Tsez Fiscal

8/6/2019 Tsez Fiscal

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Rajkumar S.Adukia 1

SPECIALSPECIAL

ECONOMIC ZONESECONOMIC ZONES--

FISCAL BENEFITSFISCAL BENEFITS

Rajkumar S. Adukia

09323061049/093221 39642

[email protected]

[email protected]

http://www.carajkumarradukia.com


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Rajkumar S.Adukia 2

Agenda

Special Fiscal Provisions relating to SEZ

Bond cum Legal Undertaking Income Tax

Service tax

FEMA


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Fiscal Benefits available to SEZ

Cenvat

Customs

VAT

Income Tax

Service Tax

Central Sales tax

Securities

Transaction Tax

Exemptions of

tax ,duties or

cess in 21

Acts

Stamp Duty


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Fiscal Provisions for SEZ

Chapter VI of Special Economic Zones Act ,2005 (Section 26 to

Section 30) relates to Special Fiscal Provisions for SEZ

Chapter IV of Special Economic Zones Rules, 2006 (Rule 22 to Rule46) relates to Terms and conditions subject to which entrepreneur

and developer shall be entitled to exemptions, drawbacks and

concessions

Chapter V of Special Economic Zones Rules, 2006 (Rule 47 to Rule

52) relates to conditions subject to which goods may removed from

Special Economic Zones to DTA


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Exemption available to Sub

contractor also Rule 10 Exemptions, drawbacks and concessions on the goods

and services allowed to a Developer or Co-developer will

also be available to the contractors appointed by suchDeveloper or Co-developer

All the documents in such cases should bear the name of

the Developer or Co-developer along with the contractor

Documents should be filed jointly in the name of the

Developer or Co-developer and the contractor:


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Exemption from

taxes,duties or cess- Sec 7

Sec 7 of The Special Economic Zones Act,2005 -

Any goods or services exported out of, or imported into,

or procured from the Domestic Tariff Area by, -

(i) a Unit in a Special Economic Zone; or

(ii) a Developer;

shall, subject to such terms, conditions and limitations, asmay be prescribed, be exempt from the payment of taxes,

duties or cess under all enactments specified in the First

Schedule.


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First Schedule to The Special

Economic Zones Act, 20051. The Agricultural Produce Cess Act, 1940

2. The Coffee Act, 1942

3. The Mica Mines Labour Welfare Fund Act, 1946

4. The Rubber Act, 1947

5. The Tea Act, 1953 .

6. The Salt Cess Act, 1953 .

7. The Medicinal and Toilet Preparations (Excise Duties) Act,

1955 .


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First Schedule to Special

Economic Zones Act, 20058. The Additional Duties of Excise (Goods of Special

Importance) Act, 1957

9. The Sugar (Regulation of Production) Act, 1961

10. The Textiles Committee Act, 1963

11. The Produce Cess Act, 1966

12. The Marine Products Export Development Authority Act, 1972

13. The Coal Mines (Conservation and Development Act, 1974 .

14. The Oil Industry (Development) Act, 1974 .


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First Schedule to Special

Economic Zones Act, 2005

15. The Tobacco Cess Act, 1975

16. The Additional Duties of Excise (Textile and Textile Articles)Act, 1978

17. The Sugar Cess Act, 1982

18. The Jute Manufactures Cess Act, 1983

19. The Agricultural and Processed Food Products Export CessAct, 1985

20. The Spices Cess Act, 1986

21. The Research and Development Cess Act, 1986


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1.The Agricultural Produce Cess Act,

1940

Act to make better financial provision for the IndianCouncil of Agricultural Research

It impose on certain articles a cess by way of customsduty at the rate of .5% on export, the proceeds of whichshall be paid to the Council.(Sec 3)

It imposes cess on 21 items which are as underBones,bristles,butter,cereals other than rice and

wheat,drugs,fibre for brushes, fish, fruits, ghee, hides,manures,oilcakes,pulses,seeds,skins,spices,tobacco,vegetables,wheat,wheat flour,wool,


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2.The Coffee Act, 1942

A duty of excise is levied at rate not exceeding Rs 6 per100 weight as may be fixed by the Central Governmenton all coffee

A duty of customs is levied on all code produced in Indiaand exported from India at rate not exceeding Rs 6 per100weight as may be fixed by the Central Government(sec 11)

The proceeds of the duty of customs and of the duty ofexcise reduced by the cost of collection is paid to the theIndian Coffee Market Expansion Board (Sec 13)


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3. The Mica Mines Labour Welfare

Fund Act, 1946

An Act to constitute a fund for the financing of activitiesto promote the welfare of labour employed in the micamining industry.

