©Rajkumar S.Adukia 1 SPECIAL ECONOMIC SPECIAL ECONOMIC ZONES- FISCAL ZONES- FISCAL BENEFITS BENEFITS Rajkumar S. Adukia 09323061049/093221 39642 [email protected] [email protected] http:// www.carajkumarradukia.com
Dec 25, 2015
©Rajkumar S.Adukia 1
SPECIAL ECONOMIC SPECIAL ECONOMIC ZONES- FISCAL ZONES- FISCAL
BENEFITS BENEFITS
Rajkumar S. Adukia09323061049/093221 39642
http://www.carajkumarradukia.com
©Rajkumar S.Adukia 2
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
Cenvat Cenvat
CustomsCustoms
VAT VAT
Income Tax Income Tax
Service Tax Service Tax
Central Sales tax Central Sales tax
Securities Transaction Tax
Securities Transaction Tax
Exemptions of tax ,duties or
cess in 21 Acts
Exemptions of tax ,duties or
cess in 21 Acts
Stamp DutyStamp 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
Articles) Act, 1978
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 to the 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 containing self generated Alcohol, which are capable of being consumed as ordinary alcoholic beverages.
Rupees three per gallon
All other Medicinal and toilet reparations not otherwise specified containing alcohol
Rupees five per gallon of the strength of London proof spirit.
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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)
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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 Act, 1975 (Sec 5)
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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, Man-made 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(Sec 4)
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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-cum-
Legal 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
Responsibility
company Managing Director of the company or any other authorized person
partnership firm all the partners or authorized partner(s);
Hindu Undivided Family Karta
proprietorship concern proprietor
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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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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 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 Re-
investment 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 Re-investment 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 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 expenses incurred for specified Purposes.
Exemption: to the extent of cost and expenses incurred
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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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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 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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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 sub-section (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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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 non-
resident or a person not ordinarily resident in India; or
(b) on borrowing, on or after the 1st day of April, 2005, from a non-
resident or a person not ordinarily resident in India.
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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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Foreign Direct investment
FDI is allowed through automatic route for all manufacturing activities in SEZ except
1) Arms and ammunition , Explosives and allied items of defence equipments, Defence aircrafts and warships,
2) Atomic substances, Narcotics and Psychotropic Substances and hazardous Chemicals,
3) Distillation and brewing of Alcoholic drinks and4) 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)/2000-
IP 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)