TAX HOLIDAY FOR INDUSTRIAL UNITS IN FREE TRADE ZONES ETC. [SECTION

Section 10A of the Income-tax Act relates to special provision in respect of newly established
industrial undertakings in free trade zones, export processing zones, electronic hardware
technology parks, software technology parks or special economic zones notified by the Central
Government. The section exempts the profits and gains of such undertakings derived from
the export of articles or things or computer software.


(1) Assessees who are eligible to claim exemption

The benefit of exemption under this section is available to all categories of assessees who
derive any profits or gains from an undertaking engaged in export of articles or things or
computer software. The profits and gains derived from on-site development of computer
software (including services for development of software) outside India shall be deemed to be
the profits and gains derived from the export of computer software outside India.

(2) Conditions to be satisfied for claiming exemption

This section applies to any undertaking which fulfills the following conditions:

(i) It has begun manufacture or production (include the cutting and polishing of precious and
semi-precious stones) of articles, things or computer software during the previous year
relevant to the:
(a) A.Y.1981-82 or thereafter in any FTZ; or
(b) A.Y.1994-95 or thereafter in any electronic hardware technology park (EHTP) or
software technology park (STP); or
(c) A.Y.2001-2002 or thereafter in any SEZ.

(ii) It is not formed by the splitting up, or reconstruction, of a business already in existence.
However, this condition shall not apply to an undertaking which is formed as a result of
re-establishment, reconstruction or revival of the business of any undertaking falling
under section 33B.

(iii) It is not formed by the transfer of machinery or plant previously used for any purpose. For
the purposes of this clause, any machinery or plant used outside India by any person
other than the assessee shall not be regarded as machinery or plant previously used for
any purpose, if the following conditions are fulfilled:
(a) such machinery or plant was not, at any time previous to the date of installation by
the assessee, used in India;
(b) such machinery or plant is imported into India from any country outside India; and
(c) no deduction on account of depreciation in respect of such machinery or plant has
been allowed or is allowable under the provisions of this Act in computing the total
income of any person prior to the date of installation of the machinery or plant by
the assessee.
(d) Further, where in the case of an industrial undertaking, any machinery or plant or
any part thereof previously used for any purpose is transferred to a new business,
and the total value of the machinery, etc. transferred does not exceed 20% of the
total value of the machinery and plant used for the business.


(iv) The sale proceeds of articles, things or computer software exported out of India must be
brought into India in convertible foreign exchange within six months from the end of the
previous year, or such further period as the competent authority may allow. For this
purpose, "competent authority" means the RBI or such other authority as is authorised for
regulating payments and dealings in foreign exchange.
Further, where the sale proceeds are credited to a separate account maintained by the
assessee with any bank outside India with the approval of the RBI, such sale proceeds
shall be deemed to have been received in India.


(v) In order to claim deduction under this section, the assessee should furnish an audit
report from a chartered accountant in Form No.56F, along with the return of income,
certifying that the deduction has been correctly claimed. However, no deduction u/s 10A
shall be allowed to an assessee who does not furnish a return of his income on or before
the due date specified under section 139(1).