A duty of customs is levied on all mica exported at suchrate, not exceeding 6.25 % ad valorem, as may from timeto time be fixed by the Central Government (Sec 2)

Proceeds of the duty of customs recovered is paid to the

credit of Mica Mines Labour Welfare Fund (Sec 2) Fund utilise the money to promote the welfare of labour

employed in the mica mining industry


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4. The Rubber Act, 1947

Act for the development of the rubber industry

A duty of excise is levied on all rubber produced in lndiaat such rate not exceeding Rs 2 per kg of rubber as theCentral Government may fix.(Section 12(1)

The proceeds of the duty of excise collected under thissection reduced by the cost of collection is first creditedto the Consolidated Fund of lndia

Amount collected Paid by the Central Government to theRubber Board for being utilised for the purpose of thisAct (Section 12(7)


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5. The Tea Act, 1953 .

An Act to Provide for the control by the Union of the teaindustry, including the control, in pursuance of theInternational Agreement now in force, of the cultivation

of tea in, and of the export of tea from, India and for thatpurpose to establish a Tea Board and levy a customs dutyon tea exported from India.

Customs dutyon tea exported or taken outside India atsuch rate not exceeding Rs 2 per 100 pounds as the

Central Government may notify in the Official Gazette(Sec 25)

The proceeds of the cess levied under is first credited tothe Consolidated Fund of India and the CentralGovernment may pay to the Tea Board (Sec 26)


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6. The Salt Cess Act, 1953 .

A cess in the nature of excise duty is levied on all saltmanufactured

(a) in the case of salt manufactured in a private salt factory,at the rate of two annas per standard maund

(b) in the case of salt manufactured in a salt factory solelyowned or solely worked by the Central Government atthe rate of three and a half annas per standard maund(Section 3)

It is used to meet the expenses incurred on the saltorganisation maintained by Government and on themeasures taken by Government in connection with themanufacture, supply and distribution of salt.


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7. The Medicinal and Toilet

Preparations (Excise Duties)

Act, 1955

An Act for the levy and collection of duties of excise on

medicinal and toilet preparations containing alcohol,

opium, Indian hemp or other narcotic drug or narcotic.

Toilet preparation means any preparation which is

intended for use in the toilet of the human body or in

perfuming apparel of any description, or any substance

intended to cleanse, improve or alter the complexion,

skin, hair or teeth, and includes deodorants and perfumes(Section 2(k))


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7. The Medicinal and Toilet

Preparations (Excise Duties) Act,

1955 Schedule contd..Description of dutiable goods Rate of duty

Medicinal and toilet

reparations, containingalcohol,

Rupees seventeen and ann as eight

per gallon of the strength of Londonproof Spirit.

Ayurvedic preparations

containing self generated

Alcohol, which are capable

of being consumed as

ordinary alcoholic beverages.

Rupees three per gallon

All other Medicinal and toilet

reparations not otherwise

specified containing alcohol

Rupees five per gallon of the

strength of London proof spirit.


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8. The Additional Duties of Excise (Goods

of Special Importance) Act, 1957

A duty of excise at the rate or rates specified in the First

Schedule to this Act in respect of the following

goods,namely, sugar, tobacco, cotton fabrics, rayon or

artificial silk fabrics and woolen fabrics produced or

manufactured in India

The duties of excise shall be in addition to the duties of

excise chargeable on such goods under the Central

Excises and Salt Act, 1944 (Section 3)


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9. The Sugar (Regulation

of Production) Act, 1961

Where the quantity of sugar produced in a factory duringany year exceeds the permissible quota fixed for it forthat year

there shall be levied and collected on the quantity ofsugar which is produced in excess of the permissiblequota

a special duty of excise at the rate at which the duty ofexcise is chargeable on sugar under the Central ExcisesAct

The special duty of excise shall be in addition to the dutyof excise chargeable on sugar under the Central ExcisesAc


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10. The Textiles Committee

Act, 1963

An Act to provide for the establishment of a Committeefor ensuring the quality of textiles and textile machineryand for matters connected therewith.

