Page 126 - DCOM301_INCOME_TAX_LAWS_I

Unit 5: Exemptions and Deductions – II

(a) commencing on or after 1-4-1981, in any Free Trade Zone; or Notes
(b) commencing on or after 1-4-1994, in any Electronic Hardware Technology Park or
Software Technology Park; or

(c) commencing on or after 1-4-2001, in any Special Economic Zone;
2. It is not formed by the splitting up or the reconstruction of a business already in existence
except in the circumstances and within the period specified in section 33B of the Income-
tax Act.
3. It is not formed by the transfer to a new business of machinery or plant previously used
for any purpose.
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.

5.1.2 Deductions

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)
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.

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;

LOVELY PROFESSIONAL UNIVERSITY 121