Section 10A - Special provision in respect of newly established undertakings in free trade zone, etc. - Income-tax Act, 1961

1 [Special provision in respect of newly established undertakings in free trade zone, etc. 10A. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years : Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or export processing zone into a special economic zone, the period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the 2 [ undertaking began to manufacture or produce such articles or things or computer software ] in such free trade zone or export processing zone : 3 [Provided also that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software :] Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 19 [ 2012 ] and subsequent years. 4 [ (1A) Notwithstanding anything contained in sub-section (1), the deduction, in computing the total income of an undertaking, which begins to manufacture or produce articles or things or computer software during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2003, in any special economic zone, shall be,- ( i ) hundred per cent of profits and gains derived from the export of such articles or things or computer software for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, and thereafter, fifty per cent of such profits and gains for further two consecutive assessment years, and thereafter; ( ii ) for the next three consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the Special Economic Zone Re-investment Allowance Reserve Account ) to be created and utilised for the purposes of the business of the assessee in the manner laid down in sub-section (1B) : 5 [Provided that 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. ] (1B) The deduction under clause ( ii ) of sub-section (1A) shall be allowed only if the following conditions are fulfilled, namely:- ( a ) the amount credited to the Special Economic Zone Re-investment Allowance Reserve Account is to be utilised- ( i ) for the purposes of acquiring new machinery or plant which is first put to use before the expiry of a period of three years next following the previous year in which the reserve was created; and ( ii ) until the acquisition of new machinery or plant as aforesaid, 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; ( b ) the particulars, as may be prescribed in this behalf, have been furnished by the assessee in respect of new machinery or plant along with the return of income for the assessment year relevant to the previous year in which such plant or machinery was first put to use. (1C) Where any amount credited to the Special Economic Zone Re-investment Allowance Reserve Account under clause ( ii ) of sub-section (1A),- ( a ) has been utilised for any purpose other than those referred to in sub-section (1B), the amount so utilised; or ( b ) has not been utilised before the expiry of the period specified in sub-clause ( i ) of clause ( a ) of sub-section (1B), the amount not so utilised, shall be deemed to be the profits,- ( i ) in a case referred to in clause ( a ), in the year in which the amount was so utilised; or ( ii ) in a case referred to in clause ( b ), in the year immediately following the period of three years specified in sub-clause ( i ) of clause ( a ) of sub-section (1B), and shall be charged to tax accordingly. ] (2) This section applies to any undertaking which fulfils all the following conditions, namely :- ( i ) it has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year- ( a ) commencing on or after the 1st day of April, 1981, in any free trade zone; or ( b ) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park, or, as the case may be, software technology park; ( c ) commencing on or after the 1st day of April, 2001 in any special economic zone; ( ii ) it is not formed by the splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertakings as is referred to in section 33B, in the circumstances and within the period specified in that section; ( iii ) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation .- The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause ( iii ) of this sub-section as they apply for the purposes of clause ( ii ) of that sub-section. (3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation 1. - For the purposes of this sub-section, the expression competent authority means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Explanation 2. - The sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. 6 [ (4) For the purposes of 7 [ sub-sections (1) and (1A) ], the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. ] (5) The deduction under 8 [ this section ] shall not be admissible for any assessment year beginning on or after the 1st day of April, 2001, unless the assessee furnishes in the prescribed form, 21 [****] the report of an accountant, as defined in the Explanation below sub-section (2) of section 288 22 [ before the specified date referred to in section 44AB ] , certifying that the deduction has been correctly claimed in accordance with the provisions of this section. (6) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year,- ( i ) section 32, section 32A, section 33, section 35 and clause ( ix ) of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years 9 [ ending before the 1st day of April, 2001 ], in relation to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause ( ii ) of sub-section (3) of section 32A, clause ( ii ) of sub-section (2) of section 33, sub-section (4) of section 35 or the second proviso to clause ( ix ) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction; ( ii ) no loss referred to in sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years 10 [ ending before the 1st day of April, 2001 ]; ( iii ) 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; and ( iv ) 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. (7) The provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA. 11 [ (7A) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger,- ( a ) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and ( b ) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place .] 12 [ (7B) The provisions of this section shall not apply to any undertaking, being a Unit referred to in clause ( zc ) of section 2 of the Special Economic Zones Act, 2005, which has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone. ] (8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years. ( 9 ) 13 [ *** ] ( 9A ) 14 [***] Explanation 1.- 15 [***] Explanation 2.