CA. Rajat Mohan B.Com(H),ACA, ACS, DISA 1 Tax Planning through Investments SECTION 10AA SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED UNITS IN SPECIAL ECONOMIC ZONES SPECIAL ECONOMIC ZONES

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 2

3 (A).TAXPAYER CATEGORY-SECTION 10AA This deduction is available to all categories of taxpayers.

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 4 (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, (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.

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 5 (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: (B). CONDITIONS - SECTION 10AA

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 6 (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. (B). CONDITIONS - SECTION 10AA

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 7 (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. (B). CONDITIONS - SECTION 10AA

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 8 (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. (B). CONDITIONS - SECTION 10AA

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 9 (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. (B). CONDITIONS - SECTION 10AA

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 10 (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. (B). CONDITIONS - SECTION 10AA

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 11 (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. (B). CONDITIONS - SECTION 10AA

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 12 (C).AMOUNT OF DEDUCTION SECTION 10AA Deduction of profits and gains derived from the export of such articles or things or from services Period 100%For a period of 5 consecutive assessment years. 50%Next 5 consecutive assessment years. 50% 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. Next 5 consecutive assessment years.

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 13 (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

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 14 (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..

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants 15 iii)‘Manufacture’ shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zones Act, 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 (E).MEANING – SECTION 10AA

16 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 Office Phone: / Branch Office 18A, IInd Floor, North Avenue Road, West Punjabi Bagh, New Delhi office Phone: /97 Website: