SPECIAL
ECONOMIC ZONESFISCAL BENEFITS
Rajkumar S. Adukia
09323061049/093221 39642
radukia@vsnl.com
rajkumarfca@gmail.com
http://www.carajkumarradukia.com
©Rajkumar S.Adukia
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Agenda
 Special Fiscal Provisions relating to SEZ
 Bond cum Legal Undertaking
 Income Tax
 Service tax
 FEMA
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Fiscal Benefits available to SEZ
Income Tax
Exemptions of
tax ,duties or
cess in 21
Acts
Cenvat
Customs
VAT
Central Sales tax
Service Tax
Securities
Transaction Tax
Stamp Duty
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Fiscal Provisions for SEZ
 Chapter VI of Special Economic Zones Act ,2005 (Section 26 to
Section 30) relates to “Special Fiscal Provisions for SEZ”

Chapter IV of Special Economic Zones Rules, 2006 (Rule 22 to Rule
46) relates to “Terms and conditions subject to which entrepreneur
and developer shall be entitled to exemptions, drawbacks and
concessions”
 Chapter V of Special Economic Zones Rules, 2006 (Rule 47 to Rule
52) relates to “conditions subject to which goods may removed from
Special Economic Zones to DTA”
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Exemption available to Sub
contractor also – Rule 10
 Exemptions, drawbacks and concessions on the goods
and services allowed to a Developer or Co-developer will
also be available to the contractors appointed by such
Developer or Co-developer
 All the documents in such cases should bear the name of
the Developer or Co-developer along with the contractor
 Documents should be filed jointly in the name of the
Developer or Co-developer and the contractor:
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Exemption from
taxes,duties or cess- Sec 7
Sec 7 of The Special Economic Zones Act,2005 Any goods or services exported out of, or imported into,
or procured from the Domestic Tariff Area by, -
(i) a Unit in a Special Economic Zone; or
(ii) a Developer;
shall, subject to such terms, conditions and limitations, as
may be prescribed, be exempt from the payment of taxes,
duties or cess under all enactments specified in the First
Schedule.
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First Schedule to The Special
Economic Zones Act, 2005
1. The Agricultural Produce Cess Act, 1940
2. The Coffee Act, 1942
3. The Mica Mines Labour Welfare Fund Act, 1946
4. The Rubber Act, 1947
5. The Tea Act, 1953 .
6. The Salt Cess Act, 1953 .
7. The Medicinal and Toilet Preparations (Excise Duties) Act,
1955 .
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First Schedule to Special
Economic Zones Act, 2005
8. The Additional Duties of Excise (Goods of Special
Importance) Act, 1957
9. The Sugar (Regulation of Production) Act, 1961
10. The Textiles Committee Act, 1963
11. The Produce Cess Act, 1966
12. The Marine Products Export Development Authority Act, 1972
13. The Coal Mines (Conservation and Development Act, 1974 .
14. The Oil Industry (Development) Act, 1974 .
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First Schedule to Special
Economic Zones Act, 2005
15. The Tobacco Cess Act, 1975
16. The Additional Duties of Excise (Textile and Textile
Act, 1978
Articles)
17. The Sugar Cess Act, 1982
18. The Jute Manufactures Cess Act, 1983
19. The Agricultural and Processed Food Products Export Cess
Act, 1985
20. The Spices Cess Act, 1986
21. The Research and Development Cess Act, 1986
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1.The Agricultural Produce Cess Act,
1940
 Act to make better financial provision for the Indian
Council of Agricultural Research
 It impose on certain articles a cess by way of customs
duty at the rate of .5% on export, the proceeds of which
shall be paid to the Council.(Sec 3)
 It imposes cess on 21 items which are as under
Bones,bristles,butter,cereals other than rice and
wheat,drugs,fibre for brushes, fish, fruits, ghee, hides,
manures,oilcakes,pulses,seeds,skins,spices,tobacco,
vegetables,wheat,wheat flour,wool,
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2.The Coffee Act, 1942
 A duty of excise is levied at rate not exceeding Rs 6 per
100 weight as may be fixed by the Central Government
on all coffee
 A duty of customs is levied on all code produced in India
and exported from India at rate not exceeding Rs 6 per
100weight as may be fixed by the Central Government
(sec 11)
 The proceeds of the duty of customs and of the duty of
excise reduced by the cost of collection is paid to the the
Indian Coffee Market Expansion Board (Sec 13)
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3. The Mica Mines Labour Welfare
Fund Act, 1946
 An Act to constitute a fund for the financing of activities
to promote the welfare of labour employed in the mica
mining industry.
