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SNK
TAX EXEMPTION SCHEMETAX EXEMPTION SCHEMESpecial Economic Zone (SEZ)Special Economic Zone (SEZ)
AndAndExport Oriented Units (EOU)Export Oriented Units (EOU)
Presentation By:Presentation By:Ankur ShahAnkur Shah
PartnerPartnerSNK
SNK
22
SNKAgendaAgendaSpecial Economic Zone:Special Economic Zone: Incentives under Income TaxIncentives under Income Tax Incentives under Other ActsIncentives under Other Acts Other Special Fiscal ProvisionsOther Special Fiscal ProvisionsExport Oriented Unit:Export Oriented Unit: Incentives under Income Tax Incentives under Income Tax Other Special Fiscal ProvisionsOther Special Fiscal Provisions
33
SNK
Special Economic ZoneSpecial Economic Zone(SEZ)(SEZ)
44
SNKWhat is an SEZ?What is an SEZ?
“…“….it is a specifically delineated duty-free enclave .it is a specifically delineated duty-free enclave and shall deemed to be a and shall deemed to be a foreign territoryforeign territory for the for the purposes of trade operations and duties and tariffs”purposes of trade operations and duties and tariffs”
. . . . EXIM Policy 2000, Chapter 9 para 30. . . . EXIM Policy 2000, Chapter 9 para 30The purpose -The purpose -““... to provide an internationally competitive and ... to provide an internationally competitive and hassle-free hassle-free environment for exports” environment for exports”
55
SNKWhat is special?What is special?
Duty-free! Exemption from taxes, various subsidies Duty-free! Exemption from taxes, various subsidies and tax sopsand tax sops
Hassle-free! Exemption from stringent labour and Hassle-free! Exemption from stringent labour and environment regulationsenvironment regulations
Foreign enclave! A designated duty free enclave Foreign enclave! A designated duty free enclave and to be treated as foreign territory for trade and to be treated as foreign territory for trade operations and duties and tariffsoperations and duties and tariffs
Single Window Clearance! Single Window Clearance! No license required for importNo license required for import Only 25% of the area for industrial activity – the rest Only 25% of the area for industrial activity – the rest
of the area for entertainment and residential as well of the area for entertainment and residential as well as other commercialas other commercial activities! activities!
66
SNKWhat is special?What is special?
No fixed wastage normsNo fixed wastage norms Full freedom for subcontracting including Full freedom for subcontracting including
subcontracting abroadsubcontracting abroad Job work on behalf of domestic exporters for direct Job work on behalf of domestic exporters for direct
exports allowedexports allowed Contract farming allowed for agriculture/ horticulture Contract farming allowed for agriculture/ horticulture
unitsunits No routine examination by Customs of export & No routine examination by Customs of export &
import cargoimport cargo In house customs ClearanceIn house customs Clearance
88
SNKFiscal Benefits available to SEZFiscal Benefits available to SEZ
Cenvat Cenvat
CustomsCustoms
VAT VAT
Income Tax Income Tax
Service Tax Service Tax
Central Sales tax
Central Sales tax
Securities Transaction
Tax
Securities Transaction
Tax
Exemptions of tax, duties or
cess in 21 Acts
Exemptions of tax, duties or
cess in 21 Acts
Stamp DutyStamp Duty
FEMAFEMA Other ActsOther Acts
99
SNKSynopsis of Key Tax incentives under SEZ Act, Synopsis of Key Tax incentives under SEZ Act, 20052005
In addition to the above, most State Governments extend additional benefits & incentives under their respective SEZ Schemes such as exemption from local taxes, levies & duties, exemption from electricity, water duties, declaration of SEZs as Public Utility Services
1010
Income Tax BenefitsIncome Tax Benefits
1111
SNK Relevant Sections in Relevant Sections in Income Tax Act,1961Income Tax Act,1961
Sr.Sr. Section Section Description Description
11 10(15)(viii)10(15)(viii) Interest received on deposit with Offshore Interest received on deposit with Offshore Banking Unit (OBU) is exempt Banking Unit (OBU) is exempt
22 10AA10AA Exemption to newly established Units in Exemption to newly established Units in SEZSEZ
33 54GA54GA Exemption of Capital gain on transfer of Exemption of Capital gain on transfer of asset in case of shifting of Industrial asset in case of shifting of Industrial Undertaking from Urban Area to SEZUndertaking from Urban Area to SEZ
44 80-IAB80-IAB Deduction in respect of profits and gains in Deduction in respect of profits and gains in development of SEZ development of SEZ
55 80LA80LA Deduction from income of OBU and IFSC Deduction from income of OBU and IFSC (International Financial Services Centre)(International Financial Services Centre)
1212
SNKRelevant Sections in Income Tax Relevant Sections in Income Tax Act,1961Act,1961
Sr.Sr. Section Section Description Description
66 115JB(6)115JB(6) Non applicability of MAT to SEZ Developer Non applicability of MAT to SEZ Developer and Unitand Unit
77 115-O115-O Exemption from dividend distribution tax Exemption from dividend distribution tax from current income of SEZ Developerfrom current income of SEZ Developer
88 197A197A No TDS on interest on deposits made with No TDS on interest on deposits made with OBU by Non-resident or person not ordinary OBU by Non-resident or person not ordinary resident in India resident in India
Changes in the Income Tax Act 1961 relating to SEZ made by
Special Economic Zones Act 2005 w.e.f 10/02/2006
1313
SNK
Exemption to newly established Exemption to newly established
Units in SEZUnits in SEZ
- Section 10AA- Section 10AA
1414
SNKExemption to Unit who begins to manufacture or produce Exemption to Unit who begins to manufacture or produce
articles or things or provide any services during the PY articles or things or provide any services during the PY
relevant to any AY commencing on or after 01.04.2006relevant to any AY commencing on or after 01.04.2006
Deduction – Total 15 YearsDeduction – Total 15 Years
100% of Profits from export100% of Profits from export
for 5 consecutive years for 5 consecutive years
50% of Profits from exports50% of Profits from exports
for further 5 assessment years for further 5 assessment years
50% of Profits in the form of credit to “Special Economic 50% of Profits in the form of credit to “Special Economic
Zone Re-investment Reserve Account” for next 5 yearsZone Re-investment Reserve Account” for next 5 years
1515
SNKCalculation of DeductionCalculation of Deduction
Profit ofProfit of xx ETO of the unit ETO of the unit
the unitthe unit TTO of the business ofTTO of the business of
of the assesseeof the assessee
Where,Where,
ETO = Export TurnoverETO = Export Turnover
TTO = Total TurnoverTTO = Total Turnover
Anomaly needs to be resolved
1616
SNKUse of Special Economic Zone Use of Special Economic Zone Re-investment Reserve Account Re-investment Reserve Account
( S 10AA(2)(a))( S 10AA(2)(a))Acquiring machinery or plant Acquiring machinery or plant
Until the acquisition of the machinery or plant, for Until the acquisition of the machinery or plant, for
the purposes of the business of the undertaking the purposes of the business of the undertaking
other thanother than
for distribution by way of dividends or profits or for distribution by way of dividends or profits or
for remittance outside India as profits orfor remittance outside India as profits or
for the creation of any asset outside India;for the creation of any asset outside India;
1717
SNKMis-use of Special Reserve AccountMis-use of Special Reserve Account( S 10AA(3))( S 10AA(3))
If the Special Reserve Account is misutilised, then If the Special Reserve Account is misutilised, then
the deduction would be taken back in the year in the deduction would be taken back in the year in
which the Special Reserve Account is misutilised. which the Special Reserve Account is misutilised.
If the Special Reserve Account is not utilised for If the Special Reserve Account is not utilised for
acquiring new plant and machinery within three acquiring new plant and machinery within three
years then the deduction would be taken back in years then the deduction would be taken back in
the year immediately following the period of three the year immediately following the period of three
years. years.
1818
SNKConsequences for merger and Consequences for merger and demerger demerger ( S 10AA(5))( S 10AA(5))
Where an undertaking is transferred to another Where an undertaking is transferred to another
company under a scheme of amalgamation or company under a scheme of amalgamation or
demerger, the deduction under section 10AA shall be demerger, the deduction under section 10AA shall be
allowable in the hands of the amalgamated or the allowable in the hands of the amalgamated or the
resulting company. resulting company.
However, no deduction shall be admissible under this However, no deduction shall be admissible under this
section to the amalgamating company or the demerged section to the amalgamating company or the demerged
company for the previous year in which amalgamation company for the previous year in which amalgamation
or demerger takes place. or demerger takes place.
1919
SNKDefinition of Export in relation to SEZDefinition of Export in relation to SEZ
As provided under As provided under clause (ii) of Explanation clause (ii) of Explanation
1 to Section 10AA1 to Section 10AA
As per section 2(m) of As per section 2(m) of SEZ Act, 2005SEZ Act, 2005
taking goods, or taking goods, or providing services, out providing services, out of India, from a Special of India, from a Special Economic Zone, by land, Economic Zone, by land, sea or air or by any sea or air or by any other mode, whether other mode, whether physical or otherwisephysical or otherwise
(i) taking goods, or (i) taking goods, or providing services, out providing services, out of India, from a Special of India, from a Special Economic Zone, by land, Economic Zone, by land, sea or air or by any sea or air or by any other mode, whether other mode, whether physical or otherwise; or physical or otherwise; or
Similar Provisions
2020
SNKDefinition of Export in relation to SEZDefinition of Export in relation to SEZ
Anomaly needs to be resolved
Income Tax Income Tax ActAct
SEZ Act, 2005SEZ Act, 2005
---- (ii) supplying goods, or providing (ii) supplying goods, or providing services, from the Domestic Tariff services, from the Domestic Tariff Area to a Unit or Developer; orArea to a Unit or Developer; or
---- (iii) supplying goods, or providing (iii) supplying goods, or providing services, from one Unit to another services, from one Unit to another Unit or Developer, in the same or Unit or Developer, in the same or different Special Economic Zone; different Special Economic Zone;
2121
SNK
Exemption of Capital GainExemption of Capital Gain
on Shifting to SEZon Shifting to SEZ
- Sec 54GA- Sec 54GA
2222
SNK
Exemption of capital gains on transfer of assets in cases Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area to of shifting of industrial undertaking from urban area to any Special Economic Zone.any Special Economic Zone.
