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

Notes
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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

6.3.2 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 fro 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.

Example: To clarify the above position, certain illustrations are given as under:
(i) Undertaking ‘A’ is set up in domestic Tariff Area and starts manufacture or production of
computer software in Financial Year 1999-2000 relevant to assessment year 2000-01. It gets
approval as 100% EOU on 10th September, 2004 in the Financial Year 2004-05 relevant to
assessment year 2005-06. Accordingly, it shall be eligible for deduction under section 10B
from assessment year 2005-06 i.e. the year in which it fulfils the basic condition of being

a 100% EOU. Further, the deduction shall be available only for the remaining period of
ten years i.e. from AY. 2005-06 to A.Y. 2009-10. This deduction under section 10B for A.Y.
2005-06 shall be restricted to the profits derived from exports, from and after the date of

approval of the DTA unit as 100% EOU.
(ii) Undertaking ‘B’ set up in Domestic Tariff Area, begins to manufacture or produce computer

software in financial year 96-97 relevant to assessment year 1997-98. It gets approval as

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