The Committee may levy such fees as may be

prescribed--(a) For inspection and examination of textiles,(b) For inspection and examination of textile machinery,(c) for any other service which the Committee may renderto the manufacturers of textiles and textile machinery(Section 12)


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11.The Produce Cess Act, 1966

An Act that provides for the imposition of cess on certainproduce for the improvement and development of themethods of cultivation and marketing of such produceand for matters connected therewith

A cess is levied for the purposes of this Act on everyproduce specified First Schedule, which is exported fromany customs port to any port beyond the limits of India, aduty of customs at such rate, not exceeding the ratespecified in the First Schedule

A cess is levied for the purposes of this Act, on everyproduce specified in the Second Schedule, a duty ofexcise at such rate, not exceeding the rate specified inSecond Schedule (Section 3)


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12. The Marine Products Export

Development Authority Act, 1972

An Act to provide for the establishment of an Authorityfor the development of the marine products industry

A cess is levied on all marine products which areexported at rate not exceeding 3% as the CentralGovernment decide (Sec 14(1))

The cess levied shall be in addition to any access or dutyleviable on marine products under any other law for thetime being in force. (Sec 14(2))

The proceeds of the cess is first credited to theConsolidated Fund of India and the Central Government

pay to the Marine Products Export DevelopmentAuthority from out of such proceeds, after deducting the

expenses (Sec 15)


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13. The Coal Mines

(Conservation and

Development Act, 1974

An Act to provide for the conservation of coal anddevelopment of coal mines and for matters connectedtherewith or incidental thereto.

Excise Duty - on all coal raised and despatched, and onall coke manufactured and despatched, from the collieriesin India at the rate not exceeding Rs 10 per tonne (sec 6)

Custom duty - on all coal (including soft and hard coke),imported or brought into India from any place outsideIndia, a duty of customs at the rates equivalent to the ratesof duty of excise (sec 7)

Amount collected shall be disbursed by the CentralGovernment to the owners, agents or managers of coal

mines (Sec 9)


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14. The Oil Industry

(Development) Act, 1974 .

An Act to provide for the establishment of a Board for thedevelopment of oil industry and for that purpose to levy aduty of excise on crude oil and natural gas and for matters

connected therewith. Excise dutyon every item specified in column 2 of the

Schedule at such rate not exceeding the rate set forth inthe corresponding entry in column 3 of the Schedule (Sec15)

The proceeds of the duties of excise levied under shallfirst be credited to the Consolidated Fund of India and theCentral Government pay to the Oil Industry DevelopmentFund (sec 16)


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15. The Tobacco

Cess Act, 1975

An Act to provide for the Levy and collection, by way ofcess, of a duty of excise on virginia tobacco and a duty ofcustoms on tobacco, for the development of tobaccoindustry

Excise duty-at the rate of 1 paisa per kg on virginia tobaccowhich is produced in India and sold at a registered auction

platform. (Sec 3)

customs duty -at rate not exceeding 1% ad valorem, as the

Central Government may specify on all tobacco which isexported.(Sec 4)

The proceeds shall first be credited to the ConsolidatedFund of India and the Central Government may pay to theBoard, for utilised for the purposes of the Tobacco Board

Act, 1975 (Sec 5)


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16. The Additional Duties

of Excise (Textile and Textile

Articles) Act, 1978

An Act to provide for the levy and collection ofadditional duties of excise on certain textiles and textilearticles

Excise duty-Goods of the description mentioned in theSchedule are chargeable to duty equal to 10% of thetotal amount chargeable on such goods. (Sec 3)

Items in schedule are Man-made fibres , Cotton yarn ,Woolen and acrylic spun yarn, Non-cellulosic spunyarn,Cotton fabrics, Silk fabrics, Woolen fabrics, Man-made fabrics, Wool tops.


