TAX HOLIDAY FOR 100% EXPORT ORIENTED UNDERTAKINGS [SECTION 10B]

The section exempts the profits and gains of an undertaking derived from the export of articles or things or computer software.

Such profits will be exempt for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be.

However, no deduction under this section would be available to any undertaking for assessment year 2010-11 and subsequent years.

(1) Conditions for claiming exemption

(i) The sale proceeds of articles, things or computer software exported out of India must be brought into India in convertible foreign exchange within six months from the end of the previous year, or such further period as the competent authority may allow. For this purpose, "competent authority" means the Reserve Bank of India or such other authority as is authorised for regulating payments and dealings in foreign exchange.

(ii) Further, where the sale proceeds are credited to a separate account maintained by the assessee with any bank outside India with the approval of the RBI, such sale proceeds shall be deemed to have been received in India.

(iii) The assessee should furnish an audit report in Form 56G from a chartered accountant, etc. in the prescribed form along with the return of income, certifying that the deduction has been correctly claimed.

(iv) 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 section 139(1).

(2) Computation of profit

The profit derived from export 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, things or computer software bears to the total turnover of the business.

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For this purpose, the profits and gains derived from on-site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.

For the purpose of this section, “manufacture or produce” shall include the cutting and polishing of precious and semi-precious stones.

(3) Restriction on other tax benefits

In computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment year, the following provisions shall apply:

(i) In computing depreciation under section 32, the written down value (WDV) of any asset used for the business shall be computed as if the assessee had claimed and actually been allowed the deduction in respect of the relevant assessment year.

(ii) No deduction shall be allowed under section 80-IA or 80-IB.

(iii) Any unabsorbed depreciation under section 32(2) or business loss under section 72(1) or loss under the head “Capital gains” under section 74 of the undertaking shall be allowed to be carried forward and set off in the subsequent assessment years.

The provisions of 80-IA(8) and 80-IA(10) shall apply in relation to the undertaking as they apply for the purposes of the undertaking referred to in that section.

(4) Exemption allowable in case of amalgamation or demerger

(i) Sub-section (7A) provides that where an undertaking of an Indian company is transferred to another company under a scheme of amalgamation or demerger, the deduction shall be allowable in the hands of the amalgamated or resulting company, as the case may be, for the unexpired period.

(ii) However, no deduction shall be admissible under these sections to the amalgamating company or the demerged company for the previous year in which amalgamation or demerger takes place.

(5) Definitions for the purpose of this section (i) "Computer software" means

(a) any computer programme recorded on any disc, tape perforated media or other information storage device; or

(b) 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.

(ii) "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 and any rules made there under or any other corresponding law for the time being in force.

(iii) "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 (3), 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.

(iv) "Hundred percent export oriented undertaking" means an undertaking which has been approved as a hundred percent export oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of its powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 and its related rules.

(v) "Relevant assessment year" means any assessment year falling within a period of ten consecutive assessment years referred to in this section.

(6) Benefit of deduction u/s 10B to be available to undertakings set up in Domestic Tariff Area (DTA) subsequently approved as a 100% Export Oriented Undertaking The following clarifications have been issued regarding the scheme of tax holiday u/s 10B vide Circular No. 1/2005, dated 6.1.2005–

If 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, is subsequently approved as a 100% EOU by the Board appointed by the Central Government in exercise of powers conferred u/s 14 of the Industries (Development and Regulation) Act, 1951, it shall be eligible for deduction u/s 10B.The deduction shall be available only from the year in which the undertaking has got the approval as a 100% EOU.

It shall be available only for remaining period of 10 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 from 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 A.Y.2009 -10.

To clarify the above position, the following illustrations are given –

A 1999-00 2004-05 (w.e.f. 10.9.2004) 2004-05 (w.e.f. 10.9.2004) to 2008-09

3.6 SPECIAL PROVISIONS IN RESPECT OF EXPORT OF CERTAIN ARTICLES OR