The exemption is available to all categories of assesses The exemption is available to all categories of assesses on capital gain arising on the transfer of certain capital on capital gain arising on the transfer of certain capital asset of industrial undertaking from urban area to SEZ. asset of industrial undertaking from urban area to SEZ. (whether developed in an urban area or not)(whether developed in an urban area or not)
The Asset transferred should be machinery or plant or The Asset transferred should be machinery or plant or building or land or any rights in building or land building or land or any rights in building or land
The capital gain should be utilized within one year before The capital gain should be utilized within one year before or three years after the date of transfer for the specified or three years after the date of transfer for the specified purpose.purpose.
2323
SNKSpecified Purpose- 54GA Specified Purpose- 54GA contd..contd..
(i) (i) Purchase of plant or machineryPurchase of plant or machinery
(ii)(ii) Acquisition of building or land or construction of building Acquisition of building or land or construction of building
(iii) Shifting of the original asset and transferring the (iii) Shifting of the original asset and transferring the establishment of such undertaking to the Special establishment of such undertaking to the Special Economic Zone; andEconomic Zone; and
(iv) incurring expenses on such other purposes as may be (iv) incurring expenses on such other purposes as may be specified in a scheme framed by the Central Government specified in a scheme framed by the Central Government for the purposes of this section.for the purposes of this section.
The amount of capital gain which is not so utilised for the The amount of capital gain which is not so utilised for the specific purposes should be deposited in an account with specific purposes should be deposited in an account with any specified bank or institution and utilised in any specified bank or institution and utilised in accordance with the scheme notified by the Central accordance with the scheme notified by the Central GovernmentGovernment
2424
SNKQuantum Of DeductionQuantum Of Deduction-Sec 54GA contd..-Sec 54GA contd..
Situation Situation Result Result
Amount of Capital Gain < = Amount of Capital Gain < = Cost and expenses Cost and expenses incurred for incurred for specified Purposesspecified Purposes
Entire Capital Gain Entire Capital Gain exemptexempt
Amount of Capital Gain > Amount of Capital Gain > Cost and expenses incurred Cost and expenses incurred for specified for specified Purposes.Purposes.
Exemption: to the Exemption: to the extent of cost and extent of cost and expenses incurredexpenses incurred
2525
SNKDefinition of Urban areaDefinition of Urban area
Urban area means any such area within the limits of Urban area means any such area within the limits of
a municipal corporation or municipality as the a municipal corporation or municipality as the
Central Government may, having regard to the Central Government may, having regard to the
population, concentration of industries, need for population, concentration of industries, need for
proper planning of the area and other relevant proper planning of the area and other relevant
factors, by general or special order, declare to be an factors, by general or special order, declare to be an
urban area for the purposes of this sub-section.urban area for the purposes of this sub-section.
2626
SNK
Deduction in respectDeduction in respect
of profits of profits
by SEZ Developerby SEZ Developer
- Sec 80 IAB- Sec 80 IAB
2727
SNKDeductions in respect of profits and gains from Deductions in respect of profits and gains from
industrial undertakings or enterprises engaged in industrial undertakings or enterprises engaged in
development of Special Economic Zone.development of Special Economic Zone.
An undertaking which develops a special Economic Zone An undertaking which develops a special Economic Zone
notified on or after 1.4.2005 will not be eligible to claim notified on or after 1.4.2005 will not be eligible to claim
deduction under section 80-IA, but will now be claiming deduction under section 80-IA, but will now be claiming
deduction under new section 80 – IAB.deduction under new section 80 – IAB.
Available to an assessee, being a Developer whose gross Available to an assessee, being a Developer whose gross
total income, includes any profit and gains derived by an total income, includes any profit and gains derived by an
undertaking or an enterprise from any business of undertaking or an enterprise from any business of
developing a special Economic Zone, notified on or after developing a special Economic Zone, notified on or after
1.4.2005 under Special Economic Zones Act,20051.4.2005 under Special Economic Zones Act,2005
2828
SNKQUANTUM OF DEDUCTIONQUANTUM OF DEDUCTION- - Sec 80 IABSec 80 IAB contd..contd..
A deduction of an amount equal to 100% of the A deduction of an amount equal to 100% of the
profits and gains derived from such business for profits and gains derived from such business for
10 consecutive assessment years. 10 consecutive assessment years.
The assessee has the option of claiming the said The assessee has the option of claiming the said
deduction for any 10 consecutive assessment deduction for any 10 consecutive assessment
years years out of 15 years beginning from the year in out of 15 years beginning from the year in
which a SEZ has been notified by the Central which a SEZ has been notified by the Central
GovernmentGovernment
2929
SNKTransfer of UndertakingTransfer of Undertaking If a taxpayer who develops a special economic zone on or If a taxpayer who develops a special economic zone on or
after April 1, 2005 (“transferor”) transfers the after April 1, 2005 (“transferor”) transfers the
operation/maintenance of such zone to another developer operation/maintenance of such zone to another developer
(“transferee”), then deduction shall be allowed to the (“transferee”), then deduction shall be allowed to the
transferee for the remaining period of 10 years as if the transferee for the remaining period of 10 years as if the
operation and maintenance were not so transferred. operation and maintenance were not so transferred.
Similar rule will be applicable in the case of amalgamation Similar rule will be applicable in the case of amalgamation
of an Indian company which has developed a special of an Indian company which has developed a special
economic zone with another Indian company. economic zone with another Indian company.
