Page 165 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes SEZ profi ts 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 profi ts

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 fi rst 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-benefi ts-sezs-dealt-mat-blow
Self Assessment

State whether 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.

7.2 Deductions by an Undertaking Engaged in Development of SEZ

Deductions in respect of profits and gains by an undertaking or enterprise engaged in development

of SEZ (Section 80-IAB) will be discussed in this section. 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.

A developer includes:
(i) an authority, and
(ii) a co-developer.

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