 A duty of customs is levied on all mica exported at such
rate, not exceeding 6.25 % ad valorem, as may from time
to time be fixed by the Central Government (Sec 2)
 Proceeds of the duty of customs recovered is paid to the
credit of Mica Mines Labour Welfare Fund (Sec 2)
 Fund utilise the money to promote the welfare of labour
employed in the mica mining industry
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4. The Rubber Act, 1947
 Act for the development of the rubber industry
 A duty of excise is levied on all rubber produced in lndia
at such rate not exceeding Rs 2 per kg of rubber as the
Central Government may fix.(Section 12(1)
 The proceeds of the duty of excise collected under this
section reduced by the cost of collection is first credited
to the Consolidated Fund of lndia
 Amount collected Paid by the Central Government to the
Rubber Board for being utilised for the purpose of this
Act (Section 12(7)
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5. The Tea Act, 1953 .
 An Act to Provide for the control by the Union of the tea
industry, including the control, in pursuance of the
International Agreement now in force, of the cultivation
of tea in, and of the export of tea from, India and for that
purpose to establish a Tea Board and levy a customs duty
on tea exported from India.
 Customs duty- on tea exported or taken outside India at
such rate not exceeding Rs 2 per 100 pounds as the
Central Government may notify in the Official Gazette
(Sec 25)
 The proceeds of the cess levied under is first credited to
the Consolidated Fund of India and the Central
Government may pay©Rajkumar
to the S.Adukia
Tea Board (Sec 26)
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6. The Salt Cess Act, 1953 .
A cess in the nature of excise duty is levied on all salt
manufactured
(a) in the case of salt manufactured in a private salt factory,
at the rate of two annas per standard maund
(b) in the case of salt manufactured in a salt factory solely
owned or solely worked by the Central Government at
the rate of three and a half annas per standard maund
(Section 3)
It is used to meet the expenses incurred on the salt
organisation maintained by Government and on the
measures taken by Government in connection with the
manufacture, supply and distribution of salt.
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7. The Medicinal and Toilet
Preparations (Excise Duties)
Act, 1955
 An Act for the levy and collection of duties of excise on
medicinal and toilet preparations containing alcohol,
opium, Indian hemp or other narcotic drug or narcotic.
 Toilet preparation means any preparation which is
intended for use in the toilet of the human body or in
perfuming apparel of any description, or any substance
intended to cleanse, improve or alter the complexion,
skin, hair or teeth, and includes deodorants and perfumes
(Section 2(k))
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7. The Medicinal and Toilet
Preparations (Excise Duties) Act,
1955 Schedule contd..
Description of dutiable goods Rate of duty
Medicinal and toilet
reparations, containing
alcohol,
Rupees seventeen and ann as eight
per gallon of the strength of London
proof Spirit.
Ayurvedic preparations
Rupees three per gallon
containing self generated
Alcohol, which are capable
of being consumed as
ordinary alcoholic beverages.
All other Medicinal and toilet Rupees five per gallon of the
reparations not otherwise
strength of London proof spirit.
specified containing alcohol
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8. The Additional Duties of Excise (Goods
of Special Importance) Act, 1957
 A duty of excise at the rate or rates specified in the First
Schedule to this Act in respect of the following
goods,namely, sugar, tobacco, cotton fabrics, rayon or
artificial silk fabrics and woolen fabrics produced or
manufactured in India
 The duties of excise shall be in addition to the duties of
excise chargeable on such goods under the Central
Excises and Salt Act, 1944 (Section 3)
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9. The Sugar (Regulation
of Production) Act, 1961
 Where the quantity of sugar produced in a factory during
any year exceeds the permissible quota fixed for it for
that year
 there shall be levied and collected on the quantity of
sugar which is produced in excess of the permissible
quota
 a special duty of excise at the rate at which the duty of
excise is chargeable on sugar under the Central Excises
Act
 The special duty of excise shall be in addition to the duty
of excise chargeable on sugar under the Central Excises
Ac
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10. The Textiles Committee
Act, 1963
 An Act to provide for the establishment of a Committee
for ensuring the quality of textiles and textile machinery
and for matters connected therewith.