3030
SNK
Non applicability Non applicability
of MAT to of MAT to
SEZ Developer and UnitSEZ Developer and Unit
- Sec 115JB(6)- Sec 115JB(6)
3131
SNK
Section 115JB(6) of the Income Tax Act Section 115JB(6) of the Income Tax Act
provides that the provisions of this section provides that the provisions of this section
shall not apply to the income accrued or shall not apply to the income accrued or
arising on or after 1arising on or after 1stst Day of April, 2005 from Day of April, 2005 from
any business carried on, or services rendered, any business carried on, or services rendered,
by an entrepreneur or a Developer, in a Unit by an entrepreneur or a Developer, in a Unit
or Special Economic Zone, as the case may or Special Economic Zone, as the case may
be. be.
3232
SNK
No Tax No Tax
on Distributed Profitson Distributed Profits
- Sec 115O(6)- Sec 115O(6)
3333
SNKNo tax on dividends would be chargeable in respect of No tax on dividends would be chargeable in respect of
the total income of an undertaking or enterprise the total income of an undertaking or enterprise engaged in engaged in
a)a) developing a SEZ or developing a SEZ or
b)b) developing and operating a SEZ or developing and operating a SEZ or
c)c) developing, operating and maintaining a SEZdeveloping, operating and maintaining a SEZ If such dividend (whether interim or otherwise) is If such dividend (whether interim or otherwise) is
declared, distributed or paid by such Developer or declared, distributed or paid by such Developer or enterprise, on or after the 1st day of April, 2005 out enterprise, on or after the 1st day of April, 2005 out of of its current income its current income
No tax either in the hands of the Developer or No tax either in the hands of the Developer or enterprise or person receiving such dividend enterprise or person receiving such dividend
3434
Offshore Banking Unit (OBU)Offshore Banking Unit (OBU)
3535
SNKInterest Income from OBU is exemptInterest Income from OBU is exempt In computing the total income of previous year of any In computing the total income of previous year of any
person any income by way of interest received person any income by way of interest received
byby
1.1. Non resident orNon resident or
2.2. a person who is not ordinarily resident in Indiaa person who is not ordinarily resident in India
on a deposit made on or after the 1st day of on a deposit made on or after the 1st day of
April, 2005, in an Offshore Banking Unit April, 2005, in an Offshore Banking Unit
shall not be included (Section 10(15)(viii))shall not be included (Section 10(15)(viii))
3636
SNKDeductions in respect of certain incomes of Deductions in respect of certain incomes of
Offshore Banking Units and International Offshore Banking Units and International Financial Services Centre 80LAFinancial Services Centre 80LA
Assesses coveredAssesses covered
(i)(i) Scheduled bank, or, any bank incorporated by Scheduled bank, or, any bank incorporated by or under the laws of a country outside India; or under the laws of a country outside India; and having an Offshore Banking Unit in a and having an Offshore Banking Unit in a Special Economic Zone; Special Economic Zone;
oror
(ii) Unit of an International Financial Services (ii) Unit of an International Financial Services Centre,Centre,
3737
SNKAmount of deduction-Sec 80LA(1)Amount of deduction-Sec 80LA(1)
(a)(a) 100% of such income for 5 consecutive 100% of such income for 5 consecutive assessment years beginning with the assessment assessment years beginning with the assessment year relevant to the previous year in which year relevant to the previous year in which the permission,under 23(1)(a) of the Banking Regulation the permission,under 23(1)(a) of the Banking Regulation
Act, 1949 or Act, 1949 or
permission or registration under the Securities and permission or registration under the Securities and
Exchange Board of India Act, 1992 (15 of 1992) or Exchange Board of India Act, 1992 (15 of 1992) or
any other relevant law was obtained, and thereafter;any other relevant law was obtained, and thereafter;
(b) 50% of such income for next 5 consecutive (b) 50% of such income for next 5 consecutive
assessment years.assessment years.
3838
SNKIncome Exempted-Sec 80LA(2)Income Exempted-Sec 80LA(2)
Income refers to income :Income refers to income :
(a) from an Offshore Banking Unit in a SEZ; or(a) from an Offshore Banking Unit in a SEZ; or
(b) from the business referred to in Section 6(1) the (b) from the business referred to in Section 6(1) the
Banking Regulation Act, 1949 with an undertaking Banking Regulation Act, 1949 with an undertaking
located in a SEZ or any other undertaking which located in a SEZ or any other undertaking which
develops, develops and operates or develops, operates develops, develops and operates or develops, operates
and maintains a SEZ; orand maintains a SEZ; or
((cc) from any Unit of the International Financial Services ) from any Unit of the International Financial Services
Centre from its business for which it has been Centre from its business for which it has been
approved for setting up in such a Centre in a SEZ.approved for setting up in such a Centre in a SEZ.
3939
Other BenefitsOther Benefits
4040
SNKBenefits under Customs Benefits under Customs Exemption from any duty of customs on goods imported Exemption from any duty of customs on goods imported
into, or services provided in, an SEZ or a Unit, to carry on into, or services provided in, an SEZ or a Unit, to carry on the authorised operations by the Developer or Entrepreneur.the authorised operations by the Developer or Entrepreneur.
Accordingly, as definition of import does not include Accordingly, as definition of import does not include DTA to SEZ supply, the procurement of goods or DTA to SEZ supply, the procurement of goods or providing of services from will not amount to import.providing of services from will not amount to import.
Exemption from any duty of customs on goods exported Exemption from any duty of customs on goods exported from, or services provided from, an SEZ or a Unit, to any from, or services provided from, an SEZ or a Unit, to any place outside India.place outside India.
Drawback or such other benefits as may be admissible from Drawback or such other benefits as may be admissible from time to time on goods brought or services provided from the time to time on goods brought or services provided from the DTA into an SEZ or Unit or services provided in an SEZ or DTA into an SEZ or Unit or services provided in an SEZ or Unit by the services providers located outside India.Unit by the services providers located outside India.
4141
SNKBenefits under Excise Benefits under Excise
Exemption from any duty of excise, on goods Exemption from any duty of excise, on goods brought from DTA to an SEZ or Unit to carry brought from DTA to an SEZ or Unit to carry on the authorised operations by the on the authorised operations by the Developer or Entrepreneur.Developer or Entrepreneur.
Domestic sales by SEZ units will now be Domestic sales by SEZ units will now be exempt from SADexempt from SAD
4242
SNKBenefits under Service Tax Benefits under Service Tax The exemption from payment of service tax The exemption from payment of service tax
on taxable services rendered to a on taxable services rendered to a
Developer or a Unit (including a Unit under Developer or a Unit (including a Unit under
construction)construction)
by any service provider by any service provider
shall be available to carry on the shall be available to carry on the
authorized operations in a Special authorized operations in a Special
Economic Zone Economic Zone (Consumption Criteria)(Consumption Criteria) – –
Section 26(1)(e) and rule 31Section 26(1)(e) and rule 31
4343
SNKBenefits under Central Sales TaxBenefits under Central Sales Tax Every Developer and the entrepreneur is entitled for Every Developer and the entrepreneur is entitled for
exemption from the levy of taxes on the sale or purchase of exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax goods other than newspapers under the Central Sales Tax Act, 1956 if such goods are meant to carry on the authorized Act, 1956 if such goods are meant to carry on the authorized operations by the Developer or entrepreneur. – Sec 26(1)(g)operations by the Developer or entrepreneur. – Sec 26(1)(g)
This is subject to the condition that the dealer selling goods in This is subject to the condition that the dealer selling goods in the course of inter state trade or commerce to a registered the course of inter state trade or commerce to a registered dealer under the Central Sale Tax Act, 1956 shall furnish a dealer under the Central Sale Tax Act, 1956 shall furnish a declaration in Form – I prescribed under the Central Sales declaration in Form – I prescribed under the Central Sales Tax (Registration and Turnover) Rules, 1957.- Proviso to Rule Tax (Registration and Turnover) Rules, 1957.- Proviso to Rule 3232
4444
SNKChanges made in Changes made in Central Sales Tax Act,1956Central Sales Tax Act,1956
No CST shall be payable by any dealer in respect of sale of any goods No CST shall be payable by any dealer in respect of sale of any goods made by such dealer,made by such dealer,
in the course of inter-State trade or commerce, in the course of inter-State trade or commerce, to a registered dealer (developer of SEZ or SEZ Unit as the case may to a registered dealer (developer of SEZ or SEZ Unit as the case may
be) be) for the purpose of manufacture, production, processing, assembling, for the purpose of manufacture, production, processing, assembling,
repairing, reconditioning, re-engineering, packaging or for use as trading repairing, reconditioning, re-engineering, packaging or for use as trading or packing material or packing accessories in an unit located in any SEZ, or packing material or packing accessories in an unit located in any SEZ,
if such registered dealer has been authorised to establish such unit by if such registered dealer has been authorised to establish such unit by the authority specified by the Central Government in this behalf. the authority specified by the Central Government in this behalf. (Development Commissioner is of SEZ is authorized to permit a person (Development Commissioner is of SEZ is authorized to permit a person to set up unit in SEZ)to set up unit in SEZ)(Section 8(6) of Central Sales Tax Act, 1956)(Section 8(6) of Central Sales Tax Act, 1956)
4545
SNKBenefits underBenefits under Securities Securities Transaction TaxTransaction Tax
Every Developer and the entrepreneur Every Developer and the entrepreneur shall be entitled to exemption from the shall be entitled to exemption from the securities transaction tax leviable under securities transaction tax leviable under section 98 of the Finance (No. 2) Act, 2004 section 98 of the Finance (No. 2) Act, 2004 in case the taxable securities transactions in case the taxable securities transactions are entered into by a non-resident through are entered into by a non-resident through the International Financial Services the International Financial Services Centre. Sec 26(1)(f)Centre. Sec 26(1)(f)
4646
SNKBenefits under Stamp Duty under Benefits under Stamp Duty under Indian Stamp Act,1899Indian Stamp Act,1899
Exemption from stamp duty on any instrument Exemption from stamp duty on any instrument
executed, by, or on behalf of or in favour of the executed, by, or on behalf of or in favour of the
Developer, or Unit or in connection with the carrying Developer, or Unit or in connection with the carrying
out of purposes of the Special Economic Zone. out of purposes of the Special Economic Zone.
