SECTION 10A: INCOME OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE

Deduction available for export of articles, things or computer software, manufactured or produced in Free trade zone (FTZ), Electronic hardware technology park(EHTP) or Software technology park (STP) Deduction available to all category of Assessee Should not be formed by splitting or reconstruction of existing business Should not be formed by transfer of machinery or plant previously used. However following shall not be regarded as machinery or plant previously used a) Machinery or plant should not be previously used in India b) It has been imported into India from a foreign country c) No depreciation has been allowed on such machinery or plant to any person in India Deduction under section 10A however shall be available if total value of second hand machinery does not exceed 20% of total value of machinery or plant used in industrial unit Sale proceeds of article, thing or software exported outside India should be brought to India by Assessee within six months from the end of the previous year ( sale proceeds shall be deemed to have received in India if such sale proceeds are credited to a separate account maintained for the purposes by the assessee with any Bank ouside India with the previous approval of RBI) computer software means (a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or (b) any customized electronic data or any product or service of similar nature, as may be notified by the Board, which is transmitted or exported from India to any place outside India by any means For the purposes of this section, manufacture or produce shall include the cutting and polishing of precious and semi-precious stones

 Period of tax holiday shall be ten consecutive assessment years beginning with the assessement year relevant to previous year in which undertaking begins to manufacture article or thing or computer sofrware. However no deduction under this section shall be allowed from assessment year 2012-2013 and onwards. Thus deduction under this section shall only be allowed upto Assessment year 2011-2012.

Deduction shall be computed as follows

Profit from business of undertaking X export turnover Total turnover Whereexport 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 within six months or deposited in separate account outside india 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; Unabsorbed depreciation and losses shall be allowed to be carried forward and set off as per provisions of income tax act no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139 no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking; Depreciation, expenditure on scientific research etc. shall be deemed to be allowed in computing the depreciation allowance under section 32, the 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 for each of the relevant assessment year.

SECTION 10AA: SPECIAL PROVISIONS FOR NEWLY ESTABLISHED UNITS IN SPECIAL ECONOMIC ZONE Export of articles or things or provide any service Period for which deduction allowed a) for first 5 assessment years 100% of profits b) next 5 assessment years 50% of profits c) next 5 assessment years so much of the amount not exceeding 50% of profits as debited to profit and loss account and credited to special reserve account (i.e. amount transffered to reserve or 50% of Other provisions are similar to Section 10A SECTION 10B: SPECIAL PROVISIONS FOR NEWLY ESTABLISHED 100 % EXPORT ORIENTED UNDERTAKINGS Export of articles, things or computer software Other provisions are similar to Section 10A

PROBLEMS
1) R Ltd furnishes you the following information for previous year 2009-10 Total sales Rs. 50,00,000 Export sales Rs. 40,00,000 Domestic sales Rs. 10,00,000 Money brought into India in convertible foreign exchange Rs. 36,00,000 Profit of above undertaking Rs. 5,00,000. Calculate amount of deduction under section 10A. 2) A company is engaged in development and sale of computer sofrware. It has started a new undertaking as a 100%EOU. It furnishes the following data Total profit of the company for the previous year Rs. 50 lakhs Total turnover (export sales plus domestic sales) Rs. 500 lakhs Consideration received in foreign exchange within 6 months from end of previous year Rs. 250 lakhs Sale proceeds credited to separate account outside India with permission of RBI Rs. 50 lakhs Telecom and insurance charges attributable to export of software Rs. 10 lakhs Staff costs and travel expenses incurred in foreign exchange to provide technical assistance out side India Rs. 40 lakhs Calculate deduction to be allowed under section 10B

(CA FINAL MAY 2002)