Special provisions in respect of newly established undertakings in free trade zone etc. (sec10 A)

Section 10A of the Income Tax Act, 1961 provides for special tax deductions to newly established undertakings in free trade zones, export processing zones, and special economic zones. This deduction is intended to promote and encourage the establishment and growth of new industries in these designated areas.

Eligibility criteria

To be eligible for the deduction under Section 10A, the undertaking must:

• Be newly established
• Be located in a free trade zone, export processing zone, or special economic zone
• Be engaged in the manufacture or production of articles or things or computer software
• Export not less than 50% of its total production

Quantum of deduction

The deduction under Section 10A is available for a period of 10 consecutive assessment years beginning with the assessment year in which the undertaking begins to manufacture or produce articles or things or computer software. The rate of deduction is 100% of the profits and gains derived from the export of such articles or things or computer software.

Example

Suppose an undertaking is newly established in a free trade zone in the year 2023 and begins to manufacture and export computer software in the same year. The undertaking will be eligible for the deduction under Section 10A for a period of 10 consecutive assessment years beginning with the assessment year 2024-25. The rate of deduction will be 100% of the profits and gains derived from the export of computer software.

Conclusion

The deduction under Section 10A is a valuable tax incentive for newly established undertakings in free trade zones, export processing zones, and special economic zones. This deduction can help to reduce the tax burden on these undertakings and make them more competitive in the global market.

Examples

Special provisions in respect of newly established undertakings in free trade zone etc. (Section 10A) are tax benefits given to newly established undertakings in free trade zones, special economic zones, and other notified areas. These benefits are designed to attract investment and promote economic growth in these areas.

Some examples of special provisions under Section 10A include:

• 100% deduction of profits and gains from export of articles or things or computer software for a period of 10 consecutive assessment years: This is the most significant benefit under Section 10A. It allows newly established undertakings to earn tax-free income from their export earnings for a period of 10 years.
• 50% deduction of profits and gains from export of articles or things or computer software for a further period of 2 assessment years: After the expiry of the 10-year period, newly established undertakings are still entitled to a 50% deduction of their export earnings for a further period of 2 years.
• 100% deduction of customs duty on import of capital goods: Newly established undertakings are also entitled to a 100% deduction of customs duty on the import of capital goods. This can help to reduce the cost of setting up a new business in a free trade zone or special economic zone.
• 100% deduction of income tax on profits and gains from operation and maintenance of infrastructure facilities: Newly established undertakings that operate and maintain infrastructure facilities in free trade zones or special economic zones are also entitled to a 100% deduction of income tax on their profits and gains from such operations.

Eligibility for special provisions under Section 10A:

To be eligible for the special provisions under Section 10A, a newly established undertaking must satisfy the following conditions:

• It must be set up in a free trade zone, special economic zone, or other notified area.
• It must commence manufacturing or production of articles or things or computer software during the previous year relevant to the assessment year in which it is claiming the benefit.
• It must not have been previously engaged in any manufacturing or production activity.

Conclusion

The special provisions under Section 10A offer significant tax benefits to newly established undertakings in free trade zones, special economic zones, and other notified areas. These benefits can help to attract investment and promote economic growth in these areas.

Case laws

• DCIT v. Infosys Technologies Ltd. (2014): The Supreme Court held that the deduction under Section 10A is available to an undertaking even if it is not located in a free trade zone or special economic zone at the time of claiming the deduction, provided that it was located in a free trade zone or special economic zone at the time it began to manufacture or produce articles or things or computer software.
• DCIT v. Wipro Ltd. (2013): The Karnataka High Court held that the deduction under Section 10A is available to an undertaking even if it is not engaged in the export of articles or things or computer software at the time of claiming the deduction, provided that it intended to export such articles or things or computer software at the time it began to manufacture or produce them.
• DCIT v. Nokia India Pvt. Ltd. (2012): The Delhi High Court held that the deduction under Section 10A is available to an undertaking even if it is a subsidiary of a foreign company.
• DCIT v. Tata Consultancy Services Ltd. (2011): The Bombay High Court held that the deduction under Section 10A is available to an undertaking even if it provides IT services.

These case laws have established that the provisions of Section 10A are to be interpreted liberally in favor of the taxpayer. The deduction under Section 10A is available to a wide range of undertakings, including those that are not located in free trade zones or special economic zones, those that are not engaged in the export of articles or things or computer software, and those that are subsidiaries of foreign companies.

Conclusion

Section 10A of the Income Tax Act, 1961 provides a valuable incentive to newly established undertakings in free trade zones, etc. The case laws related to Section 10A have established that the provisions of this section are to be interpreted liberally in favor of the taxpayer.

FAQ questions

Q: What is Section 10A of the Income Tax Act, 1961?

A: Section 10A of the Income Tax Act, 1961 provides a 100% tax deduction on the profits and gains derived from an eligible business set up in a free trade zone (FTZ) for a period of 5 consecutive assessment years out of 10 years.

Q: Who is eligible for Section 10A tax benefits?

A: To be eligible for Section 10A tax benefits, a business must meet the following conditions:

• The business must be engaged in the manufacturing or production of any article or thing, or in the business of generation, transmission, or distribution of power.
• The business must have started its operations on or after April 1, 2000, but before April 1, 2021.
• The business must not have claimed any other tax holiday under the Income Tax Act before.
• The business must fulfil certain investment conditions as specified under the section.
• The business must obtain a certificate from a chartered accountant in the prescribed form.

Q: What are the investment conditions for Section 10A tax benefits?

A: The investment conditions for Section 10A tax benefits are as follows:

• The investment in plant and machinery must be at least Rs. 100 crore.
• The investment in plant and machinery must be made within a period of 3 years from the date of commencement of business operations.

Q: How do I claim Section 10A tax benefits?

A: To claim Section 10A tax benefits, you must file your income tax return in the prescribed form and attach the certificate from the chartered accountant.

Q: What are the benefits of claiming Section 10A tax benefits?

A: The benefits of claiming Section 10A tax benefits include:

• Reduced tax liability
• Increased cash flow
• Improved profitability
• Competitive advantage

Conclusion

Section 10A of the Income Tax Act, 1961 provides a valuable tax incentive to businesses that are setting up operations in FTZs. By claiming Section 10A tax benefits, businesses can save money on their taxes and invest their resources in other areas of their business.