(Section 3 Third Proviso of Indian Stamp Act,1899) (Section 3 Third Proviso of Indian Stamp Act,1899)
Effected by Change in Indian Stamp Act,1899 by Effected by Change in Indian Stamp Act,1899 by
Special Economic Zones Act, 2005 Third Schedule, Special Economic Zones Act, 2005 Third Schedule,
Part IIIPart III
4747
SNKBenefits under Benefits under Foreign Direct Investment (FDI)Foreign Direct Investment (FDI)
FDI is allowed through automatic route for all FDI is allowed through automatic route for all manufacturing activities in SEZ except -manufacturing activities in SEZ except -
1)1) Arms and ammunition , Explosives and allied Arms and ammunition , Explosives and allied items of defence equipments, Defense aircrafts items of defence equipments, Defense aircrafts and warships,and warships,
2)2) Atomic substances, Narcotics and Psychotropic Atomic substances, Narcotics and Psychotropic Substances and hazardous Chemicals,Substances and hazardous Chemicals,
3)3) Distillation and brewing of Alcoholic drinks andDistillation and brewing of Alcoholic drinks and
4)4) Cigarette/cigars and manufactured tobacco Cigarette/cigars and manufactured tobacco substitutes.substitutes.
4848
SNKFDI Contd..FDI Contd.. 100% FDI in trading activity is permitted 100% FDI in trading activity is permitted
100% FDI allowed for townships and recreational facilities 100% FDI allowed for townships and recreational facilities
on a case to case basis, on a case to case basis,
100% FDI allowed for franchise for basic telephone 100% FDI allowed for franchise for basic telephone
service in SEZservice in SEZ
SEZ Unit can manufacture articles reserved for SSI even SEZ Unit can manufacture articles reserved for SSI even
if foreign equity exceeds 24%. No License is required if foreign equity exceeds 24%. No License is required
(Department of Industrial License Press Note No 5 dated (Department of Industrial License Press Note No 5 dated
29-03-2000 Notification 7(11)/2000-IP dated 04-12-2000)29-03-2000 Notification 7(11)/2000-IP dated 04-12-2000)
4949
SNKBenefits under Companies Act, Benefits under Companies Act, 19561956
Enhanced limit of Rs. 2.40 crores per Enhanced limit of Rs. 2.40 crores per annum allowed for managerial annum allowed for managerial remunerationremuneration
Regional office of Registrar of Companies Regional office of Registrar of Companies in SEZsin SEZs
Exemption from requirement of domicile in Exemption from requirement of domicile in India for 12 months prior to appointment as India for 12 months prior to appointment as DirectorDirector
5050
SNKBenefits under Banking / External Benefits under Banking / External Commercial BorrowingsCommercial Borrowings
External commercial borrowings by units up to $ 500 External commercial borrowings by units up to $ 500 million a year allowed without any maturity restrictionsmillion a year allowed without any maturity restrictions
Freedom to bring in export proceeds without any time limitFreedom to bring in export proceeds without any time limit
Flexibility to keep 100% of export proceeds in EEFC Flexibility to keep 100% of export proceeds in EEFC account. Freedom to make overseas investment from itaccount. Freedom to make overseas investment from it
Commodity hedging permittedCommodity hedging permitted
Exemption from interest rate surcharge on import financeExemption from interest rate surcharge on import finance
SEZ units allowed to ‘write-off’ unrealized export billsSEZ units allowed to ‘write-off’ unrealized export bills
5151
SNKDirect Dispatch of documents to Direct Dispatch of documents to Foreign buyerForeign buyer
SEZ Units can dispatch export documents direct to SEZ Units can dispatch export documents direct to
consignee outside India.consignee outside India.
These need not be routed through authorized dealer These need not be routed through authorized dealer
Remittance should be obtained and GR/SDF form Remittance should be obtained and GR/SDF form
should be submitted to authorized dealer within 21 should be submitted to authorized dealer within 21
days for monitoring RBI Circular 8/2005-06 dated days for monitoring RBI Circular 8/2005-06 dated
01/07/200501/07/2005
5252
SNKJob Work abroad and direct dispatchJob Work abroad and direct dispatch
SEZ Units can undertake Job work abroad and SEZ Units can undertake Job work abroad and
export goods from that country itself export goods from that country itself
Exporter has to make satisfactory arrangement Exporter has to make satisfactory arrangement
for realisation of full exports proceeds for realisation of full exports proceeds
(RBI Circular 8/2005-06 dated 01/07/2005)(RBI Circular 8/2005-06 dated 01/07/2005)
5353
SNKConcessions under Environment Concessions under Environment (Protection) Act(Protection) Act
SEZs permitted to have non-polluting industries in SEZs permitted to have non-polluting industries in IT, and recreational facilities like golf courses, IT, and recreational facilities like golf courses, desalination plants, hotels, and non-polluting desalination plants, hotels, and non-polluting service industries in the Coastal Regulation Zone service industries in the Coastal Regulation Zone area. area.
Exemption from public hearing under Environment Exemption from public hearing under Environment Impact Assessment Notification dated 27th January, Impact Assessment Notification dated 27th January, 1994 issued under Environment (Protection) 1994 issued under Environment (Protection) Rules, 1986 as amended. Rules, 1986 as amended.
5454
SNKLabour Laws for SEZ unitsLabour Laws for SEZ units
The labour laws of the land apply to all units The labour laws of the land apply to all units inside the Zone. However, the respective inside the Zone. However, the respective State Government may declare units within State Government may declare units within the SEZ as public utilities and may delegate the SEZ as public utilities and may delegate the powers of the Labour Commissioner to the powers of the Labour Commissioner to the Development Commissioner of the SEZ. the Development Commissioner of the SEZ.
