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CHAPTER 18A: SPECIAL ECONOMIC ZONE – 10AA

Deduction u/s.10AA: Units located in SEZ and deriving profits from export:

To whom available: Any assesse engaged in manufacture or production of any article

or thing or computer software in any SEZ. This deduction is not
available for an assessee who has opted for the new tax regime
u.s.115BAC.

Amount of deduction: 100% of export profits for first five assessment years
commencing from the year of manufacture

50% of export profits for next five assessment years

50% of export profits (or) amount transferred to “SEZ Re-

investment Allowance Reserve Account” whichever is less shall be
allowed as deduction for another five years.

Computation of deduction u.s.10AA:

Profits of SEZ unit (x) Export turnover of SEZ unit

Total turnover of SEZ unit

“Export Turnover” means amount brought into India in convertible foreign exchange within
six months from the end of the previous year or within the time permitted by the RBI.

“Export Turnover” does not include:

Freight, telecommunication charges and insurance charges for delivery of goods outside India.

1. Mrs.V, a resident individual, is running a SEZ unit, as well as a unit in Domestic Tariff Area
(DTA). She furnishes the following details relating to the year ended 31.03.2022, pertaining to
these two units
(Rs. in lakhs)
DTA unit SEZ unit
Export turnover 100 1000
Total turnover 400 1100
Net profit 50 220

Compute the deduction available u/s.10AA:

(i) When the SEZ unit had been set up on 12.03.2014; and
(ii) When the SEZ unit had been set up on 12.08.2019.
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2. Rudra Ltd. has one unit at Special Economic Zone (SEZ) and other unit at Domestic Traffic Area
(DTA). The company provides the following details for the previous year 2021-22.

Particulars Rudra Ltd. (Rs.) Unit in DTA (Rs.)

Total Sales 6,00,00,000 2,00,00,000
Export Sales 4,60,00,000 1,60,00,000
Net Profit 80,00,000 20,00,000

Calculate the eligible deduction under section 10AA of the Income-tax Act, 1961, for the
Assessment Year 2022-23, in the following situations:

i. If both the units were set up and start manufacturing from 22-05-2014
ii. If both the units were set up and start manufacturing from 14-05-2018

3. XYZ Ltd. has two units, one unit at Special Economic Zone (SEZ) and other unit at Domestic
Tariff Area (DTA). The unit in SEZ was set up and started manufacturing from 12.3.2013 and
unit in DTA from 15.6.2016. Total turnover of XYZ Ltd. and Unit in DTA is Rs.8,50,00,000 and
Rs.3,25,00,000, respectively. Export sales of unit in SEZ and DTA is Rs.2,50,00,000 and
Rs.1,25,00,000, respectively and net profit of Unit in SEZ and DTA is Rs.80,00,000 and
Rs.45,00,000, respectively.

XYZ Ltd. would be eligible for deduction under section 10AA for P.Y. 2021-22 for:-
(a) Rs.38,09,524
(b) Rs.19,04,762
(c) Rs.23,52,941
(d) Rs.11,76,471

4. Mr.Suraj (aged 48 years) furnishes the following particulars for the previous year 2021-22 in
respect of an industrial undertaking established in "Special Economic Zone" in March 2016. It
began manufacturing in April 2016.

Particulars (Rs.)
Total sales 85,00,000
Export sales [proceeds received in India] 45,00,000
Domestic sales; 40,00,000
Profit from the above undertaking 20,00,000

Export Sales of F.Y. of 2021-22 include freight and insurance of Rs.5 lacs for delivery of goods
outside India.

He received rent of Rs.25,000 per month for a commercial property let out to Mr.Sudhir, a
salaried individual. He earned interest on Savings Bank A/c of Rs.12,500 and interest on Post
Office Savings A/c of Rs.5,500 during the P.Y. 2021-22.
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Based on the facts of the case scenario given above, choose the most appropriate answer to the
following questions:

i. Compute the amount of deduction available u.s.10AA to Mr.Suraj for A.Y. 2022-23.

(a) Rs.10,00,000
(b) Rs.4,70,577
(c) Rs.5,62,500
(d) Rs.5,00,000

ii. Compute the total income of Mr.Suraj for the previous year 2021-22, assuming that he
does not opt to pay tax under section 115BAC.

(a) Rs.12,14,500
(b) Rs.17,18,000
(c) Rs.17,14,500
(d) Rs.17,28,000

iii. Compute the amount of export turnover and total turnover for purpose of computing
deduction under section 10AA for A.Y. 2022-23.

(a) Rs.45,00,000 and Rs.85,00,000, respectively

(b) Rs.40,00,000 and Rs.80,00,000, respectively
(c) Rs.45,00,000 and Rs.80,00,000, respectively
(d) Rs.40,00,000 and Rs.85,00,000, respectively

iv. Assume for the purpose of this question only that Mr.Suraj established SEZ Unit and
began manufacturing in April, 2018. Compute the amount of deduction available under
section 10AA for A.Y. 2022-23.

(a) Rs.10,00,000
(b) Rs.9,41,154
(c) Rs.11,25,000
(d) Rs.5,00,000

5. A company has two units developing and exporting computer software. Unit A is in a special
economic zone and qualifies for exemption u.s.10AA. It furnishes the following information of
its 3rd year of operation ending on 31.03.2022:

Profit and Loss Account for the year ended 31.03.2022 (in lacs)

Unit A Unit B Unit A Unit B

Salaries 270 160 Exports 600 780
Admin exps 210 260 Domestic sales 100 220
Net profit 265 675
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Unit A: Foreign exchange received into India by 30.09.2022 amounts to Rs.520 lakhs. Export
of Rs.600 lakhs includes insurance and freight of Rs.100 lakhs. Export realization of Rs.520
lakhs includes insurance and freight of Rs.70 lakhs.

Compute for Unit A the amount of export turnover and the total turnover for arriving at the
deduction u.s.10AA.

Answer:

Total turnover:
Export turnover including insurance and freight: Rs.600 lacs
Less: Insurance and freight for delivery of goods outside India Rs.100 lacs
Rs.500 lacs
Domestic turnover: Rs.100 lacs
Total turnover Rs.600 lacs

Export turnover:
Amount of foreign exchanged received up to 30.09.2022 Rs.520 lacs
Less: Insurance and freight included in the above Rs.70 lacs
Export turnover Rs.450 lacs