 The Committee may levy such fees as may be
prescribed-(a) For inspection and examination of textiles,
(b) For inspection and examination of textile machinery,
(c) for any other service which the Committee may render
to the manufacturers of textiles and textile machinery
(Section 12)
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11.The Produce Cess Act, 1966
 An Act that provides for the imposition of cess on certain
produce for the improvement and development of the
methods of cultivation and marketing of such produce
and for matters connected therewith
 A cess is levied for the purposes of this Act on every
produce specified First Schedule, which is exported from
any customs port to any port beyond the limits of India, a
duty of customs at such rate, not exceeding the rate
specified in the First Schedule
 A cess is levied for the purposes of this Act, on every
produce specified in the Second Schedule, a duty of
excise at such rate, not exceeding the rate specified in
Second Schedule (Section 3)
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12. The Marine Products Export
Development Authority Act, 1972
 An Act to provide for the establishment of an Authority
for the development of the marine products industry
 A cess is levied on all marine products which are
exported at rate not exceeding 3% as the Central
Government decide (Sec 14(1))
 The cess levied shall be in addition to any access or duty
leviable on marine products under any other law for the
time being in force. (Sec 14(2))
 The proceeds of the cess is first credited to the
Consolidated Fund of India and the Central Government
pay to the Marine Products Export Development
Authority from out of such proceeds, after deducting the
expenses (Sec 15) ©Rajkumar S.Adukia
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13. The Coal Mines
(Conservation and
Development Act, 1974
• An Act to provide for the conservation of coal and
development of coal mines and for matters connected
therewith or incidental thereto.
• Excise Duty - on all coal raised and despatched, and on
all coke manufactured and despatched, from the collieries
in India at the rate not exceeding Rs 10 per tonne (sec 6)
• Custom duty - on all coal (including soft and hard coke),
imported or brought into India from any place outside
India, a duty of customs at the rates equivalent to the rates
of duty of excise (sec 7)
• Amount collected shall be disbursed by the Central
Government to the owners, agents or managers of coal
mines (Sec 9)
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14. The Oil Industry
(Development) Act, 1974 .
 An Act to provide for the establishment of a Board for the
development of oil industry and for that purpose to levy a
duty of excise on crude oil and natural gas and for matters
connected therewith.
 Excise duty- on every item specified in column 2 of the
Schedule at such rate not exceeding the rate set forth in
the corresponding entry in column 3 of the Schedule (Sec
15)
 The proceeds of the duties of excise levied under shall
first be credited to the Consolidated Fund of India and the
Central Government pay to the Oil Industry Development
Fund (sec 16)
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15. The Tobacco
Cess Act, 1975
 An Act to provide for the Levy and collection, by way of
cess, of a duty of excise on virginia tobacco and a duty of
customs on tobacco, for the development of tobacco
industry
 Excise duty-at the rate of 1 paisa per kg on virginia tobacco
which is produced in India and sold at a registered auction
platform. (Sec 3)
 customs duty -at rate not exceeding 1% ad valorem, as the
Central Government may specify on all tobacco which is
exported.(Sec 4)
 The proceeds shall first be credited to the Consolidated
Fund of India and the Central Government may pay to the
Board, for utilised for the purposes of the Tobacco Board
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Act, 1975 (Sec 5)
16. The Additional Duties
of Excise (Textile and Textile
Articles) Act, 1978
 An Act to provide for the levy and collection of
additional duties of excise on certain textiles and textile
articles
 Excise duty-Goods of the description mentioned in the
Schedule are chargeable to duty equal to 10% of the
total amount chargeable on such goods. (Sec 3)
 Items in schedule are Man-made fibres , Cotton yarn ,
Woolen and acrylic spun yarn, Non-cellulosic spun
yarn,Cotton fabrics, Silk fabrics, Woolen fabrics, Manmade fabrics, Wool tops.