5555
SNKExemption from Employees Exemption from Employees Provident Fund Act and ESI Act.Provident Fund Act and ESI Act.
Ministry of Labour has decided that in respect of Ministry of Labour has decided that in respect of SEZs, the State Government may apply for SEZs, the State Government may apply for exemption, to the Central Government under exemption, to the Central Government under Section 16(2) of the Employees' Provident Fund Section 16(2) of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, from the and Miscellaneous Provisions Act, 1952, from the applicability of the provisions of the said Act to applicability of the provisions of the said Act to SEZ for 5 years. The decision is required to be SEZ for 5 years. The decision is required to be taken on case-to-case basis. taken on case-to-case basis.
In respect of the Employee's State Insurance Act, In respect of the Employee's State Insurance Act, 1945, the State Government, being the 1945, the State Government, being the appropriate Government, may take a decision as appropriate Government, may take a decision as per the powers provided under the Act. per the powers provided under the Act.
5656
SNKOther Fiscal Provisions for SEZOther Fiscal Provisions for SEZ Chapter VI of Special Economic Zones Act ,2005 Chapter VI of Special Economic Zones Act ,2005
(Section 26 to Section 30) relates to “Special Fiscal (Section 26 to Section 30) relates to “Special Fiscal
Provisions for SEZ”Provisions for SEZ”
Chapter IV of Special Economic Zones Rules, 2006 Chapter IV of Special Economic Zones Rules, 2006
(Rule 22 to Rule 46) relates to “Terms and conditions (Rule 22 to Rule 46) relates to “Terms and conditions
subject to which entrepreneur and developer shall be subject to which entrepreneur and developer shall be
entitled to exemptions, drawbacks and concessions”entitled to exemptions, drawbacks and concessions”
Chapter V of Special Economic Zones Rules, 2006 Chapter V of Special Economic Zones Rules, 2006
(Rule 47 to Rule 52) relates to “conditions subject to (Rule 47 to Rule 52) relates to “conditions subject to
which goods may removed from Special Economic which goods may removed from Special Economic
Zones to DTA”Zones to DTA”
5757
SNKExemption available to Sub Exemption available to Sub contractor also – Rule 10contractor also – Rule 10
Exemptions, drawbacks and concessions on the Exemptions, drawbacks and concessions on the goods and services allowed to a Developer or Co-goods and services allowed to a Developer or Co-developer will also be available to the contractors developer will also be available to the contractors appointed by such Developer or Co-developer appointed by such Developer or Co-developer
All the documents in such cases should bear the All the documents in such cases should bear the name of the Developer or Co-developer along with name of the Developer or Co-developer along with the contractor the contractor
Documents should be filed jointly in the name of the Documents should be filed jointly in the name of the Developer or Co-developer and the contractor:Developer or Co-developer and the contractor:
5858
SNKExemption fromExemption from
All state and local taxes including VATAll state and local taxes including VAT
R & D CessR & D Cess
Electricity dutyElectricity duty
Under the respective State ActsUnder the respective State Acts
5959
SNK
Other Fiscal Benefits to Special Other Fiscal Benefits to Special Economic Zones Economic Zones
Section 7 of the SEZ Act, 2005Section 7 of the SEZ Act, 2005
6060
SNKSection 7 provides that
Any goods or services
- Exported out of, or
- Imported into, or
- Procured from the Domestic Tariff Area
By
- A Unit in a Special Economic Zone, or
- A Developer
shall be exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule.
6161
SNKFirst Schedule to The Special First Schedule to The Special Economic Zones Act, 2005Economic Zones Act, 2005
1.1. The Agricultural Produce Cess Act, 1940 The Agricultural Produce Cess Act, 1940
2.2. The Coffee Act, 1942 The Coffee Act, 1942
3.3. The Mica Mines Labour Welfare Fund Act, 1946The Mica Mines Labour Welfare Fund Act, 1946
4.4. The Rubber Act, 1947 The Rubber Act, 1947
5.5. The Tea Act, 1953 The Tea Act, 1953
6.6. The Salt Cess Act, 1953 The Salt Cess Act, 1953
7.7. The Medicinal and Toilet Preparations (Excise Duties) The Medicinal and Toilet Preparations (Excise Duties)
Act, 1955 Act, 1955
6262
SNKFirst Schedule to Special Economic First Schedule to Special Economic Zones Act, 2005Zones Act, 2005
8.8. The Additional Duties of Excise (Goods of Special The Additional Duties of Excise (Goods of Special
Importance) Act, 1957 Importance) Act, 1957
9.9. The Sugar (Regulation of Production) Act, 1961 The Sugar (Regulation of Production) Act, 1961
10.10. The Textiles Committee Act, 1963 The Textiles Committee Act, 1963
11.11. The Produce Cess Act, 1966The Produce Cess Act, 1966
12.12. The Marine Products Export Development Authority The Marine Products Export Development Authority
Act, 1972 Act, 1972
13.13. The Coal Mines (Conservation and Development Act, The Coal Mines (Conservation and Development Act,
1974 1974
14.14. The Oil Industry (Development) Act, 1974 The Oil Industry (Development) Act, 1974
6363
SNKFirst Schedule to Special First Schedule to Special Economic Zones Act, 2005Economic Zones Act, 2005
15.15. The Tobacco Cess Act, 1975 The Tobacco Cess Act, 1975
16.16. The Additional Duties of Excise (Textile and Textile Articles) Act, The Additional Duties of Excise (Textile and Textile Articles) Act,
1978 1978
17.17. The Sugar Cess Act, 1982 The Sugar Cess Act, 1982
18.18. The Jute Manufactures Cess Act, 1983 The Jute Manufactures Cess Act, 1983
19.19. The Agricultural and Processed Food Products Export Cess The Agricultural and Processed Food Products Export Cess
Act, 1985 Act, 1985
20.20. The Spices Cess Act, 1986 The Spices Cess Act, 1986
21.21. The Research and Development Cess Act, 1986The Research and Development Cess Act, 1986
6464
SNK
64
EXPORT ORIENTED UNITSEXPORT ORIENTED UNITS(EOUs)(EOUs)
Also covering EHTP/STPAlso covering EHTP/STP
6565
SNK
65
Benefits under Income Tax ActBenefits under Income Tax Act Exemption from payment of Income tax Exemption from payment of Income tax
under Section 10B of Income tax Act, under Section 10B of Income tax Act, 1961.1961.
