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Querist : Anonymous (Querist)

05 November 2012 What are the tax exemptions available to SEZ units i.e. companies operating from SEZ?

CA. Sunil Kumar

CA. Sunil Kumar (Expert)
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08 November 2012 ncome Tax
Part-1 Income Tax incentives for SEZ units
Tax exemption for SEZ units engaged in manufacture or providing services- A new section 10AA has been introduced in the IT Act by SEZ Act, 2005 which provides that the units in SEZ which start manufacturing or producing articles/ things or which start providing services on or after April 1, 2005 will be eligible for a deduction of 100 percent of export profits for the first five years from the year in which such manufacture/ provision of services commences and 50 percent of the export profits for the next five years. Further, for the next five years a deduction shall be allowed of upto 50 percent of the profit as is debited to the profit and loss account and credited to the Special Economic Zone Reinvestment Reserve Account (subject to conditions).

Tax exemption for Offshore Banking units in SEZ- A deduction in respect of certain incomes would be allowed under the new section 80LA, to scheduled banks or foreign banks having an Offshore Banking unit in SEZ or to a unit of IFSC. The deduction shall be for 100 percent of income for five consecutive years beginning from the year in which permission/ registration has been obtained under the Banking Regulation Act or the SEBI Act or any other relevant law and 50 percent of income for next five years.

Interest received by non-residents and not ordinary residents on deposits made with an Offshore Banking Unit on or after April 1, 2005 shall be exempt from tax.

Exemption from Minimum Alternate Tax ("MAT")- Income arising or accruing on or after April 1, 2005 from any business carried on, or services rendered by SEZ unit would be exempt from MAT under section 115JB.

Exemption from Capital Gains- Capital gains arising on transfer of assets (machinery, plant, building, land or any rights in buildings or land) on shifting of the industrial undertaking from an urban area to any SEZ would be exempt from capital gains tax. The exemption would be allowable if within one year before or three years after such transfer:

Machinery or plant is purchased for the purposes of business of industrial undertaking in SEZ by the assessee.

Assessee has acquired land or building or has constructed building for the purposes of business in SEZ.

The original assets are shifted and establishment of the industrial undertaking is transferred to SEZ; and other specified expenses are incurred.

The amount of exemption for capital gains would be restricted to the costs and expenses incurred in relation to all or any of the purposes mentioned above.

Part-2 Income Tax incentives for SEZ Developer
Tax holiday for SEZ developers- A new section 80-IAB has been introduced in the IT Act vide SEZ Act, 2005 whereby a deduction of 100 percent of profits derived from the business of developing SEZ (notified on or after April 1, 2005) would be available to developer of SEZ for any 10 consecutive years out of 15 years beginning from the year in which SEZ has been notified.
Exemption under section 10(23G) that was available to infrastructure capital fund or a cooperative bank on interest and long term capital gains investment had been extended to investment made by SEZ developers qualifying for tax holiday under section 80-IAB of the IT Act. However, this exemption has been withdrawn with effect from assessment year 2007-08.
Exemption from Dividend Distribution Tax ("DDT")- No DDT would be payable by a developer of SEZ on dividend declared, distributed or paid on or after April 1, 2005 out of current income.
Exemption from MAT- Any income earned on or after April 1, 2005 by a SEZ developer would be exempt from MAT under section 115JB of the Act.
from Domestic Tariff Area (DTA) to SEZ.

Querist : Anonymous

Querist : Anonymous (Querist)

09 November 2012 Thanks a lot Sir. But isn't MAT applicable effective from April 2012?

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