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17. The Sugar Cess Act, 1982
 An Act to provide for the imposition of a cess on sugar
for the development of sugar industry and for matters
connected therewith
 A cess is levied for the purposes of the Sugar
Development Fund Act, 1982, a duty of excise on all
sugar produced any sugar factory in India, at such rate not
exceeding Rs 15 per quintal of sugar (Sec 3)
 The proceeds of the duty of excise levied under section 3
shall be credited to the Consolidated Fund of India
(Sec 4)
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18. The Jute Manufactures
Cess Act, 1983
 An Act to provide for the levy and collection, by way of
cess, of a duty of excise on jute manufactures for the
purpose of carrying out measures for the development of
production of jute manufactures
 Cess is levied on every article of jute manufacture
specified in column 2 of the Schedule and produced in
India by a duty of excise at such rate not exceeding the rate
specified in the corresponding entry in column 3 thereof
(Sec 3)
 The proceeds of the duty of excise levied shall first be
credited to the Consolidated Fund of India and the Central
Government may pay to the Jute Manufactures
Development Council for the purposes of the Jute
Manufactures Development Council Act, 1983 (Sec 4)
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19. The Agricultural and
Processed Food Products
Export Cess Act, 1985
 An Act to provide for the levy and collection, by way of a
cess, of a duty of customs on the export of certain
agricultural and processed food products for the
development and promotion of their export
 Custom duty- at a rate not exceeding 3% by way of a cess
on all Scheduled products, which are exported.
(Sec 3)
 The proceeds of the duties of customs levied shall first be
credited to the consolidated Fund of India and the Central
Government may pay to the Agricultural and Processed
Food Products Export Development Authority (Sec 4)
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20. The Spices
Cess Act, 1986
 An Act to provide for imposition of cess on all spices
which are exported for the purposes of carrying out
measures for the development of export of spices.
 customs duy-on spices at such rate not exceeding 5% , ad
valorem (Sec 3)
 proceeds of the duty of customs levied credited to the
consolidated Fund of India and the Central Government
may pay for the purposes of the Spices Board Act, 1986
(Sec 3)
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21. The Research and
Development
Cess Act, 1986
 An Act to provide for the levy and collection of a cess on
all payments made for the import of technology for the
purposes of encouraging the commercial application of
indigenously developed technology and for adapting
imported technology to wider domestic application
 a cess is levied at such rate not exceeding five per cent,
on all payments made towards the import of technology
(Sec 3)
 The proceeds of the cess levied and collected shall first be
credited to the Consolidated Fund of India and the Central
Government may pay to the Technology Development
Board constituted under the Technology Development
Board Act, 1995 for the purposes of the Board
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(Sec 4)
Terms and conditions for availing
exemptions, drawbacks and concessions
(Rule 22(1) )
(i) The Unit shall execute a Bond-cum-Legal Undertaking in Form H,
with regard to its obligations regarding proper utilization and
accountal of goods and regarding achievement of positive net
foreign exchange earning;
(ii) The Developer and Co-Developer shall execute the Bond-cumLegal Undertaking in Form D with regard to their obligations
regarding proper utilization and accountal of goods
(iii) The Bond-cum-Legal Undertaking shall be jointly accepted by
Development Commissioner and by the Specified Officer:
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Activities covered in Bond-cum-Legal
Undertaking (Rule 22(1)(iii) )
(a)
the movement of goods between port of import or export and the
Special Economic Zone;
(b)
the authorized operations, as applicable to Unit or Developer;
(c)
temporary removal of goods or goods manufactured in Unit for
the purposes of repairs or testing or calibration or display or
processing or sub-contracting of production process or production
or other temporary removals into Domestic Tariff Area without
payment of duty
(d)
re-import of exported goods.