90% of the profits earned by units in EOU 90% of the profits earned by units in EOU is allowed deduction while computing is allowed deduction while computing taxable profits.taxable profits.
Sun-set Clause: No deduction would be Sun-set Clause: No deduction would be admissible from A.Y. 2011-12 under the admissible from A.Y. 2011-12 under the provisions of Section 10B.provisions of Section 10B.
6666
SNK
66
Other Fiscal BenefitsOther Fiscal Benefits 100% foreign equity (is permitted through Automatic 100% foreign equity (is permitted through Automatic
Route similar to SEZ units) in Export Oriented Units Route similar to SEZ units) in Export Oriented Units (EOUs) even if it is manufacturing an item reserved for (EOUs) even if it is manufacturing an item reserved for the small scale sectorthe small scale sector
Project with minimum investment of Rs.10 million and Project with minimum investment of Rs.10 million and above in building, plant and machinery qualify to be above in building, plant and machinery qualify to be considered under EOU schemeconsidered under EOU scheme
- This shall not apply in case of certain industries like - This shall not apply in case of certain industries like agriculture, floriculture, information technology, services, agriculture, floriculture, information technology, services, hand made jewellery, etc. hand made jewellery, etc.
Goods and services exported from units in DTA and units Goods and services exported from units in DTA and units in EOU, remission of service tax levied shall be allowed.in EOU, remission of service tax levied shall be allowed.
100% of the export earnings can be retained in EEFC A/C. 100% of the export earnings can be retained in EEFC A/C.
6767
SNK
67
Other Fiscal Benefits Contd…Other Fiscal Benefits Contd… EOUs enjoy several privileges like duty exemption on import EOUs enjoy several privileges like duty exemption on import
and domestic procurement and also Income tax exemption and domestic procurement and also Income tax exemption till 31.03. 2009till 31.03. 2009
EOUs, other than gems and jewellary, are permitted to EOUs, other than gems and jewellary, are permitted to supply upto 50% of FOB value of exports in the domestic supply upto 50% of FOB value of exports in the domestic market, subject to fulfillment of positive NFE on payment of market, subject to fulfillment of positive NFE on payment of concessional duties.concessional duties.
Exemption of Industrial Licensing for manufacture of items Exemption of Industrial Licensing for manufacture of items reserved for SSI sectors.reserved for SSI sectors.
Permission to issue of shares or convertible debentures to a Permission to issue of shares or convertible debentures to a person resident outside India in excess of 24% subject to person resident outside India in excess of 24% subject to specific sectoral caps on investments by person resident specific sectoral caps on investments by person resident outside India. (Annexure 2 of Master Circular on Foreign outside India. (Annexure 2 of Master Circular on Foreign investments in India Dated 1.07.2006) investments in India Dated 1.07.2006)
6868
SNK
68
ELECTRONIC HARDWARE AND ELECTRONIC HARDWARE AND SOFTWARE TECHNOLOGY PARKSSOFTWARE TECHNOLOGY PARKS
100 percent foreign investment under automatic route is 100 percent foreign investment under automatic route is allowed in electronics and software industries set up allowed in electronics and software industries set up exclusively for exportsexclusively for exports
Such units are eligible to purchase, free of customs duty/ Such units are eligible to purchase, free of customs duty/ excise duty, their entire requirement of capital goods, excise duty, their entire requirement of capital goods, raw materials and components, spares and raw materials and components, spares and consumables, office equipments etc.consumables, office equipments etc.
Income tax exemption on exports for a block of 10 years Income tax exemption on exports for a block of 10 years of its operation under Section 10A and eligible up to of its operation under Section 10A and eligible up to Assessment Year 2010-11 (till 31.03. 2010)Assessment Year 2010-11 (till 31.03. 2010)
Such units are permitted to supply upto 50% of Such units are permitted to supply upto 50% of production in the domestic market in value terms subject production in the domestic market in value terms subject to net foreign exchange earningsto net foreign exchange earnings
69
QUESTIONS/
SUGGESTIONS/
COMMENTS ???
Please E-mail on [email protected] for your queries & suggestion.
70
Thank YouCA. Ankur Shah
PartnerSNK & Co.