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17. The Sugar Cess Act, 1982

An Act to provide for the imposition of a cess on sugarfor the development of sugar industry and for mattersconnected therewith

A cess is levied for the purposes of the SugarDevelopment Fund Act, 1982, a duty of excise on allsugar produced any sugar factory in India, at such rate notexceeding Rs 15 per quintal of sugar (Sec 3)

The proceeds of the duty of excise levied under section 3shall be credited to the Consolidated Fund of India

(Sec 4)


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18. The Jute Manufactures

Cess Act, 1983

An Act to provide for the levy and collection, by way ofcess, of a duty of excise on jute manufactures for the

purpose of carrying out measures for the development ofproduction of jute manufactures

Cess is levied on every article of jute manufacturespecified in column 2 of the Schedule and produced inIndia by a duty of excise at such rate not exceeding the ratespecified in the corresponding entry in column 3 thereof(Sec 3)

The proceeds of the duty of excise levied shall first becredited to the Consolidated Fund of India and the CentralGovernment may pay to the Jute ManufacturesDevelopment Council for the purposes of the JuteManufactures Development Council Act, 1983 (Sec 4)


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19. The Agricultural and

Processed Food Products

Export Cess Act, 1985

An Act to provide for the levy and collection, by way of acess, of a duty of customs on the export of certainagricultural and processed food products for the

development and promotion of their export Custom duty- at a rate not exceeding 3% by way of a cess

on all Scheduled products, which are exported.(Sec 3)

The proceeds of the duties of customs levied shall first becredited to the consolidated Fund of India and the CentralGovernment may pay to the Agricultural and ProcessedFood Products Export Development Authority (Sec 4)


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20. The Spices

Cess Act, 1986 An Act to provide for imposition of cess on all spices

which are exported for the purposes of carrying outmeasures for the development of export of spices.

customs duy-on spices at such rate not exceeding 5% , advalorem (Sec 3)

proceeds of the duty of customs levied credited to theconsolidated Fund of India and the Central Governmentmay pay for the purposes of the Spices Board Act, 1986(Sec 3)


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21. The Research and

Development

Cess Act, 1986 An Act to provide for the levy and collection of a cess on

all payments made for the import of technology for thepurposes of encouraging the commercial application ofindigenously developed technology and for adaptingimported technology to wider domestic application

a cess is levied at such rate not exceeding five per cent,on all payments made towards the import of technology(Sec 3)

The proceeds of the cess levied and collected shall first becredited to the Consolidated Fund of India and the CentralGovernment may pay to the Technology DevelopmentBoard constituted under the Technology DevelopmentBoard Act, 1995 for the purposes of the Board

(Sec 4)


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Terms and conditions for availing

exemptions, drawbacks and concessions

(Rule 22(1) )(i)The Unit shall execute a Bond-cum-Legal Undertaking in Form H,

with regard to its obligations regarding proper utilization and

accountal of goods and regarding achievement of positive net

foreign exchange earning;

(ii) The Developer and Co-Developer shall execute the Bond-cum-

Legal Undertaking in Form D with regard to their obligations

regarding proper utilization and accountal of goods

(iii) The Bond-cum-Legal Undertaking shall be jointly accepted by

Development Commissioner and by the Specified Officer:


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Activities covered in Bond-cum-Legal

Undertaking (Rule 22(1)(iii) )(a) the movement of goods between port of import or export and the

Special Economic Zone;

(b) the authorized operations, as applicable to Unit or Developer;

(c) temporary removal of goods or goods manufactured in Unit for

the purposes of repairs or testing or calibration or display or

processing or sub-contracting of production process or production

or other temporary removals into Domestic Tariff Area without

payment of duty

(d) re-import of exported goods.


