ASSIGNMENT

ON
EXEMPT INCOMES- SEC. 10A

SUBMITTED TO:
Mr. Asim Sahore

SUBMITTED BY:
Akanksha Jain

CORPORATE TAX PLANNING

TECNIA INSTITUTE OF ADVANCED

STUDIES
Chapter II of the Income-tax Act contains a number of provisions in sections 10 to 13A
which exclude various kinds of incomes from the purview of taxation.

Section 10 enumerates a number of incomes at one place, which are otherwise incomes,
but which are not to be included in the income for the purpose of taxation

Income of newly established industrial undertakings in free trade zones,

etc. [section10A]

1. General: subject to the provisions of this section, a deduction of such profits and
gains as are derived by n undertaking from the export of articles or things or
computer software, as the case may be, shall be allowed from total income of the
assessee.

2. Assessees who are eligible for deduction: Deduction under this section is
available to all categories viz.individuals, firms, companies, etc.who derive any
profits or gains from an undertaking engaged in the export of articles or things or
computer software.

3. Essential conditions to claim deduction: The deduction shall apply to an

undertaking which fulfills all the following conditions:
(i) It has begun or begins to manufacture or produce articles or things or
computer software during the previous year, relevant to the assessment
year.
a) 1981-82 or thereafter, in any free trade zone;
b) 1994-95 or thereafter, in any electronic hardware technology park, or
as the case may be, software technology park; or

(ii) It should not be formed by the splitting up or reconstruction of a

business already in existence.However, deduction is provided if the
unit is formed as a result of the re-establishment, reconstruction or
revival by the assessee of the business of the undertaking as is referred
to and satisfying the conditions in section 33B

(iii) It should not be formed by the transfer of machinery or plant,

previously used for any purpose, to a new business. However, the
following are the two exceptions to this condition:
1) Machinery or plant which was used outside India by any person other
than the assessee shall not be regarded as machinery or plant previously
used for any purpose, if the following conditions are fulfilled:
a) The machinery or plant should not be previously used in
India.
b) The machinery or plant should be imported into India from
a foreign country.
 c) No deduction on account of depreciation in respect of such
machinery or plant has been allowed or is allowable under
the provisions of this act to any person previously.
2) Deduction u/s 10A will, be available if the total value of the second hand
machinery or plant transferred to the new undertaking does not exceed
20percent of the total value of the machinery or plant used in the
industrial unit.
(iv) The sale proceeds of articles or things or computer software exported
out of India should be received in, or brought into, India by the
assessee in convertible foreign exchange within a period of six months
from the end of the previous year or, within such further period as the
competent authority may allow in this behalf.

(v) The exemption shall not be admissible unless the assessee furnishes in
the prescribed form [Form No.56F], along with the return of income,
the report of a chartered accountant certifying that the deduction has
been correctly claimed in accordance with the provisions of this
section.

(vi) The provisions of sub section(8) (relating to inter-unit transfer) and

sub-section(10)(relating to showing excess profit from such unit) of
section 80-IA shall, so far as may be, apply in relation to the
undertaking referred to in this section as they apply for the purposes of
the undertaking referred to in section 80-IA.

4. Period of tax holiday: The profits and gain from the exports of such undertaking
shall not be included in the total income of the assessee in respect of any ten
consecutive assessment years beginning with the assessment years relevant to the
previous year in which the undertaking begins to manufacture or produce articles
or things or computer software. However, no deduction under this section shall be
allowed to any undertaking for the assessment year 2012-13 and thereafter.

5. How to compute profit and gains from exports of such undertakings [section
10A(4)]: For the purpose of the deduction under this section, the profits derived
from export of articles or things or computer software shall be the amount which
bears to the profits of the business of the undertaking, the same proportion as the
export turnover in respect of such articles or things or computer software bears to
the total turnover of the business carried on by the undertaking.
In other words it will be as under:

Profits from business of Export turnover of the undertaking of

the undertaking * such article/things or computer software
Total turnover of business carried on by the
undertaking
E.G: G Ltd. Furnishes the following particulars for the year 2009-10.

