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Income Tax Laws – I

Notes In addition, the dividend paid by these SEZ units was exempt from tax, compared to other
companies who paid a dividend distribution tax of 15%. This will go. The exemption of tax
on dividends ends from June 2011 itself. This again does not affect their profits but will
reduce the profits available for distributing to shareholders.

SEZ profits will continue to be exempt from income tax, but they were also exempt from
MAT. Now, they have to pay MAT of 18.5% on their profits earned in 2011-12. Their profits
will fall to that extent. As said earlier, this is a cash flow and timing-related effect, and they
will be able to set it off against future profits, as and when they become taxable.
But the SEZs may have to wait for a very long time for that. At present, units set up in SEZs
get a 100% exemption on profits for the first five years, 50% for the next five years, and
then 50% of the export profit reinvested in the business. And, developers of SEZs could get
a tax holiday for 10 out of 15 years from the time it was notified. That is, their tax incidence
will go up substantially only after 10 years.

In one shot, the government has ensured it loses no revenue (cash flow) due to companies
using SEZs for their business nor from developers who were racing to set up residential
and commercial complexes near the eligible areas surrounding the SEZ, and were eligible
for tax exemptions.
Source: http://www.indiabusinessview.com/news/921/corporate-income-tax-small-benefits-sezs-dealt-
mat-blow
Self Assessment

State which of the following is true or false in the context of the coverage of industrial undertaking:
1. A road, including toll road, a bridge or a rail system.
2. A highway project including housing or other activities being an integral part of the
highway project.
3. Any undertaking providing telecommunication services, whether basic or cellular.
4. Any undertaking which develops, develops and operates, or maintains and operates,
a special economic zone.
5. A port, airport, inland waterway or inland port or navigational channel in the sea.

6.2 Deduction in Respect of Profits and Gains by an Undertaking or
Enterprise Engaged in Development of SEZ (Section 80-IAB)

Sub-section (1) of Section 80-IAB provides for a deduction of 100% of profits and gains derived
by an undertaking or an enterprise from any business of developing a SEZ for 10 consecutive
assessment years. The deduction is available to an assessee, being a Developer, whose gross
total income includes any profits and gains derived by an undertaking or an enterprise from any
business of developing a SEZ, notified on or after 1st April, 2005 under the SEZ Act, 2005.

Here Developer means -
(i) a person who, or
(ii) a State Government

which has been granted a letter of approval by the Central Government under section 3(10) of
the SEZ Act, 2005.

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