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Responsibility for Execution of Bond cum-Legal
Undertaking
(Rule 22(1)(iv))
Status of
entrepreneur or
Developer
company
Responsibility
Hindu Undivided Family
Managing Director of the
company or any other
authorized person
all the partners or authorized
partner(s);
Karta
proprietorship concern
proprietor
partnership firm
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Value of Bond-cum-Legal Undertaking
Rule 22(1)(iv))
 Equal to the amount of effective duties leviable on import or
procurement from the Domestic Tariff Area of the projected
requirement of capital goods, raw materials, spares,
consumables, intermediates, components, parts, packing
materials for three months
 The Bond-cum-Legal Undertaking
amount shall be monitored quarterly
or yearly on the basis of Quarterly
Progress Report or Annual Progress Report
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An Exception- Rule 27(3)
Any goods for the personal use of or consumption by
officials,workmen, staff, owners or any other person in relation to a
Unit or Developer, shall not be eligible for exemptions, drawbacks
and concessions or any other benefit
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Income Tax
Benefits
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Relevant Sections in
Income Tax Act,1961
S.No Section
Description
1
10(15)(viii)
Interest received on deposit with Offshore
Banking Unit is exempt
2
10AA
Exemption to newly established Units in SEZ
3
54GA
Exemption of Capital gain on transfer of
asset in case of shifting of Industrial
Undertaking from Urban Area to SEZ
4
80-IAB
Deduction is respect of profits and gains in
development of SEZ
5
80LA
Deduction from income of OBU and IFSC
6
115JB(6)
Non applicability of MAT to SEZ
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Relevant Sections in Income
Tax Act,1961
S.No
Section
Description
7
115-O
Exemption from dividend distribution
tax in respect of income of SEZ
8
197A
No TDS on interest on deposits made
with OBU by Non-resident or person
not ordinary resident in India
Changes in the Income Tax Act 1961 relating to SEZ made
by
Special Economic Zones Act 2005 w.e.f 10/02/2006
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Exemption to newly established
Units in SEZ
- Section 10AA
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 Exemption to Unit who begins to manufacture or produce articles
or things or provide any services during the PY relevant to any AY
commencing on or after 01.04.2006
 Deduction – Total 15 Years
 100% of Profits from export
for 5 consecutive years
 50% of Profits from exports
for further 5 assessment years
 50% of Profits for as credited to “Special Economic Zone Reinvestment Reserve Account” for next 5years
 Absence of restrictive proviso in new Sec. 10AA dealing with
Reconstruction, reconstitution of business in existence
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Use of Special Economic Zone Reinvestment Reserve Account
( S 10AA(2(a))
 Acquiring machinery or plant
 Until the acquisition of the machinery or plant 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;
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Mis-use of Special Reserve Account
( S 10AA(3))
 If the Special Reserve Account is misutilised, then the deduction
would be taken back in the year in which the Special Reserve
Account is misutilised.
 If the Special Reserve Account is not utilised for acquiring new plant
and machinery within three years as stated above then the deduction
would be taken back in the year immediately following the period of
three years.
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Consequences for merger and
demerger ( S 10AA(5))
 Where an undertaking is transferred to another company under a
scheme of amalgamation or demerger, the deduction under
section 10AA shall be allowable in the hands of the amalgamated
or the resulting company.
 However, no deduction shall be admissible under this section to
the amalgamating company or the demerged company for the
previous year in which amalgamation or demerger takes place.
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Exemption of
Capital Gain
on Shifting to SEZ
-Sec 54GA
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Exemption of capital gains on transfer of assets in cases of
shifting of industrial undertaking from urban area to any
Special Economic Zone.
 The exemption is available to all categories of assesses on
capital gain arising on the transfer of certain capital asset of
industrial undertaking from urban area to SEZ. (whether
developed in an urban area or not)
 The Asset transferred should be machinery or plant or building
or land or any rights in building or land
 The capital gain should be utilized within one year before or
three years after the date of transfer for the specified purpose.
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Specified Purpose- 54GA
contd..
(i) purchased machinery or plant
(ii) acquired building or land or constructed building
(iii) shifted the original asset and transferred the establishment of
such undertaking to the Special Economic Zone; and
(iv) incurred expenses on such other purposes as may be specified
in a scheme framed by the Central Government for the
purposes of this section.

The amount of capital gain which is not so utilised for the
specific purposes should be deposited in an account with any
specified bank or institution and utilised in accordance with
the scheme notified by the Central Government
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Quantum Of Deduction
-Sec 54GA contd..
Situation
Result
Amount of Capital Gain < = Cost
and expenses
incurred for specified Purposes
Entire Capital Gain exempt
Amount of Capital Gain > Cost and Exemption: to the extent of cost
expenses incurred
for and expenses incurred
specified Purposes.
