©Rajkumar S.Adukia1 SPECIAL ECONOMIC ZONES- FISCAL BENEFITS Rajkumar S. Adukia 09323061049/093221 39642 [email protected] [email protected]

©Rajkumar S.Adukia 1

SPECIAL ECONOMIC SPECIAL ECONOMIC ZONES- FISCAL ZONES- FISCAL

BENEFITS BENEFITS

Rajkumar S. Adukia09323061049/093221 39642

[email protected]

[email protected]

http://www.carajkumarradukia.com


Agenda

Special Fiscal Provisions relating to SEZ Bond cum Legal Undertaking Income Tax Service tax FEMA


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


Exemptions of tax ,duties or

cess in 21 Acts

Exemptions of tax ,duties or

cess in 21 Acts

Stamp DutyStamp Duty


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”


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:


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.


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 .


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 .


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


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,


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)


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


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)


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)


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.


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))


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.


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)


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


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)


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)


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)


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)


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)


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)


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.


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)


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)


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)


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)


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)


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:


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.


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


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


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


Income Tax Income Tax BenefitsBenefits


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


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


Exemption to newly established

Units in SEZ

- Section 10AA


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


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;


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.


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.


Exemption of Capital Gain

on Shifting to SEZ

-Sec 54GA


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.


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


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


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.


Deduction in respect

of profits

by SEZ Developer

-Sec 80 IAB


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


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


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.


No Tax

on Distributed Profits

-Sec 115O(6)


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


OTHER RELATED

INCOME TAX

PROVISIONS


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.


Investors in SEZ

Exemption is provided to investors in special economic Zones under Sec 10 (23G) of the Income Tax Act, 1961.


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;


(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.]


Special provisions in respect of certain undertakings or enterprises in certain special category


Special category states

Arunachal Pradesh Assam Manipur Meghalaya Mizoram Nagaland Sikkim Tripura


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.


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


Benefits to OBUBenefits to OBU


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))


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,


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.


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.


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.


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 “


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.


Other BenefitsOther Benefits


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


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


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)



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)


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


FEMA Provisions FEMA Provisions relating to SEZrelating to SEZ


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,


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)


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)



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



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)


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


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)


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