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Responsibility for Execution of Bond cum-Legal

Undertaking (Rule 22(1)(iv))

Status of

entrepreneur or

Developer

Responsibility

company Managing Director of thecompany or any other

authorized person

partnership firm all the partners or authorized

partner(s);

Hindu Undivided Family Karta

proprietorship concern proprietor


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Value of Bond-cum-Legal Undertaking

Rule 22(1)(iv)) Equal to the amount of effective duties leviable on import or

procurement from the Domestic Tariff Area of the projected

requirement of capital goods, raw materials, spares,

consumables, intermediates, components, parts, packingmaterials for three months

The Bond-cum-Legal Undertaking

amount shall be monitored quarterly

or yearly on the basis of QuarterlyProgress Report or Annual Progress Report


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An Exception- Rule 27(3)

Any goods for the personal use of or consumption by

officials,workmen, staff, owners or any other person in relation to a

Unit or Developer, shall not be eligible for exemptions, drawbacks

and concessions or any other benefit


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Income TaxIncome Tax

BenefitsBenefits


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Relevant Sections in

Income Tax Act,1961S.No Section Description

1 10(15)(viii) Interest received on deposit with Offshore

Banking Unit is exempt

2 10AA Exemption to newly established Units in SEZ

3 54GA Exemption of Capital gain on transfer of

asset in case of shifting of Industrial

Undertaking from Urban Area to SEZ

4 80-IAB Deduction is respect of profits and gains in

development of SEZ

5 80LA Deduction from income of OBU and IFSC

6 115JB(6) Non applicability of MAT to SEZ


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Relevant Sections in Income

Tax Act,1961

S.No Section Description

7 115-O Exemption from dividend distributiontax in respect of income of SEZ

8 197A No TDS on interest on deposits made

with OBU by Non-resident or person

not ordinary 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


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Exemption to newly established

Units in SEZ

- Section 10AA


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Exemption to Unit who begins to manufacture or produce articles

or things or provide any services during the PY relevant to any AYcommencing on or after 01.04.2006

Deduction Total 15 Years

100% of Profits from export

for 5 consecutive years 50% of Profits from exports

for further 5 assessment years

50% of Profits for as credited to Special Economic Zone Re-

investment Reserve Account for next 5years Absence of restrictive proviso in new Sec. 10AA dealing with

Reconstruction, reconstitution of business in existence


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Use of Special Economic Zone Re-

investment Reserve Account( S 10AA(2(a))

Acquiring machinery or plant

Until the acquisition of the machinery or plant for the purposes of

the business of the undertaking other than

for distribution by way of dividends or profits or

for remittance outside India as profits or

for the creation of any asset outside India;


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Mis-use of Special Reserve Account

( S 10AA(3))

If the Special Reserve Account is misutilised, then the deduction

would be taken back in the year in which the Special Reserve

Account is misutilised.

If the Special Reserve Account is not utilised for acquiring new plant

and machinery within three years as stated above then the deduction

would be taken back in the year immediately following the period of

three years.


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Consequences for merger and

demerger ( S 10AA(5)) Where an undertaking is transferred to another company under a

scheme of amalgamation or demerger, the deduction under

section 10AA 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 amalgamation or demerger takes place.


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Exemption of

Capital Gain

on Shifting to SEZ

-Sec 54GA


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Exemption of capital gains on transfer of assets in cases of

shifting of industrial undertaking from urban area to any

Special Economic Zone.

The exemption is available to all categories of assesses on

capital gain arising on the transfer of certain capital asset of

industrial undertaking from urban area to SEZ. (whether

developed in an urban area or not)

The Asset transferred should be machinery or plant or building

or land or any rights in building or land

The capital gain should be utilized within one year before or

three years after the date of transfer for the specified purpose.


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Specified Purpose- 54GA

contd..(i) purchased machinery or plant

(ii) acquired building or land or constructed building

(iii) shifted the original asset and transferred the establishment of

such undertaking to the Special Economic Zone; and

(iv) incurred expenses on such other purposes as may be specified

in a scheme framed by the Central Government for the

purposes of this section.

The amount of capital gain which is not so utilised for the

specific purposes should be deposited in an account with any

specified bank or institution and utilised in accordance with

the scheme notified by the Central Government


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Quantum Of Deduction

-Sec 54GA contd..Situation Result

Amount of Capital Gain < = Costand expensesincurred for specified Purposes

Entire Capital Gain exempt

Amount of Capital Gain > Cost and

expenses incurred for

specified Purposes.

