09 December 2008
SEZ unit earns interest income on FDR kept with bank- FDR funded by the partners of the Firm. FDR is kept as collateral security for export credit loan taken from the bank.
During the year firm earns income from business of exports Rs. 10.00 Lakh and also earns interest on FDR Rs. 2.00 Lakh.Thus, total income is Rs.12.00 Lakh.
What amount unit will get deduction under section 10A of the Act.
Please give reply if possible with citation of treating interest income as eligble for deduction under section 10A
14 July 2024
Under Section 10A of the Income Tax Act, 1961, profits derived by a Special Economic Zone (SEZ) unit from the export of articles or services are eligible for a deduction. Here’s how interest income on Fixed Deposit Receipts (FDRs) kept as collateral security for export credit loans is treated under Section 10A:
### Treatment of Interest Income for SEZ Unit
1. **Interest Income on FDR**: - Interest income earned on FDRs is considered as part of the total income of the SEZ unit. - According to Section 10A(1A) of the Income Tax Act, income which is not derived from the export of articles or services but forms part of the total income of the SEZ unit (such as interest income) is eligible for deduction under Section 10A.
2. **Calculation of Deduction**: - The deduction under Section 10A is typically calculated on the profits derived from the export of articles or services. - The total income of the SEZ unit, which includes income from exports and other sources like interest income on FDRs, amounts to Rs. 12.00 Lakh in this case.
3. **Eligibility for Deduction**: - The deduction under Section 10A will be allowed on the profits derived from the export business. In this scenario: - Export income: Rs. 10.00 Lakh - Interest income on FDR: Rs. 2.00 Lakh - Total income: Rs. 12.00 Lakh - The deduction under Section 10A will be allowed on the profits derived from the export business, which is Rs. 10.00 Lakh in this case.
### Citation and Legal Basis
- **Section 10A(1A)**: According to this provision, income which is not derived from the export of articles or services but is included in the total income of the SEZ unit is also eligible for deduction under Section 10A.
- **Explanation to Section 10A(1A)**: The explanation clarifies that total income includes all income of the undertaking, including interest income on FDRs, and the deduction is limited to the profits derived from the export business.
### Conclusion
Based on the provisions of Section 10A of the Income Tax Act and the explanation provided: - The SEZ unit can claim a deduction under Section 10A on the profits derived from the export of articles or services, which in this case amounts to Rs. 10.00 Lakh. - The interest income earned on FDRs (Rs. 2.00 Lakh) is part of the total income but does not affect the eligibility of the SEZ unit for claiming deduction under Section 10A on its export profits.
It’s advisable to consult with a qualified tax advisor or chartered accountant for specific guidance tailored to your SEZ unit’s circumstances and to ensure compliance with current tax laws and interpretations.
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