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Income Tax Laws – I

Notes the undertaking in the SEZ and not with reference to the total turnover of the business of
the assessee. The said amendment made by Finance (No. 2) Act, 2009 become effective
from 1-4-2010 and accordingly, applied in relation to the A.Y. 2010–11 and subsequent
years. At the time when this amendment by the Finance (No. 2) Act, 2009 was made doubts
were expressed as to whether the amendment should be retrospective or prospective from
2010–11 so as to streamline the provisions of the section.

5.2.2 Amount of Deduction: A Simplified Explanation

If the above conditions are satisfied, one can claim deduction under section 10AA. Deduction
depends upon quantum of profit derived from export of articles or things or services (including
computer software). It is calculated as under:

Export Turnover of the Unit
Profits of the business of the Unit x
Total Turnover of the business carried out by the assessee

Notes In the above formula ‘export turnover’ means the consideration in respect of export
by the undertaking of articles or things or services received in, or brought into India by
the assessee, but does not include the following:
a. freight

b. telecommunication charges;
c. insurance attributable to the delivery of the articles or things or computer software
outside India;

d. expenses, if any, incurred in foreign exchange in providing the technical services
(including computer software) outside India.
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.

This formula was seemingly created discrimination between assessee who were having multiple
units in the SEZ as well as in the Domestic Tariff Area (DTA) and the assessee who were having
units only in the SEZ. Here it may be pertinent to note that section 10AA itself clarified that the
word, ‘assessee’ for the purpose of this section would mean an entrepreneur referred to in
section 2(j) of the SEZ Act, as such the word, ‘assessee’ referred to in the formula should be an
undertaking in the SEZ.
Deduction for First Five Assessment Years: 100 per cent of the profit and gains derived from
export of articles or things or from services is deductible for a period of 5 consecutive assessment
years. Deduction for the first year is available in the assessment year relevant to the previous
year in which the unit begins to manufacture or produce articles or things or provide services.
Deduction for Sixth Assessment Year to Tenth Assessment Year: 50 per cent of the profit and
gains derived from export of articles or things or from services is deductible for the next 5 years.
Deduction for Eleventh Assessment Year to Fifteenth Assessment Year: For the next 5 years, a
further deduction would be available to the extent of 50 per cent of the profit provided an
equivalent amount is debited to the profit and loss account of the previous year and credited to
Special Economic Zone Re-investment Allowance Reserve Account (hereinafter referred to as
Special Reserve Account). The following conditions should be satisfied:

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