]

The amount of deduction in the case of the business of a ship shall be thirty per cent of the
profits and gains derived from such ship for a period of ten consecutive assessment years
including the initial assessment year provided that the ship—

(i) is owned by an Indian company and is wholly used for the purposes of the business
carried on by it;

(ii) was not, previous to the date of its acquisition by the Indian company, owned or
used in Indian territorial waters by a person resident in India; and

(iii) is brought into use by the Indian company at any time during the period beginning
on the 1st day of April, 1991 and ending on the 31st day of March, 1995.

 Hotel [80IB (7)]

The amount of deduction in the case of any hotel shall be—

 (a) fifty per cent of the profits and gains derived from the business of such hotel for a period
of ten consecutive years beginning from the initial assessment year as is located in a
hilly area or a rural area or a place of pilgrimage or such other place as the Central
Government may, having regard to the need for development of infrastructure for
tourism in any place and other relevant considerations, specify by notification in the
Official Gazette and such hotel starts functioning at any time during the period
beginning on the 1st day of April, 1990 and ending on the 31st day of March, 1994 or
beginning on the 1st day of April, 1997 and ending on the 31st day of March, 2001.
(b) (b) thirty per cent of the profits and gains derived from the business of such hotel as is
located in any place other than those mentioned in sub-clause (a) for a period of ten
consecutive years beginning
(c) the deduction under clause (a) or clause (b) shall be available only if—

(i) the business of the hotel is not formed by the splitting up, or the reconstruction,
of a business already in existence or by the transfer to a new business of a
building previously used as a hotel or of any machinery or plant previously used
for any purpose;

(ii) the business of the hotel is owned and carried on by a company registered in
India with a paid up capital of not less than five hundred thousand rupees;

(iii) the hotel is for the time being approved by the prescribed authority

 Multiplex theatre [Sec 80IB (7A)]

The amount of deduction in the case of any multiplex theatre shall be—

(a) fifty per cent of the profits and gains derived, from the business of building, owning
and operating a multiplex theatre, for a period of five consecutive years beginning from
the initial assessment year in any place

(b) the deduction under clause (a) shall be allowable only if—
(i) such multiplex theatre is constructed at any time during the period beginning on
the 1st day of April, 2002 and ending on the 31st day of March, 2005;
 (ii) the business of the multiplex theatre is not formed by the splitting up, or the
reconstruction, of a business already in existence or by the transfer to a new
business of any building or of any machinery or of plant previously used for any
purpose;

(iii) the assesse furnishes along with the return of income, the report of an audit in
such form and containing such particulars as may be prescribed and duly signed
and verified by an accountant

 Convention centres [Sec 80IB (7B)]

The amount of deduction in the case of any convention centre shall be—

(a) fifty per cent of the profits and gains derived, by the assesse from the business of building,
owning and operating a convention centre, for a period of five consecutive years beginning
from the initial assessment year;

(b) the deduction under clause (a) shall be allowable only if—

i. such convention centre is constructed at any time during the period beginning
on the 1st day of April, 2002 and ending on the 31st day of March, 2005;
ii. the business of the convention centre is not formed by the splitting up, or the
reconstruction, of a business already in existence or by the transfer to a new
business of any building or of any machinery or plant previously used for any
purpose.
 Company engaged in scientific and industrial research and development [Sec 80IB
(8A)]

The amount of deduction in the case of any company carrying on scientific research and
development shall be hundred per cent of the profits and gains of such business for a period of
five assessment years beginning from the initial assessment year if such company—

(a) is registered in India;

(b) has the main object of scientific and industrial research and development;

(c) is for the time being approved by the prescribed authority at any time before the 1st day of
April, 1999.

 Undertakings engaged in production or refining of mineral oil or natural gas from

blocks [Sec 80IB (9)]

The amount of deduction to an undertaking shall be hundred percent of the profits for a period
of seven consecutive assessment years, including the initial assessment year, if such
undertaking fulfils any of the following, namely:—

(i) is located in North-Eastern Region and has begun or begins commercial production of
mineral oil

before the 1st day of April, 1997

(ii) is located in any part of India and has begun or begins commercial production of mineral
oil on or after the 1st day of April, 1997

(iii) is engaged in refining of mineral oil and begins such refining on or after the 1st day of
October, 1998 78[but not later than the 31st day of March, 2012]

(iv) is engaged in commercial production of natural gas in blocks licensed under the IV Round
of bidding for award of exploration contracts for Coal Bed Methane blocks and begins
commercial production of natural gas on or after the 1st day of April, 2009.

 Profits of an undertakings from the business of operating and maintaining a

hospital [Sec 80IB (11B)]

The amount of deduction in the case of an undertaking deriving profits from the business of
operating and maintaining a hospital in a rural area shall be hundred per cent of the profits and
gains of such business for a period of five consecutive assessment years, beginning with the
initial assessment year, if—

(i) such hospital is constructed at any time during the period beginning on the 1st day of
October, 2004 and ending on the 31st day of March, 2008;

(ii) the hospital has at least one hundred beds for patients;

(iii) the construction of the hospital is in accordance with the regulations, for the time being in
force of the local authority