Exemption: to the extent of cost

and expenses incurred


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Definition of Urban area

Urban area means any such area within the limits of a

municipal corporation or municipality as the Central

Government may, having regard to the population,

concentration of industries, need for proper planning of

the area and other relevant factors, by general or special

order, declare to be an urban area for the purposes of this

sub-section.


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Deduction in respect

of profits

by SEZ Developer

-Sec 80 IAB


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Deductions in respect of profits and gains from industrial

undertakings or enterprises engaged in development of

Special Economic Zone.

An undertaking which develops a special Economic Zone

notified on or after 1.4.2005 will not be eligible to claim

deduction under section 80-IA.but will now be claimingdeduction under new section 80 IAB.

Available to an assessee , being a Developer whose gross

total income, includes any profit and gains derived by an

undertaking or an enterprise from any business of

developing a special Economic Zone , notified on or after

1.4.2005 under Special Economic Zones Act,2005


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QUANTUM OF DEDUCTION

- Sec 80 IAB contd..

A deduction of an amount equal to 100% of the profits and gains

derived from such business for 10 consecutive assessment years.

The assessee has the option of claiming the said deduction for any 10

consecutive assessment years out of 15 years beginning from the

year in which a SEZ has been notified by the Central Government


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Transfer of Undertaking

If a taxpayer who develops a special economic zone on or after April

1, 2005 (transferor ) transfers the operation/maintenance of such

zone to another developer (transferee), then deduction shall be

allowed to the transferee for the remaining period of 10 years as if the

operation and maintenance were not so transferred.

Similar rule will be applicable in the case of amalgamation of an

Indian company which has developed a special economic zone with

another Indian company.


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No Tax

on Distributed Profits

-Sec 115O(6)


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No tax on dividends would be chargeable in respect of the totalincome of an undertaking or enterprise engaged in

(a) developing a SEZ or

(b) developing and operating a SEZ or

( c) developing, operating and maintaining a SEZ IF such dividend (whether interim or otherwise) is declared,

distributed or paid by such Developer or enterprise, on or after

the 1st day of April, 2005 out of its current income

No tax either in the hands of the Developer or enterprise or

person receiving such dividend


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OTHER RELATED

INCOME TAX

PROVISIONS


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Industrial park scheme

The Central Government framed the scheme for industrial parks,-Industrial

Park Scheme, 2002 in exercise of the powers conferred by clause (iii) of sub-

section (4) of section 80 IA of the Income-tax Act, 1961

scheme was applicable for any undertaking which develops, develops and

operates or maintains and operates an Industrial Park for the period

beginning on the 1st day of April, 1997 and ending on the 31st day of March,

2006

this has been extended up to 31.03.2009 by the Finance Act,2006

Eligibility- deduction of 100 % profits derived from such business for ten

consecutive years. Assessee can claim deduction for any ten consecutive years out of fifteen

years beginning from the year in which the undertaking

develops/operates/maintains the Industrial park.


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Investors in SEZ

Exemption is provided to investors in special economic

Zones under Sec 10 (23G) of the Income Tax Act, 1961.


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Undertaking developing and

building housing projects Sec 80- IB (10) - Deduction in respect of profits and gains from certain

industrial undertakings other than infrastructure development

undertakings

Deduction: For projects approved before the 31st day of March, 2007 by a localauthority shall be hundred per cent of the profits derived in the previous year

relevant to any assessment year from such housing project

Conditions:

(a) Such undertaking has commenced or commences development and construction

of the housing project on or after the 1st day of October, 1998 and completessuch construction,

(i) In a case where a housing project has been approved by the local authority

before the 1st day of April, 2004, on or before the 31st day of March, 2008;


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(ii) in a case where a housing project has been, or, is approved by the local

authority on or after the 1st day of April, 2004, within four years from the

end of the financial year in which the housing project is approved by the

local authority.

(b) The project is on the size of a plot of land which has a minimum area of one

acre:

(c) the residential unit has a maximum built-up area of one thousand square feetwhere such residential unit is situated within the city of Delhi or Mumbai or

within twenty-five kilometres from the municipal limits of these cities and

one thousand and five hundred square feet at any other place; and

(d) The built-up area of the shops and other commercial establishments included

in the housing project does not exceed five per cent of the aggregate built-uparea of the housing project or two thousand square feet, whichever is less.]


