Page 146 - DCOM508_CORPORATE_TAX_PLANNING

Unit 6: Tax Planning: FTZ, SEZ and 100 % EOUs

3. The assessee has within a period of one year before or 3 years after the date on which the Notes
transfer took place:
(a) purchased machinery or plant for the purposes of business of the industrial
undertaking in the Special Economic Zone to which the said undertaking is shifted;

(b) acquired building or land or constructed building for the purposes of his business in
the Special Economic Zone;
(c) shifted the original asset and transferred the establishment to Special Economic
Zone; and

(d) incurred expenses on such other purpose as may be specified in a scheme framed by
the Central Government for the purposes of this section.
If the above conditions are satisfied, then the amount of exemption is equal to:

(i) the amount of capital gain generated on transfer of capital assets in the case of shifting of
an industrial undertaking as stated above; or

(ii) the cost and expenses incurred in relation to all or any of the purposes mentioned in (a) to
(d) supra (such cost and expenses being hereinafter referred to as the new asset), whichever
is lower.

Consequences if the new asset is transferred within 3 years: If the new asset is transferred within
a period of 3 years from the date of its purchase or construction or acquisition, the amount of
exemption given earlier under section 54G would be taken back. In such a case, the capital gain
on transfer of the new asset will be calculated as follows:

Particulars `
Sale consideration of the new asset xxxxxx
Less: Cost of acquisition (original cost of acquisition of the new asset minus exemption xxxxxx
given earlier under section 54GA which is going to be taken back because the new asset
is transferred within 3 years)
Short-term capital gain xxxxxx

Deductions in respect of profits and gains by an undertaking or enterprise engaged in development
of Special Economic Zone: Section 80-IAB has been inserted to give deduction to the developers
of special economic zone. The following conditions should be satisfi ed –
1. The taxpayer is a developer of a special economic zone.

2. The gross total income of the taxpayer includes profits and gains derived by an undertaking

from any business of developing a special economic zone.
3. Such special economic zone is notified on or after April 1, 2005.

4. The books of the account of the taxpayer are audited.

If the above conditions are satisfied, the taxpayer can claim 100 per cent deduction in respect of
the aforesaid profi t.
The aforesaid deduction is available for 10 consecutive assessment years. The deduction
may be claimed, at the option of the taxpayer, for any 10 consecutive assessment years out of
15 years beginning from the year in which the special economic zone has been notified by the

Central Government. If a taxpayer who develops a special economic zone on or after April 1,
2005 (“transferor”) transfers the operation/maintenance of such zone to another developer
(“transferee”), then deduction shall be allowed to the transferee for the remaining period of 10
years as if the operation and maintenance were not so transferred. Similar rule will be applicable

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