- For the purposes of this section,- ( i ) 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; ( ii ) convertible foreign exchange means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of 20 [the Foreign Exchange Management Act, 1999 (42 of 1999) ], and any rules made thereunder or any other corresponding law for the time being in force; ( iii ) electronic hardware technology park means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce and Industry; ( iv ) export turnover means the consideration in respect of export 16 [ by the undertaking ] of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), 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; ( v ) free trade zone means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section; ( vi ) relevant assessment year means any assessment year falling within a period of ten consecutive assessment years referred to in this section; ( vii ) software technology park means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry; ( viii ) special economic zone means a zone which the Central Government may, by notification in the Official Gazette, specify as a special economic zone for the purposes of this section .] 17 [ Explanation 3. - For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India .] 18 [ Explanation 4.- For the purposes of this section, manufacture or produce shall include the cutting and polishing of precious and semi-precious stones .] ********************** Notes :- 1. Substituted by the Finance Act, 2000, w.e.f. 1-4-2001. Prior to its substitution, section 10A was inserted by the Finance Act, 1981, w.e.f. 1-4-1981, and later on amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1987, Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988/1-4-1989, Finance Act, 1987, w.r.e.f. 1-4-1981/w.e.f. 1-4-1988, Finance Act, 1988, w.e.f. 1-4-1989, Finance Act, 1993, w.e.f. 1-4-1994/w.r.e.f. 1-4-1991, Finance Act, 1995, w.e.f. 1-4-1996, Income-tax (Second Amendment) Act, 1998, w.e.f. 1-4-1999 and Finance Act, 1999, w.e.f. 1-4-2000. 2. Substituted for undertaking was first set up by the Finance Act, 2001, w.e.f. 1-4-2001. 3. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003. Earlier the third proviso was omitted by the Finance Act, 2001, w.e.f. 1-4-2002. Prior to omission, third proviso read as under : Provided also that the profits and gains derived from such domestic sales of articles or things or computer software as do not exceed twenty-five per cent of total sales shall be deemed to be the profits and gains derived from the export of articles or things or computer software: 4. Sub-sections (1A) to (1C) substituted for sub-section (1A) by the Finance Act, 2003, w.e.f. 1-4-2004. Prior to its substitution, sub-section (1A), as inserted by the Finance Act, 2002, w.e.f. 1-4-2003, read as under : (1A) Notwithstanding anything contained in sub-section (1), the deduction, in computing the total income of an undertaking, which begins to manufacture or produce articles or things or computer software during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2003, in any special economic zone, shall be hundred per cent of profits and gains derived from the export of such articles or things or computer software for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, and thereafter, fifty per cent of such profits and gains for further two assessment years. 5. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006. 6. Substituted by the Finance Act, 2001, w.e.f. 1-4-2001. Prior to its substitution, sub-section (4) read as under : (4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the assessee. 7. Substituted for sub-section (1) by the Finance Act, 2003, w.e.f. 1-4-2003. 8. Substituted for sub-section (1) by the Finance Act, 2003, w.e.f. 1-4-2003. 9. Inserted by the Finance Act, 2003, w.r.e.f. 1-4-2001. 10. Inserted by the Finance Act, 2003, w.r.e.f. 1-4-2001. 11. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004. 12. Inserted by the Special Economic Zones Act, 2005, w.e.f. 10-2-2006. 13. Omitted by the Finance Act, 2003, w.e.f. 1-4-2004. Prior to its omission, sub-section (9) read as under : (9) Where during any previous year, the ownership or the beneficial interest in the undertaking is transferred by any means, the deduction under sub-section (1) shall not be allowed to the assessee for the assessment year relevant to such previous year and the subsequent years. 14. Omitted by the Finance Act, 2003, w.e.f. 1-4-2004. Prior to its omission, sub-section (9A), as inserted by the Finance Act, 2002, w.e.f. 1-4-2003, read as under : (9A) Notwithstanding anything contained in sub-section (9), where as a result of reorganisation of business, a firm or a sole proprietary concern is succeeded by a company and the ownership or beneficial interest in the undertaking of the firm or the sole proprietary concern is transferred to the company, the deduction under sub-section (1) in respect of such undertaking shall be allowed to the company, as the same would have been allowed to such firm or sole proprietary concern, as the case may be, if the reorganisation had not taken place: Provided that,- (a) in the case of a firm, the aggregate of the shareholding in the company of the partners of the firm is not less than fifty-one per cent of the total voting power in the company and their shareholding continues to be as such for the period for which the company is eligible for deduction under this section; (b) in the case of a sole proprietary concern, the shareholding of the sole proprietor in the company is not less than fifty-one per cent of the total voting power in the company and his shareholding continues to remain as such for the period for which the company is eligible for deduction under this section. 15. Omitted by the Finance Act, 2003, w.e.f. 1-4-2004. Prior to its omission, Explanation 1, as amended by the Finance Act, 2001, w.e.f. 1-4-2001, read as under : Explanation 1.- For the purposes of this section, in the case of a company, where on the last day of any previous year, the shares of the company carrying not less than fifty-one per cent of the voting power are not beneficially held by persons who held the shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year in which the undertaking was set up, the company shall be presumed to have transferred its ownership or the beneficial interest in the undertaking : Provided that nothing contained in this Explanation shall apply to any change in the shareholding of the company as a result of- (a) its becoming a company in which the public are substantially interested; or (b) disinvestment of its equity shares by any venture capital company or venture capital fund. 16. Inserted by the Finance Act, 2001, w.e.f. 1-4-2001. 17. Inserted by the Finance Act, 2001, w.e.f. 1-4-2001. 18. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004. 19 . Substituted for 2010 by the Finance Act, 2008, w.e.f. 1-4-2008. Further Substituted for 2011 vide Finance (No. 2) Act, 2009 w.e.f. 1st day of April, 2009 20 . Substituted vide Finance Act, 2013 w.e.f. April 1, 2014 , before it was read as the Foreign Exchange Regulation Act, 1973 (46 of 1973) . 21. Omitted vide Finance Act, 2020 dated 27-03-2020 w.e.f. 01-04-2020 before it was read as alongwith the return of income, 22. Inserted vide Finance Act, 2020 dated 27-03-2020 w.e.f. 01-04-2020