Section 10AA of Income Tax Act "Special provisions in respect of newly established Units in Special Economic Zones"
10AA. (1) Subject to the provisions of this section, in
computing the total income of an assessee, being an
entrepreneur as referred to in clause (j) of section 2 of
the Special Economic Zones Act, 2005, from his Unit, who
begins to manufacture or produce articles or things or
provide any services during the previous year relevant to
any assessment year commencing on or after the 1st day of
April, 2006, but before the first day of April, 2021, the
following deduction shall be allowed-
(i) hundred per cent of profits and gains derived from the
export, of such articles or things or from services for a
period of five consecutive assessment years beginning with
the assessment year relevant to the previous year in which
the Unit begins to manufacture or produce such articles or
things or provide services, as the case may be, and fifty
per cent of such profits and gains for further five
assessment years and thereafter;
(ii) for the next five consecutive assessment years, so much
of the amount not exceeding fifty per cent of the profit as
is debited to the profit and loss account of the previous
year in respect of which the deduction is to be allowed and
credited to a reserve account (to be called the "Special
Economic Zone Re-investment Reserve Account") to be created
and utilized for the purposes of the business of the
assessee in the manner laid down in sub-section (2).
Explanation.-For the removal of doubts, it is hereby
declared that the amount of deduction under this section
shall be allowed from the total income of the assessee
computed in accordance with the provisions of this Act,
before giving effect to the provisions of this section and
the deduction under this section shall not exceed such total
income of the assessee.]
(2) The deduction under clause (ii) of sub-section (1) shall
be allowed only if the following conditions are fulfilled,
namely :-
(a) the amount credited to the Special Economic Zone
Re-investment Reserve Account is to be utilised-
(i) for the purposes of acquiring machinery or plant
which is first put to use before the expiry of a period of
three years following the previous year in which the reserve
was created; and
(ii) until the acquisition of the 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 specified by the Central
Board of Direct Taxes in this behalf, under clause (b) of
sub-section (1B) of section 10A have been furnished by the
assessee in respect of machinery or plant along with the
return of income for the assessment year relevant to the
previous year in which such plant or machinery was first put
to use.
(3) Where any amount credited to the Special Economic Zone
Re-investment Reserve Account under clause (ii) of
sub-section (1),-
(a) has been utilised for any purpose other than those
referred to in sub-section (2), the amount so utilised; or
(b) has not been utilised before the expiry of the period
specified in sub-clause (i) of clause (a) of sub-section
(2), the amount not so utilised,
shall be deemed to be the profits,-
(i) in a case referred to in clause (a), in the year in
which the amount was so utilised; or
(ii) in a case referred to in clause (b), in the year
immediately following the period of three years specified in
sub-clause (i) of clause (a) of sub-section (2),
and shall be charged to tax accordingly :
Provided that where in computing the total income of the
Unit for any assessment year, its profits and gains had not
been included by application of the provisions of
sub-section (7B) of section 10A, the undertaking, being the
Unit shall be entitled to deduction referred to in this
sub-section only for the unexpired period of ten consecutive
assessment years and thereafter it shall be eligible for
deduction from income as provided in clause (ii) of
sub-section (1).
Explanation.-For the removal of doubts, it is hereby
declared that an undertaking, being the Unit, which had
already availed, before the commencement of the Special
Economic Zones Act, 2005, the deductions referred to in
section 10A for ten consecutive assessment years, such Unit
shall not be eligible for deduction from income under this
section :
Provided further that where a Unit initially located in any
free trade zone or export processing zone is subsequently
located in a Special Economic Zone by reason of conversion
of such free trade zone or export processing zone into a
Special Economic Zone, the period of ten consecutive
assessment years referred to above shall be reckoned from
the assessment year relevant to the previous year in which
the Unit began to manufacture, or produce or process such
articles or things or services in such free trade zone or
export processing zone :
Provided also that where a Unit initially located in any
free trade zone or export processing zone is subsequently
located in a Special Economic Zone by reason of conversion
of such free trade zone or export processing zone into a
Special Economic Zone and has completed the period of ten
consecutive assessment years referred to above, it shall not
be eligible for deduction from income as provided in clause
(ii) of sub-section (1) with effect from the 1st day of
April, 2006.