TOTAL SALES OF THE UNDERTAKING 5000000

EXPORT SALES 4000000
DOMESTIC SALES 1000000
MONEY BROUGHT IN INDIA IN CONVERTIBLE FOREIGN 3600000
EXCHANGE UPTO 30-09-2009
PROFIT FROM THE ABOVE UNDERTAKING 500000

CALCULATION OF DEDUCTION UNDER SEC 10A

= 500000 * 3600000
5000000
= Rs. 3600000

6. Ban on enjoyment of other tax benefits:

1) If the deduction under section 10A pertains to the assessment year 2001-02 or
any subsequent years, then unabsorbed depreciation, unabsorbed capital
expenditure on scientific research, unabsorbed family planning expenditure
relating to such undertaking will be allowed to be carried forward and set off
as per provisions of Income-tax act.

2) Similarly, brought forward losses under sections 72(1), 74(1) and 74(3) of
such undertaking with respect to assessment year 2001-02 and onwards shall
be carried forward and set off as per the provisions of the Income-tax Act.

3) Deduction under section 80-IA or 80-IB shall not be allowed in such cases.

4) WDV of any asset used for the purpose of the business of the undertaking
shall be computed as if the assessee had claimed and been actually allowed
deduction in respect of depreciation for each of the relevant assessment year.

7. Option not to claim benefit of tax holiday [Section 10A (8)]:Sub-section (8)
gives an option to any eligible industrial undertaking not to avail the benefit for
any of the relevant assessment years. An assessee may, before the due date for
filing the return of income under section 139(1) furnish a declaration in writing
that the provisions of the section may not be made applicable to him for the said
year forming part of the relevant assessment years. On such declaration,
provisions of section 10A shall not apply to the assessee for any of the said
relevant assessment year.

8. Deduction under this section allowable in case of amalgamation and

demerger [Section 10A(7A)]:where any undertaking of an Indian company
 which is entitled to the deduction under this section is transferred to another
Indian company under a scheme of amalgamation or demerger,the deduction shall
be allowable in the hands of the amalgamated or the resulting company. However
no deduction shall be admissible under this section to the amalgamating company
or the demerged company for the previous year in which the amalgamation or
demerger takes place.

9. Deduction under section 10A is not to be allowed if return of income is not

submitted by due date: No deduction under this section shall be allowed to an
assessee who does not furnish a return of his income on or before the due date
specified under section139(1).

Some important term:

Computer Software means,--

(i) any computer programme recorded on any disc, tape, perforated media or
other information storage device ; or
(ii) any customized electronic data or any product or service of similar nature,
as may be notified by the Board, which is transmitted or exported from India
to any place outside India by any means ;

Convertible Foreign Exchange means foreign exchange which is for the time being
treated by the Reserve Bank of India as convertible foreign exchange for the purposes of
the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder
or any other corresponding law for the time being in force ;

Electronic Hardware Technology Park means any park set up in accordance with the
Electronic Hardware Technology Park (EHTP) scheme notified by the Government of
India in the Ministry, of Commerce and Industry;

Export Turnover means the consideration in respect of export by the undertaking of

articles or things or computer software received in, or brought into India by the assessee
in convertible foreign exchange in accordance with sub-section (5), but does not include
freight, telecommunication charges or insurance attributable to the delivery of the articles
or things or computer software outside India or expenses, if any, incurred in foreign
exchange in providing the technical services outside India.

Free Trade Zone means the Kandla Free Trade Zone and the Santacruz Electronics
Export Processing Zone and includes any other free trade zone which the Central
Government may, by notification in the Official Gazette, specify for the purposes of this
section;

Relevant Assessment Year means any assessment year falling within a period of ten
consecutive assessment years referred to in this section;
Software Technology Park means any park set up in accordance with the Software
Technology Park Scheme notified by the Government of India in the Ministry of
Commerce and Industry;