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Special provisions in

respect of certain

undertakings or

enterprises in certainspecial category


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Special category states

Arunachal Pradesh

Assam

Manipur

Meghalaya

Mizoram

Nagaland

Sikkim

Tripura


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Undertaking must manufacture in any Export Processing

Zone or Integrated Infrastructure Development Centre or

Industrial Growth Centre or Industrial Estate or IndustrialPark or Software Technology Park or Industrial Area or

Theme Park


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Benefits to OBUBenefits to OBU


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Interest Income from OBU is exempt

In computing the total income of previous year of any person any

income by way of interest received by

1. Non resident or

2. a person who is not ordinarily resident in India

on a deposit made on or after the 1st day of April, 2005, in an

Offshore Banking Unit

shall not be included (Section 10(15)(viii))


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Deductions in respect of certain

incomes of Offshore Banking Unitsand International Financial

Services Centre 80LA

Assesses covered

(i) Scheduled bank, or, any bank incorporated by or

under the laws of a country outside India; and having

an Offshore Banking Unit in a Special Economic

Zone;

or

(ii) Unit of an International Financial Services Centre,


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Amount of deduction-Sec 80LA(1)

(a) 100% of such income for 5 consecutive assessment yearsbeginning with the assessment year relevant to theprevious year in which

the permission,under 23(1)(a) of the Banking RegulationAct, 1949 or

permission or registration under the Securities and

Exchange Board of India Act, 1992 (15 of 1992) or

any other relevant law was obtained, and thereafter;(b) 50% of such income for next 5 consecutive assessment

years.


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Income Exempted-Sec 80LA(2)Income refers to income :

(a) from an Offshore Banking Unit in a Special Economic Zone;

or

(b) from the business referred to in Section 6(1) the Banking

Regulation Act, 1949 with an undertaking located in a SpecialEconomic Zone or any other undertaking which develops,

develops and operates or develops, operates and maintains a

Special Economic Zone; or

(c) from any Unit of the International Financial Services Centre

from its business for which it has been approved for setting up

in such a Centre in a Special Economic Zone.


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80LA.

A report from a Chartered Accountant in Form No. 10CCF certifying

that the deduction has been correctly claimed in accordance with the

provisions of this section should be submitted along with the return

of income.

A copy of permission obtained under section 23(1)(a) of Banking

Regulation Act should be submitted along with the return of income.


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Case Laws

Courts and Tribunals have held that the requirement to file the report

along with the return of Income is directory and not mandatory

Citation: 251 ITR 693- Commissioner of Income-tax vs. Hemsons

Industries (Andhra Pradesh High Court)

The mere fact that the assessee failed to enclose the audit report along

with the return itself would not disentitle him to claim the benefit,

and, on the other hand, if he files the audit report before the

assessment order is passed, he will be entitled to the deduction


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No deduction of Tax 197A(1C)

No deduction of tax shall be made by the Offshore Banking Unit from

the interest paid

(a) on deposit made on or after the 1st day of April, 2005, by a non-

resident or a person not ordinarily resident in India; or

(b) on borrowing, on or after the 1st day of April, 2005, from a non-

resident or a person not ordinarily resident in India.


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Other BenefitsOther Benefits


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Exemption from service tax

The exemption from payment of service tax on taxable services

rendered to a Developer or a Unit

(including a Unit under construction)

by any service provider

shall be available for the authorized operations in a Special Economic

Zone. Section 26(1)(e) and rule 31


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Exemption from Central Sales

tax Every Developer and the entrepreneur is entitled exemption from the

levy of taxes on the sale or purchase of goods other than newspapers

under the Central Sales Tax Act, 1956 if such goods are meant to

carry on the authorized operations by the Developer or entrepreneur. Sec 26(1)(g)

This is subject to the condition that the dealer selling goods in the

course of inter state trade or commerce to a registered dealer under

the Central Sale Tax Act, 1956 shall furnish a declaration in Form

I prescribed under the Central Sales Tax (Registration and Turnover)

Rules, 1957.- Proviso to Rule 32


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Changes made in Central

Sales tax,1956 No CST shall be payable by any dealer in respect of sale of any

goods made by such dealer,

in the course of inter-State trade or commerce,

to a registered dealer( developer of SEZ or SEZ Unit as the case may

be)

for the purpose of manufacture, production, processing, assembling,

repairing, reconditioning, re-engineering, packaging or for use as

trading or packing material or packing accessories in an unit located

in any special economic zone,

if such registered dealer has been authorised to establish such unit bythe authority specified by the Central Government in this behalf.

