Tax Planning through Investments
SECTION 10AA
SPECIAL PROVISIONS IN
RESPECT
OF NEWLY ESTABLISHED
UNITS IN
SPECIAL ECONOMIC ZONES
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
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MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(A). TAXPAYER CATEGORY-SECTION 10AA
This deduction is available to all categories of taxpayers.
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Chartered Accountants
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(B). CONDITIONS - SECTION 10AA
(1). Assessee is an entrepreneur as referred to in clause (j) of section
2 of the Special Economic Zones Act, 2005
(2). Assessee has income from export, of articles or things or from
services
(3). Commencement of operations criteria — Assessee begins to
manufacture or produce articles or things or provide any services
during the previous year on or after 1 April, 2005.
(4 ) .New Business undertaking criteria — Eligible Undertaking
shall not be formed by splitting up, or the reconstruction, of a business
already in existence. However, this condition shall not apply in respect
of an undertaking which is formed as a result of the re-establishment,
reconstruction or revival by the assessee of the business of any such
undertaking as is referred to in section 33B.
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Chartered Accountants
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(B). CONDITIONS - SECTION 10AA
(5). New Plant and Machinery criteria — Eligible Undertaking shall
not be formed by the inward transfer to a new business of machinery
or plant
previously used for any purpose.
This condition shall be deemed to be complied with if value of used
machinery or plant or any part thereof transferred to a new business
does not exceed 20% of the total value of the machinery or plant used
in the business.
Any machinery or plant 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:
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Chartered Accountants
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(B). CONDITIONS - SECTION 10AA
(i)
Such machinery or plant was not, at any time previous to the date
of the installation by the assessee, used in India;
(ii) Such machinery or plant is imported into India from any country
outside India; and
(iii) 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 in computing the total income of any person for
any period prior to the date of the installation of machinery or plant by
the assessee.
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Chartered Accountants
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(B). CONDITIONS - SECTION 10AA
(6) Amalgamation or Demerger criteria — Where any undertaking
of an Indian company which is entitled to the deduction under this
section is transferred, before the expiry of the period specified in this
section, to another Indian company in a scheme of amalgamation or
demerger
(a) Amalgamating or the Demerged company — No deduction
shall be admissible under this section to the amalgamating or the
demerged company for the previous year in which the amalgamation
or the demerger takes place; and
(b) Amalgamated or the Resulting company — Deduction shall be
admissible under this section to the amalgamated or the resulting
company for the unexpired period of deduction.
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(B). CONDITIONS - SECTION 10AA
(7).Depreciation criteria — Written down value of any asset used for
the purposes of the business of the undertaking shall be computed as
if the assessee had claimed and been actually allowed the deduction
in respect of depreciation under Section 32 for each of the relevant
assessment year.
(8) .Carry forward and set-off of losses and unabsorbed
depreciation criteria — Unabsorbed depreciation, unabsorbed
capital expenditure on scientific research or unabsorbed family
planning expenditure will be carried forward and set-off as per the
provisions of income tax act normally. Similarly brought forward
losses under section 72(1), 74(1) and 74(3) will also be carried
forward and set-off as per the provisions of income tax act normally.
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Chartered Accountants
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(B). CONDITIONS - SECTION 10AA
(9)Audit of Accounts criteria — The deduction shall not be
admissible unless the accounts of the undertaking audited by an
accountant for the previous year for which the deduction is claimed.
Report of such audit is to be furnished in the Form no. 56F duly
signed and verified by such accountant. This report shall be
accompanied by the Profit and Loss Account and Balance Sheet of
the undertaking or enterprise as if the undertaking or the enterprise
were a distinct entity.
(10)Dual deduction is not allowed criteria — No deduction shall
be allowed under section 80-IA or section 80-IB in relation to the
profits and gains of the undertaking.