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Definition of Urban area
 Urban area means any such area within the limits of a
municipal corporation or municipality as the Central
Government may, having regard to the population,
concentration of industries, need for proper planning of
the area and other relevant factors, by general or special
order, declare to be an urban area for the purposes of this
sub-section.
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Deduction in respect
of profits
by SEZ Developer
-Sec 80 IAB
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Deductions in respect of profits and gains from industrial
undertakings or enterprises engaged in development of
Special Economic Zone.
 An undertaking which develops a special Economic Zone
notified on or after 1.4.2005 will not be eligible to claim
deduction under section 80-IA.but will now be claiming
deduction under new section 80 – IAB.
 Available to an assessee , being a Developer whose gross
total income, includes any profit and gains derived by an
undertaking or an enterprise from any business of
developing a special Economic Zone , notified on or after
1.4.2005 under Special Economic Zones Act,2005
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QUANTUM OF DEDUCTION
- Sec 80 IAB
contd..
 A deduction of an amount equal to 100% of the profits and gains
derived from such business for 10 consecutive assessment years.

The assessee has the option of claiming the said deduction for any 10
consecutive assessment years out of 15 years beginning from the
year in which a SEZ has been notified by the Central Government
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Transfer of Undertaking
 If a taxpayer who develops a special economic zone on or after April
1, 2005 (“transferor”) transfers the operation/maintenance of such
zone to another developer (“transferee”), then deduction shall be
allowed to the transferee for the remaining period of 10 years as if the
operation and maintenance were not so transferred.
 Similar rule will be applicable in the case of amalgamation of an
Indian company which has developed a special economic zone with
another Indian company.
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No Tax
on Distributed Profits
-Sec 115O(6)
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No tax on dividends would be chargeable in respect of the total
income of an undertaking or enterprise engaged in
(a) developing a SEZ or
(b) developing and operating a SEZ or
( c) developing, operating and maintaining a SEZ
 IF such dividend (whether interim or otherwise) is declared,
distributed or paid by such Developer or enterprise, on or after
the 1st day of April, 2005 out of its current income
 No tax either in the hands of the Developer or enterprise or
person receiving such dividend
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OTHER RELATED
INCOME TAX
PROVISIONS
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Industrial park scheme
 The Central Government framed the scheme for industrial parks,-Industrial
Park Scheme, 2002 in exercise of the powers conferred by clause (iii) of subsection (4) of section 80 IA of the Income-tax Act, 1961
 scheme was applicable for any undertaking which develops, develops and
operates or maintains and operates an Industrial Park for the period
beginning on the 1st day of April, 1997 and ending on the 31st day of March,
2006
 this has been extended up to 31.03.2009 by the Finance Act,2006
 Eligibility- deduction of 100 % profits derived from such business for ten
consecutive years.
 Assessee can claim deduction for any ten consecutive years out of fifteen
years beginning from the year in which the undertaking
develops/operates/maintains the Industrial park.
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Investors in SEZ
 Exemption is provided to investors in special economic
Zones under Sec 10 (23G) of the Income Tax Act, 1961.
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Undertaking developing and
building housing projects
 Sec 80- IB (10) - Deduction in respect of profits and gains from certain
industrial undertakings other than infrastructure development
undertakings
 Deduction: For projects approved before the 31st day of March, 2007 by a local
authority shall be hundred per cent of the profits derived in the previous year
relevant to any assessment year from such housing project
 Conditions:
(a) Such undertaking has commenced or commences development and construction
of the housing project on or after the 1st day of October, 1998 and completes
such construction,
(i) In a case where a housing project has been approved by the local authority
before the 1st day of April, 2004, on or before the 31st day of March, 2008;
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(ii) in a case where a housing project has been, or, is approved by the local
authority on or after the 1st day of April, 2004, within four years from the
end of the financial year in which the housing project is approved by the
local authority.
(b) The project is on the size of a plot of land which has a minimum area of one
acre:
(c) the residential unit has a maximum built-up area of one thousand square feet
where such residential unit is situated within the city of Delhi or Mumbai or
within twenty-five kilometres from the municipal limits of these cities and
one thousand and five hundred square feet at any other place; and
(d) The built-up area of the shops and other commercial establishments included
in the housing project does not exceed five per cent of the aggregate built-up
area of the housing project or two thousand square feet, whichever is less.]
