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Unit 5: Exemptions and Deductions – II

Notes

Notes On completion of the bonding period, it shall be open to the unit to continue under
the scheme or to opt out of the scheme. Debonding will, however, be subject to the
industrial policy in force at the time the option is exercised. Where debonding is sought
before the stipulated export obligation period of 5 to 10 years, or where EOUs are unable
to fulfil their export commitments out of various reasons, it is considered premature
debonding. This is subject to payment of all leviable duties without the benefit of
depreciation, and also subject to penalties and other conditions as decided by the Board of
Approvals for 100 per cent EOUs.

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Caution Customs duties on capital goods as well as customs duties on unused raw materials,
components, consumables and spares are leviable on debonding after the export period.

5.3.2 Deductions

Section 10-B of the Income-tax Act provides for 100% deduction of profits derived by a hundred
by a hundred per cent Export Oriented undertaking, form export of articles or things or computer
software manufactured or produced by it. The deduction is available 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 articles or things or computer software. However,
no deduction under section 10-B is available after assessment year 2009–10. The deduction u/s
10-B is available to an undertaking which fulfils and the following conditions:
(i) it manufacturers or produces any article or thing or commuter software;

(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence
except in the circumstances specified under section 33B or the IT Act.
(iii) it is not formed, by the transfer to a new business of machinery or plant previously used
for any purpose.
Representations have been received from various quarters as to whether an undertaking set up
in Domestic tariff Area, which is subsequently approved as 100% EOU by the Board appointed
by the Central Government in exercise of powers conferred under section 14 of the Industries
(Development and Regulation) Act, 1951, is eligible for deduction u/s. 10B of the Income-tax
Act.
The matter has been examined and it is hereby clarified that an undertaking set up in domestic
Tariff Area (DTA) and deriving profit from export of articles or things or computer software
manufactured or produced by it, which is subsequently converted into EOU, shall be eligible for
deduction u/s. 10B of the IT Act, on getting approval as 100% export oriented undertaking. In
such a case, the deduction shall be available only from the year in which it has got the approval
as 100% EOU and shall be available only for the remaining 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 articles or things or computer software, as a DTA unit. Further,
in the year of approval, the deduction shall be restricted to the profits derived from exports,
from and after the date of approval of the DTA Unit as 100% EOU. Moreover, the deduction to
such units in any case will not be available after assessment year 2009–10.

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