Deduction under section 10AA for SEZ units
Special Economic Zone or SEZs are the undertakings formed to promote exports and foreign investments in India. SEZs function under the specially formulated act, SEZ Act. SEZ rules were formed and made effective from the year 2006. Income tax benefit or deduction is available to SEZ units and the provisions for the same are contained under section 10AA of the Income Tax Act.
Conditions for claiming (10AA(4))
- Approval from the Development commissioner
- Begins manufacture from 01.04.2006 to 01.04.2020
- Not formed by splitting up, reconstruction.
- The unit is not formed from the transfer of any old plant & machinery except imported Plant & Machinery
- Has income from exports
- Audit is mandatory
- The deduction has to be claimed in ROI.
Amount of deduction (10AA(1))
|No. of years||Amount of deduction|
|For First 5 yrs (1 to 5)||100% of export profits|
|For the next 5 yrs (6 to 10)||50% of export profits|
|For the next 5 yrs (11 to 15)||50% of profits provided that amount is deposited in SEZ Re-investment Allowance reserve.|
Export profits (10AA(8))
Profits of the business of undertaking X Export turnover of the undertaking
The total turnover of the undertaking
Utilization of the amount transferred to the reserve stated above (10AA(2)
- Should be utilized for the purpose of acquiring new plant and machinery.
- Plant and machinery should be put to use within 3 years from the date of creation of the reserve.
- Until utilization of acquisition of plant and machinery, the amount can be utilized for the business purpose of the undertaking but cannot be utilized for distribution of dividend/profits or remittance outside India as profits or for creating asset outside India.
- Form 56FF should be submitted with ROI in P/Y in which new plant and machinery are first put to use.
Misutilization or non-utilization of the amount transferred to reserve (10AA(3))
The amount which is mis-utilized will be deemed to be the income of the year in which it is mis-utilized.
If the amount is not utilized within a period of 3 years then it shall be deemed as profit in the year immediately following the 3 years.
Carry forward of losses (10AA(6))
Losses u/s 72(1) (Business loss other than speculative business) and u/s 74 (Capital loss) shall be allowed to carry forward and set off.
Relevant case laws
FCI Technology Services Ltd. V. CIT 947 (Coch. – ITAT)
Losses of other undertakings will not be allowed to set off from undertaking claiming Section 10AA.
Sovika Infotek Ltd. V. ITO 23 SOT 273 (mum.)
If the loss is incurred by an undertaking which is eligible for deduction u/s 10AA, then it can set off the losses from other income of the taxpayer as per the provisions of section 70 and 71.