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Special provisions in
respect of certain
undertakings or
enterprises in certain
special category
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Special category states








Arunachal Pradesh
Assam
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura
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Undertaking
Sikkim/
Any
N.E.States
Himachal
Pradesh/Uttaranchal
• manufactures
or produces any
article or thing,
not being any
article or thing
specified in the
Thirteenth
Schedule
• manufactures or
produces any
article or thing,
specified in the
Fourteenth
Schedule
one hundred per
cent of such
profits and gains
for ten
assessment years
commencing with
the initial
assessment year;
one hundred per cent of such profits
and gains for five assessment years
commencing with the initial assessment
year and thereafter, twenty-five per cent
(or thirty per cent where the assessee is
a company) of the profits and gains.
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Undertaking must manufacture in any Export Processing
Zone or Integrated Infrastructure Development Centre or
Industrial Growth Centre or Industrial Estate or Industrial
Park or Software Technology Park or Industrial Area or
Theme Park
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Benefits to OBU
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Interest Income from OBU is exempt
In computing the total income of previous year of any person any
income by way of interest received by
1.
Non resident or
2.
a person who is not ordinarily resident in India
on a deposit made on or after the 1st day of April, 2005, in an
Offshore Banking Unit
shall not be included (Section 10(15)(viii))
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Deductions in respect of certain
incomes of Offshore Banking Units
and International Financial
Services Centre 80LA
Assesses covered
(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,
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Amount of deduction-Sec 80LA(1)
(a) 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 (15 of 1992) or
 any other relevant law was obtained, and thereafter;
(b) 50% of such income for next 5 consecutive assessment
years.
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Income Exempted-Sec 80LA(2)
Income refers to income :
(a) from an Offshore Banking Unit in a Special Economic Zone;
or
(b) from the business referred to in Section 6(1) the Banking
Regulation Act, 1949 with an undertaking located in a Special
Economic Zone or any other undertaking which develops,
develops and operates or develops, operates and maintains a
Special Economic Zone; or
(c) from any Unit of the International Financial Services Centre
from its business for which it has been approved for setting up
in such a Centre in a Special Economic Zone.
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80LA….
 A report from a Chartered Accountant in Form No. 10CCF certifying
that the deduction has been correctly claimed in accordance with the
provisions of this section should be submitted along with the return
of income.
 A copy of permission obtained under section 23(1)(a) of Banking
Regulation Act should be submitted along with the return of income.
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Case Laws
Courts and Tribunals have held that the requirement to file the report
along with the return of Income is directory and not mandatory
Citation: 251 ITR 693- Commissioner of Income-tax vs. Hemsons
Industries (Andhra Pradesh High Court)
“ The mere fact that the assessee failed to enclose the audit report along
with the return itself would not disentitle him to claim the benefit,
and, on the other hand, if he files the audit report before the
assessment order is passed, he will be entitled to the deduction “
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No deduction of Tax –197A(1C)
No deduction of tax shall be made by the Offshore Banking Unit from
the interest paid
(a)
on deposit made on or after the 1st day of April, 2005, by a nonresident or a person not ordinarily resident in India; or
(b)
on borrowing, on or after the 1st day of April, 2005, from a nonresident or a person not ordinarily resident in India.
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Other Benefits
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Exemption from service tax
 The exemption from payment of service tax on taxable services
rendered to a Developer or a Unit
(including a Unit under construction)
 by any service provider
 shall be available for the authorized operations in a Special Economic
Zone. – Section 26(1)(e) and rule 31
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Exemption from Central Sales
tax
 Every Developer and the entrepreneur is entitled exemption from the
levy of taxes on the sale or purchase of goods other than newspapers
under the Central Sales Tax Act, 1956 if such goods are meant to
carry on the authorized operations by the Developer or entrepreneur.