(4) This section applies to any undertaking, being the Unit,
which fulfils all the following conditions, namely:-
(i) it has begun or begins to manufacture or produce
articles or things or provide services during the previous
year relevant to the assessment year commencing on or after
the 1st day of April, 2006 in any Special Economic Zone;
(ii) it is not formed by the splitting up, or the
reconstruction, of a business already in existence:
Provided that this condition shall not apply in respect of
any undertaking, being the Unit, 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, in the circumstances and within
the period specified in that section;
(iii) it is not formed by the transfer to a new business, of
machinery or plant previously used for any purpose.
Explanation.-The provisions of Explanations 1 and 2 to
sub-section (3) of section 80-IA shall apply for the
purposes of clause (iii) of this sub-section as they apply
for the purposes of clause (ii) of that sub-section.
(5) Where any undertaking being the Unit which is entitled
to the deduction under this section is transferred, before
the expiry of the period specified in this section, to
another undertaking, being the Unit in a scheme of
amalgamation or demerger,-
(a) no deduction shall be admissible under this section to
the amalgamating or the demerged Unit, being the company for
the previous year in which the amalgamation or the demerger
takes place; and
(b) the provisions of this section shall, as they would have
applied to the amalgamating or the demerged Unit being the
company as if the amalgamation or demerger had not taken
place.
(6) Loss referred to in sub-section (1) of section 72 or
sub-section (1) or sub-section (3) of section 74, in so far
as such loss relates to the business of the undertaking,
being the Unit shall be allowed to be carried forward or set
off.
(7) For the purposes of sub-section (1), the profits derived
from the export of articles or things or services (including
computer software) shall be the amount which bears to the
profits of the business of the undertaking, being the Unit,
the same proportion as the export turnover in respect of
such articles or things or services bears to the total
turnover of the business carried on by the undertaking:
Provided that the provisions of this sub-section [as amended
by section 6 of the Finance (No. 2) Act, 2009 (33 of 2009)]
shall have effect for the assessment year beginning on the
1st day of April, 2006 and subsequent assessment years.
(8) The provisions of sub-sections (5) and (6) of section
10A shall apply to the articles or things or services
referred to in sub-section (1) as if-
(a) for the figures, letters and word "1st April, 2001", the
figures, letters and word "1st April, 2006" had been
substituted;
(b) for the word "undertaking", the words "undertaking,
being the Unit" had been substituted.
(9) The provisions of sub-section (8) and sub-section (10)
of section 80-IA shall, so far as may be, apply in relation
to the undertaking referred to in this section as they apply
for the purposes of the undertaking referred to in section
80-IA.
(10) Where a deduction under this section is claimed and
allowed in respect of profits of any of the specified
business, referred to in clause (c) of sub-section (8) of
section 35AD, for any assessment year, no deduction shall be
allowed under the provisions of section 35AD in relation to
such specified business for the same or any other assessment
year.
Explanation 1.-For the purposes of this section,-
(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;
(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) "relevant assessment year" means any assessment year
falling within a period of fifteen consecutive assessment
years referred to in this section;
(v) "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.
Explanation 2.-For the removal of doubts, it is hereby
declared that the profits and gains derived from on site
development of computer software (including services for
development of software) outside India shall be deemed to be
the profits and gains derived from the export of computer
software outside India.
What are the Definitions under Income Tax 1961? Section 2 of Income Tax Act 1961
What is Previous Year? What is Charge of Income tax? Section 3 and 4 of Income Tax Act 1961
What is Dividend income? Section 8 of Income Tax Act 1961
What is Income deemed to accrue or arise in India? Section 9 of Income Tax Act 1961
What are the Incomes not included in total income? Section 10 of Income Tax Act 1961
What is Meaning of computer programmes in certain cases? Section 10BB of Income Tax Act 1961