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Chartered Accountants
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(B). CONDITIONS - SECTION 10AA
(11)Inter-unit transaction at market value as per Section 80A(6)
criteria — Where any goods or services held for the purposes of the
undertaking or unit or enterprise or eligible business are transferred to
any other business carried on by the assessee or where any goods or
services held for the purposes of any other business carried on by the
assessee are transferred to the undertaking or unit or enterprise or
eligible business and, the consideration, for such transfer as recorded in
the accounts of the undertaking or unit or enterprise or eligible business
does not correspond to the market value of such goods or services as on
the date of the transfer, then, for the purposes of any deduction under
this Chapter, the profits and gains of such undertaking or unit or
enterprise or eligible business shall be computed as if the transfer, in
either case, had been made at the market value of such goods or
services as on that date.
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Chartered Accountants
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(B). CONDITIONS - SECTION 10AA
(12)Transaction between closely connected assessee criteria —
Where it appears to the assessing officer that, owing to the close
connection between the assessee carrying on the eligible business
and any other person, that the business transacted between them
produces more than the ordinary profits to such eligible business, the
Assessing Officer shall, in computing the profits and gains of such
eligible business for the purposes of the deduction under this section,
take the amount of profits as may be reasonably deemed to have
been derived there from.
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Chartered Accountants
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(C). AMOUNT OF DEDUCTION SECTION 10AA
Deduction of profits and gains derived from the export of such articles or
things or from services
100%
Period
For a period of 5 consecutive assessment years.
50%
Next 5 consecutive assessment years.
50%
Next 5 consecutive assessment years.
On the condition that: Such Profit is credited to Special Economic Zone
Re-investment Allowance Reserve Account. Deduction shall be allowed
only if the following conditions are fulfilled:
(a) The amount credited to the Special Economic Zone Re-investment
Allowance Reserve Account is to be utilized
(i) For the purposes of acquiring new machinery or plant which is first
put to use before the expiry of a period of three years next
following the previous year in which the reserve was created; and
(ii) Until the acquisition of new machinery or plant as aforesaid, for
the purposes of the business of the undertaking other than for
distribution by way of dividends or profits or for remittance
outside India as profits or for the creation of any asset outside
India.
(b) The particulars, as may be prescribed in prescribed Form have been
furnished by the assessee.
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(D). CALCULATION OF ‘PROFITS DERIVED
FROM EXPORTS’ SECTION 10AA
Profits derived from export of articles or things or computer
software or from services shall be the amount which bears to the
profits of the business of the undertaking, the same proportion as the
export turnover in respect of such articles or things or computer
software or from services bears to the total turnover of the business
carried on by the undertaking.
In other words formula for calculating Profits derived
from exports shall be
Export Turnover of the undertaking to which section 10AA applies X Profits of such undertaking
Total Turnover of the undertaking to which section 10AA applies
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Chartered Accountants
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(E). MEANING – SECTION 10AA
i)
‘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.
Ii)
‘Export in relation to the Special Economic Zones’ means
taking goods or providing services out of India from a Special
Economic Zone by land, sea, air, or by any other mode, whether
physical or otherwise.
.
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Chartered Accountants
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(E). MEANING – SECTION 10AA
iii)
‘Manufacture’ shall have the same meaning as assigned to it in
clause (r) of section 2 of the Special Economic Zones Act, 2005.
iv) ‘Special Economic Zone and Unit’ shall have the same meanings
as assigned to them under clauses (za) and (zc) of section 2 of
the Special Economic Zones Act, 2005
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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THANK YOU
Your comments and suggestions are of utmost
importance and are always welcomed.
CA. Rajat Mohan
B.Com(H), ACA, ACS, DISA
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
Head Office
F-31 D.B. Gupta Market, Karol Bagh, New Delhi-110005
Office Phone: 011-23672609 / 23535809
Branch Office
18A, IInd Floor, North Avenue Road, West Punjabi Bagh, New Delhi-110026
office Phone: 011-47322696/97
Website: www.delhicamohan.com
E-mail: rajat.mohan@icai.org
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