– Sec 26(1)(g)
 This is subject to the condition that the dealer selling goods in the
course of inter state trade or commerce to a registered dealer under
the Central Sale Tax Act, 1956 shall furnish a declaration in Form –
I prescribed under the Central Sales Tax (Registration and Turnover)
Rules, 1957.- Proviso to Rule 32
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Changes made in Central
Sales tax,1956
 No CST shall be payable by any dealer in respect of sale of any
goods made by such dealer,
 in the course of inter-State trade or commerce,
 to a registered dealer( developer of SEZ or SEZ Unit as the case may
be)
 for the purpose of manufacture, production, processing, assembling,
repairing, reconditioning, re-engineering, packaging or for use as
trading or packing material or packing accessories in an unit located
in any special economic zone,
 if such registered dealer has been authorised to establish such unit by
the authority specified by the Central Government in this behalf.
(Development Commissioner is of SEZ is authorized to permit a
person to set up unit in SEZ)
(Section 8(6) of Central Sales Tax Act, 1956)
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Securities Transaction Tax
 Every Developer and the entrepreneur shall be entitled to exemption
from the securities transaction tax leviable under section 98 of the
Finance (No. 2) Act, 2004 in case the taxable securities transactions
are entered into by a non-resident through the International Financial
Services Centre. Sec 26(1)(f)
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Exemption from Stamp Duty
under Indian Stamp Act,1899
 Exemption from stamp duty on any instrument executed, by, or, on
behalf of, or, in favour of the Developer, or Unit or in connection
with the carrying out of purposes of the Special Economic Zone.(
Section 3 Third Proviso of Indian Stamp Act,1899)
 Effected by Change in Indian Stamp Act,1899 by Special Economic
Zones Act ,2005 Third Schedule ,Part III
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FEMA Provisions
relating to SEZ
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Foreign Direct investment

1)
2)
3)
4)
FDI is allowed through automatic route for all manufacturing
activities in SEZ except
Arms and ammunition , Explosives and allied items of defence
equipments, Defence aircrafts and warships,
Atomic substances, Narcotics and Psychotropic Substances and
hazardous Chemicals,
Distillation and brewing of Alcoholic drinks and
Cigarette/cigars and manufactured tobacco substitutes.
Item 20 of Annexure B of Schedule I of Foreign Exchange
Management( Transfer or Issue of Security by a person Resident
outside India) Regulations, 2000,
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Foreign Direct investment
contd..
 100% FDI in trading activity will not be permitted
 SEZ Unit can manufacture articles reserved for SSI even if foreign
equity exceeds 24%.No License is required (Department of Industrial
License Press Note No 5 dated 29-03-2000 Notification 7(11)/2000IP dated 04-12-2000)
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Other Provisions for SEZ
 No Time Limit for export of export proceeds which is normally 6
months for others (Foreign Exchange Management (Export of Goods
and Services) Regulation 2000)
 Branch office may be set up in SEZ to undertake manufacturing and
service activities without permission of RBI in those sectors where
100% FDI is permitted (Foreign Exchange Management
(Establishment in India of Branch or other place of businesses)
Regulation 2000)
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Other Provisions for SEZ
 DTA units can pay for goods in Foreign Exchange for which goods
are supplied by SEZ to DTA – RBI Circular 8/2005-06 dated
01/07/2005
 A Unit Located in SEZ can open ,hold and maintain Foreign currency
account with authorized dealer in India (Foreign Exchange
Management (Foreign currency accounts by a person resident in
India),Regulations, 2000
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Other Provisions for SEZ
 A Unit in SEZ can enter into contract in commodity exchange or
market outside India to hedge the price risk in the commodity on
export/import without prior approval of RBI ( Foreign Exchange
Derivative Contracts) Regulation ,2000
 SEZ can raise ECB for its own requirements and borrowed funds
shall not be transferred to its sister concern or any other Unit in DTA
(RBI Circular 2/2005-06 dated 01/07/2005)
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Direct Dispatch of documents
to Foreign buyer
 SEZ Units can dispatch export documents direct to consignee outside
India.
 These need not be routed through authorized dealer
 Remittance should be obtained and GR/SDF form should be
submitted to authorized dealer with in 21 days for monitoring RBI
Circular 8/2005-06 dated 01/07/2005
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Job Work abroad and direct
dispatch
 SEZ Units can undertake Job work abroad and export goods from
that country itself
 Exporter has to make satisfactory arrangement for realisation of full
exports proceeds
(RBI Circular 8/2005-06 dated 01/07/2005)
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QUESTIONS/
SUGGESTIONS/
COMMENTS ???
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