Tax Planning through Investments
SECTION 10A
SPECIAL PROVISION IN
RESPECT OF NEWLY
ESTABLISHED
UNDERTAKINGS IN FREE
TRADE ZONE, ETC.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
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Chartered Accountants
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(A). TAXPAYER CATEGORY- SECTION 10A
This benefit is available to all categories of
taxpayers.
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(B). CONDITIONS SECTION 10A
(1). Profits and gains as are derived by an undertaking from the export
of articles or things or computer software.
(2). Commencement of operations criteria — Undertaking has begun
or begins to manufacture or produce articles or things or computer
software:
Situation
Period of commencement
Free trade zone
During the previous year
assessment year 1981 –
subsequent year.
hardware During the previous year
park, or, assessment year 1994 –
technology subsequent year.
relevant to
82 or any
Electronic
technology
Software
park.
relevant to
95 or any
Special economic zone. From 1 April, 2002 to 31 March, 2005.
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(B). CONDITIONS SECTION 10A
(3). 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.
(4). 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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(B). CONDITIONS SECTION 10A
(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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(B). CONDITIONS SECTION 10A
(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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(B). CONDITIONS SECTION 10A
(6). Repatriation of foreign exchange criteria — Sale proceeds of
articles or things or computer software exported out of India are
received in, or brought into, India by the assessee in convertible
foreign exchange, within a period of 6 months from the end of the
previous year (or such further period as the competent authority may
allow in this behalf).
Sale proceeds shall be deemed to have been received in India where
such sale proceeds are credited to a separate account maintained for
the purpose by the assessee with any bank outside India with the
approval of the Reserve Bank of India.
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(B). CONDITIONS SECTION 10A
(7) .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.
(8). 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.
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(B). CONDITIONS SECTION 10A
(9).Inter-unit transaction at market value as per Section 10A (7)
criteria — Where any goods or services are transacted (purchase or
sale) eligible business or any other business carried on by the
assessee shall be at market value. However where the consideration
for such transfer as recorded in the accounts of the eligible business
does not correspond to the market value as on the date of the
transfer, then, for the purposes of the deduction under this section,
the profits and gains of such eligible business shall be computed as if
the transfer had been made at the market value of such goods or
services.
Where, in the opinion of the Assessing Officer, the computation of the
profits and gains of the eligible business in the manner hereinbefore
specified presents exceptional difficulties, the Assessing Officer may
compute such profits and gains on such reasonable basis as he may
deem fit.
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(B). CONDITIONS SECTION 10A
(10). 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[1] 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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(B). CONDITIONS SECTION 10A
(11) 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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(B). CONDITIONS SECTION 10A
(12) Dual benefit not allowed criteria — Where any amount of
profits and gains is claimed and allowed under this section, deduction
to the extent of such profits and gains shall not be allowed under any
other provisions of Section 10B or Section 10BA or Chapter-VIA under
the heading ‘C. Deductions in respect of certain incomes’. Deduction
under this section shall not exceed the profits and gains of eligible
business.
(13)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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(B). CONDITIONS SECTION 10A
(14).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.
(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.
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(B). CONDITIONS SECTION 10A
(15). Return of income criteria — Assessee shall furnish his return of
income or before due date under section 139(1). In addition, the claim
of this deduction shall be compulsorily made in the return of income.
(16). Option to assessee criteria — Assessee may at his option,
before the due date for furnishing the return of income under section
139(1), furnishes to the Assessing Officer a declaration in writing that
the provisions of this section may not be made applicable to him.
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(C).
AMOUNT OF DEDUCTION- SECTION 10A
Deduction shall be 100% profits and gains derived by an undertaking
from the export of articles or things or computer software for a period of
10 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.
However, no deduction under this section shall be allowed to any
undertaking for the assessment year beginning on 1 April, 2012 and
subsequent years.
However, deduction for an undertaking, which begins to manufacture
or produce articles or things or computer software during the previous
year relevant to any assessment year commencing on or after 1 April,
2003, in any special economic zone, shall be:
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(C).
AMOUNT OF DEDUCTION- SECTION 10A
Deduction of profits and gains derived from the export of
such articles or things or computer software
Period
100%
For a period of 5 consecutive assessment years.
50%
Next 2 consecutive assessment years.
50%
Next 3 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 Reinvestment 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 3 years from the end of the 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 Form No. 56FF
have been furnished by the assessee.
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D).CALCULATION OF ‘PROFITS DERIVED FROM EXPORTS’
SECTION 10A
Profits derived from export of articles or things or computer software
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 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 10A applies X Profits of such undertaking
Total Turnover of the undertaking to which section 10A applies
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(E). MEANING- SECTION 10A
‘Computer software’ means
(i) Any computer programme recorded on any disc, tape,
perforated media or other information storage device; or
(ii) Any customized electronic data or any product or service of
similar nature, as may be notified (Notification No. SO 890(E), dated
26-9-2000.) by the Board,
which is transmitted or exported from India to any place outside India
by any means.
i)
ii) ‘Convertible foreign exchange’ means foreign exchange
which is for the time being treated by the Reserve Bank of India as
convertible foreign exchange for the purposes of the Foreign
Exchange Regulation Act, 1973, and any rules made there under or
any other corresponding law for the time being in force.
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(E). MEANING- SECTION 10A
iii) ‘Electronic hardware technology park’ means any park set up
in accordance with the Electronic Hardware Technology Park
(EHTP) Scheme notified by the Government of India in the
Ministry of Commerce and Industry.
iv) ‘Export turnover’ means the consideration in respect of export
by the undertaking of articles or things or computer software received
in, or brought into, India by the assessee in convertible foreign
exchange in accordance with sub-section (3), but does not include
freight, telecommunication charges or insurance attributable to the
delivery of the articles or things or computer software outside India or
expenses, if any, incurred in foreign exchange in providing the
technical services outside India.
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(E). MEANING- SECTION 10A
v)
‘Free trade zone’ means the Kandla Free Trade Zone and the
Santacruz Electronics Export Processing Zone and includes any
other free trade zone, which the Central Government may, by
notification in the Official Gazette, specify for the purposes of this
section.
vi) ‘Software technology park’ means any park set up in accordance
with the Software Technology Park Scheme notified by the
Government of India in the Ministry of Commerce and Industry.
vii) ‘Special economic zone’ means a zone, which the Central
Government may, by notification in the Official Gazette, specify as a
special economic zone for the purposes of this section.
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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: [email protected]
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