(Development Commissioner is of SEZ is authorized to permit a

person to set up unit in SEZ)

(Section 8(6) of Central Sales Tax Act, 1956)


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Securities Transaction Tax

Every Developer and the entrepreneur shall be entitled to exemption

from the securities transaction tax leviable under section 98 of the

Finance (No. 2) Act, 2004 in case the taxable securities transactions

are entered into by a non-resident through the International FinancialServices Centre. Sec 26(1)(f)


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Exemption from Stamp Duty

under Indian Stamp Act,1899 Exemption from stamp duty on any instrument executed, by, or, on

behalf of, or, in favour of the Developer, or Unit or in connection

with the carrying out of purposes of the Special Economic Zone.(

Section 3 Third Proviso of Indian Stamp Act,1899)

Effected by Change in Indian Stamp Act,1899 by Special Economic

Zones Act ,2005 Third Schedule ,Part III


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FEMA ProvisionsFEMA Provisions

relating to SEZrelating to SEZ


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Foreign Direct investment

FDI is allowed through automatic route for all manufacturingactivities in SEZ except

1) Arms and ammunition , Explosives and allied items of defenceequipments, Defence aircrafts and warships,

2) Atomic substances, Narcotics and Psychotropic Substances andhazardous Chemicals,

3) Distillation and brewing of Alcoholic drinks and

4) Cigarette/cigars and manufactured tobacco substitutes.

Item 20 of Annexure B of Schedule I of Foreign ExchangeManagement( Transfer or Issue of Security by a person Residentoutside India) Regulations, 2000,


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Foreign Direct investment

contd.. 100% FDI in trading activity will not be permitted

SEZ Unit can manufacture articles reserved for SSI even if foreign

equity exceeds 24%.No License is required (Department of IndustrialLicense Press Note No 5 dated 29-03-2000 Notification 7(11)/2000-

IP dated 04-12-2000)


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Other Provisions for SEZ

No Time Limit for export of export proceeds which is normally 6

months for others (Foreign Exchange Management (Export of Goods

and Services) Regulation 2000)

Branch office may be set up in SEZ to undertake manufacturing and

service activities without permission of RBI in those sectors where

100% FDI is permitted (Foreign Exchange Management

(Establishment in India of Branch or other place of businesses)

Regulation 2000)


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DTA units can pay for goods in Foreign Exchange for which goods

are supplied by SEZ to DTA RBI Circular 8/2005-06 dated

01/07/2005

A Unit Located in SEZ can open ,hold and maintain Foreign currency

account with authorized dealer in India (Foreign Exchange

Management (Foreign currency accounts by a person resident in

India),Regulations, 2000


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A Unit in SEZ can enter into contract in commodity exchange or

market outside India to hedge the price risk in the commodity on

export/import without prior approval of RBI ( Foreign Exchange

Derivative Contracts) Regulation ,2000

SEZ can raise ECB for its own requirements and borrowed funds

shall not be transferred to its sister concern or any other Unit in DTA

(RBI Circular 2/2005-06 dated 01/07/2005)


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Direct Dispatch of documents

to Foreign buyer SEZ Units can dispatch export documents direct to consignee outside

India.

These need not be routed through authorized dealer

Remittance should be obtained and GR/SDF form should be

submitted to authorized dealer with in 21 days for monitoring RBI

Circular 8/2005-06 dated 01/07/2005


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Job Work abroad and direct

dispatch SEZ Units can undertake Job work abroad and export goods from

that country itself

Exporter has to make satisfactory arrangement for realisation of full

exports proceeds(RBI Circular 8/2005-06 dated 01/07/2005)


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QUESTIONS/

SUGGESTIONS/

COMMENTS ???