What is this section is all about -

Section 80L A

Deductions in respect of
incomes of Offshore Banking Units &
International Financial Services Centre
Some Terms -

Off shore Banking unit –

Branch of a foreign bank located in an offshore financial center (OFC). It may

accept deposits from other foreign banks and OBUs and make Eurocurrency loans,
but may not accept deposits from (or make loans to) the residents of the country
in which it is located. OBUs are otherwise unrestricted in their legitimate activities,
and are free from the monetary controls of the country of location.

International Financial Services Center -

City or its district

(1) that has a heavy concentration of financial institutions,
(2) that offers a highly developed commercial and communications infrastructure
(3) where a great number of domestic and international trading transactions are
conducted. London, New York, and Tokyo are the world's premier financial centers.
 Some Terms -

• Special Economic Zone (SEZ) -

Designated areas in countries that possess special economic regulations that are different from
other areas in the same country. Moreover, these regulations tend to contain measures that are
conducive to foreign direct investment. Conducting business in a SEZ usually means that a
company will receive tax incentives and the opportunity to pay lower tariffs.

• Scheduled Bank –

Scheduled Banks in India constitute those banks which have been included in the Second
Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in
this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.
Scheduled commercial banks in India comprise of State bank of India and its associates (8),
nationalised banks (19), foreign banks (45), private sector banks (32), co-operative banks and
regional rural banks.
Who is eligible -

(i) Scheduled bank, or, any bank incorporated by or

under the laws of a country outside India; and having
an Offshore Banking Unit in a Special Economic
Zone;
or
(ii) Unit of an International Financial Services Centre,
Income of the assessee from -

• From an Offshore Banking Unit in a SEZ.

OR
• From the business referred to in sub-section (1) of section
6 of the Banking Regulation Act, 1949 with an
undertaking located in a SEZ; OR any other undertaking
which develops, operates and maintains a SEZ
OR
• From any Unit of the International Financial Services
Centre from its business for which it has been approved
for setting up such a Centre in a SEZ.
Deduction of income -

Amount Equal to :

• 100% of such income for 5 consecutive assessment years beginning

with the assessment year relevant to the previous year in which
 the permission,
under 23(1)(a) of the Banking Regulation Act, 1949 or
 permission or registration under the Securities and
Exchange Board of India Act, 1992 or
 any other relevant law was obtained, and thereafter;

• 50% of such income for next 5 consecutive assessment years.

Return of income -Documents

No deduction under this section shall be allowed unless the

assessee furnishes along with the return of income,—

• The report, in the form specified by the Central Board of Direct

Taxes under clause (i) of sub-section (2) of section 80LA, as it stood
immediately before its substitution by this section, of an 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; and

• A copy of the permission obtained under clause (a) of sub-section

(1) of section 23 of the Banking Regulation Act, 1949.
SEZ Locations in India -

SEZ Projects in India

• Presently around fourteen major special economic zones functional in India:

Santa Cruz, Mumbai, Maharashtra

• Cochin, Kerala
• Kandla And Surat in Gujarat
• Chennai, Tamil Nadu
• Vishakhapatnam, Andhra Pradesh
• Falta And Salt Lake in West Bengal
• Noida, Greater Noida in Uttar Pradesh
• Indore, Madhya Pradesh
• Jaipur, Rajasthan
Case Study -

• HDFC Bank was formed in Hinjwadi – Pune in 1999.

Hinjwadi was declared as a SEZ in 2002.

Assessment year 2001 – 2002 Assessment year 2010 – 2011

Total Income 20,00,000 Total Income 50,00,000

Total Expenses 50,000 Total Expenses 5,000,00
Profit 15,00000 Profit 45,00000
Exemption 2,000,00 Exemption 5,000,00
Other Taxes Paid 3,000,00 Other Taxes Paid 10,000,00
Total taxable Income 10,00000 Total taxable Income 30,000,00

Tax Benefit = 0 Tax Benefit = 100%

Case Study -

Assessment year 2011 – 2012

Total Income 40,00,000

Total Expenses 2,000,00
Profit 38,000,00
Exemption 8,000,00
Other Taxes Paid 5,000,00
Total taxable Income 25,000,00

Tax Benefit = ?

Assuming the above calculations for HDFC Bank in a non SEZ location.
What would be the Tax Benefit ?