Section 10AA- Special Provisions in Respect of Newly Established Units in Special Economic Zones
Updated: Oct 7
The Income Tax Act, of 1961 is the main statute of Income Tax in India. It provides for levy, administration, collection, and recovery of Income Tax.
According to Section 10AA, it provides a reduction from the total income of those profits and gains derived by an assessee being an entrepreneur from the export of articles or things or services for certain consecutive assessment years. It is applicable to an undertaking that has begun or begins to manufacture or produce articles or services during the previous year relevant to the assessment year commencing on or after the 1st day of April 2006 in any Special Economic Zone. Valid and essential conditions to be fulfilled under Section 10AA-
Reduction under Section 10AA is available to an assessee/undertaking manufacturing and exporting articles or things or services. This section do not talk about any particular form of organization for running the undertaking. Thus, the undertaking can be operated as a sole proprietorship, partnership firm, a public or private company, etc.
The undertaking has to manufacture or produce articles or things or provide any service. For this purpose, the term "manufacture" should have the same meaning as assigned to it in clause (r) of Section 2 of the Special Economic Zones Act, 2005.
To be able to claim reduction and be eligible for the same under Section 10AA, the undertaking mandatorily has to be located in Special Economic Zone. The term "Special Economic Zone" shall have the meaning assigned to it under section 2 of the Special Economic Zones Act, 2005.
The reduction under this section will not be available to an undertaking being the unit, which had already availed, before the commencement of the Special Economic Zones Act, 2005, the reduction referred to in Section 10A for ten consecutive assessment years.
The undertaking has to manufacture or produce articles or things or provide any service must commence operations either during the previous year 2005-06 or any subsequent previous year.
Such undertaking should not have been formed by splitting up, a reconstruction of a business already in existence. But this condition will not apply in respect of an undertaking formed as a result of the re-establishment, reconstruction, or revival of such undertaking, in the circumstances and within the period as specified in Section 33B. Section 33B deals with re-establishment, reconstruction, or revival by the assessee of the business in which the Indian business is discontinued by reason of extensive damage to or destruction of, any building. machinery, plant, or furniture owned by the assessee for the purpose of such business due to specified reasons. The specified reasons are as follows:
Flood, typhoon, hurricane, cyclone, earthquake, or other convulsions of nature; or
Riot or civil disturbance; or accidental fire or explosion; or
Action by any enemy or action taken in combating an enemy (whether with or without a declaration of war).
The undertaking should not have been formed by the transfer of plant and/or machinery previously used for any other purposes in India. Any machinery or plant which was used outside India by any person other than the assessee will not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled :
(a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;
(b) such machinery or plant is imported into India from any country outside India; and (c) no reduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of installation of the machinery or plant by the assessee.
Hence, if an assessee imports second-hand foreign machinery then it shall be treated at par with the purchase of a new plant or machinery if the above conditions are fulfilled.
The undertaking must export out of India, the articles or things or services. 'Export' in relation to the "Special Economic Zone" means taking goods or providing services out of India from a "Special Economic Zone" by land, sea, air, or by any other mode, whether physical or otherwise.
The sale proceeds of articles or things or computer software exported out of India must be received in India and if not received in India, then must be brought into India, in convertible foreign exchange within 6 months from the end of the relevant previous year. This period can be extended by the competent authority.