Location Aspect

Tax planning is relevant from location point of view.

There are certain locations which are given special tax
treatment. Some of these are as under:
1. Free Trade Zone (FTZ) [Section 10A] Special
Provision in respect of Newly Established
Undertaking in Free Trade Zone.
1. Conditions to be satisfied
2. Amount of Deduction-General Provisions
3. Period and Rate of Deduction
4. Transfer under a Scheme of Amalgamation or

 1. Conditions to be satisfied
In order to get deduction, an undertaking must satisfy the following conditions:
Condition 1: It must begin manufacture or production in free trade zone:
It has begun or begins to manufacture or produce during the previous year
relevant to the assessment year
(a) Commencing on or after 1-4-1981, in any free trade zone; or
(b) Commencing on or after 1-04-1994, in any software technology park or
electronic hardware technology park or;
(c) Commencing on or after the 1-04-2001 in any special economic zone;
Conditions 2: It should not be formed by splitting / reconstruction of
business.
Conditions 3: It should not be formed by transfer of old machinery:

 Conditions 4: Sale construction should be remitted to India

in convertible foreign exchange.:
Condition 5: Report of Chartered Accountant:
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.
Condition 6 : Return of income should be submitted in time.

 2. Amount of Deduction-General Provisions

If the aforesaid conditions are satisfied, the deduction u/s 10A may be computed as
under:

Profits of the business of eligible undertaking = Export Turnover of 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
i.) Freight,
ii.) telecommunication charges or
iii.) insurance attributable to the delivery of the articles or things or computer software
outside India or
iv.) expenses, if any, incurred in foreign exchange in providing the technical services
outside India

 3. Period and Rate of Deduction

Out of the total income of an assesse a deduction of 90% of such profits and gains as are
derived by an undertaking from the export of articles, or things or computer software shall be
allowed.
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:
First 5 Years 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, as the case may be, and thereafter,
Next 2 Years: 50% of such Profit and Gains is deductible for further 2 assessment years.
Next 3 Years: 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.

 4. 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

2. Special Economic Zone (SEZ) [Section 10AA] Special Provisions 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: Assesse, 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 assesse has income from export of articles or thing or from services from such
unit. In other words, the assesse 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
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.
Deduction for 6th Assessment Year to 10th Assessment Years : 50% of such Profits and Gains
for further five assessment years and thereafter;
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 assesse.

 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 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.

100% EXPORT ORIENTED

UNDERTAKINS (100% E.O.U.)
[Sec 10B]

1. Conditions to be Satisfied
This section applies to any undertaking which fulfils all the following conditions, namely: Conditions 1: It manufactures or produces any articles or things or computer software;
Conditions 2: It is not formed by the splitting up, or the reconstruction, of a business already in
existence.
Conditions 3: No deduction under this section shall be allowed to an assessee who does not furnish
a Return of his Income on or before the due date specified under sub-section (1) of section 139.
Conditions 4: Should not be formed as a result of the re-establishment, reconstruction or revival by
the assesse of the business of any such undertaking
Conditions 5: it is not formed by the transfer to a new business of machinery or plant previously
used for any purpose.
Conditions 6 This section applies to the undertaking, if the sale proceeds of articles or things or
computer software exported out of India are received in, or brought into India by the assesse in
convertible foreign exchange, within a period of six months from the end of the previous year or,
within such further period as the competent authority may allow in this behalf.
Conditions 7: Audit Report should be submitted in Form No. 56G.