Tax Planning With Reference to

New Business- Location of A

Business
Special Provisions in respect of newly
established undertakings in free trade zone
Sec. 10 A
Conditions:
1.Must begin Manufacture or Prod. In free trade zone
during the prescribed duration
2.Should not be formed by splitting/ reconstruction
of business
3.Should not be formed by the transfer of old
machinery
4.There must be repatriation of sale proceeds into
India
5.Audit report should be furnish in form no 56F along
with the return of income
6.Return of income as per guidelines of sec. 139(1)
Explanations to condition 1
Location
Ye
ar
Free trade Zone During the previous
year relevant to
The assessment year
1981-82 or any
Subsequent year

Electronichardware
technology park or
software technology
park
During the previous
year relevant to
assessment year
1994-95 or any
subsequent year

SpecialEconomic
Zone
During the previous year relevant to
assessment year 2001-02 or any
subsequent year but before April, 1
2005
 Amount of Deduction
Profit of the Business Undertaking x Export
Turnover
Total turnover of
the business

Period Of Deduction
If all the conditions are satisfied, the
Assessee can claim the deduction U/S
10 A from his total income, for the
period 10 consecutive assessment years
relevant to the previous year in which
undertaking begins to produce such
articles or computer software
Note: The aforesaid deduction is not
available to any undertaking from the
assessment year 2010-11

Amount of deduction special

 provisions
Deduction U/S 10 A in case of undertaking which
begins production during 1/4/2002 to
31/3/2005 in any SEZ:
 First 5 years-100% of Profit derived from
export
 6th& 7 thYear-50% of such profit
 8th,9th& 10thYear-For this 3 years, a
further
deduction would be available to the extent of
50% of the profit and an equivalent amount is
debited to P&L a/c of the previous year and
credited to SEZ Re-investment Allowance
Reserve Account

Consequences of
Amalgamation/Demerger
Where an undertaking of an Indian company is
transferred to another company under a
scheme of amalgamation or demerger the
deduction U/S 10 A shall be allowable to in the
hands of resulted company. However no
deduction shall be admissible under this
section to the amalgamating company for the
previous year in which amalgamation or
demerger take place
 Case
Ritz softs Ltd. Is company registered in India and established in Noida
Software Technology park in the year 1998-99. its majority of the
projects are in
European nations. In the 2007-08 the total sales
revenue generated by the company was Rs.50,00,000. while 80
per cent of the revenue has been generated through the providing
services inEuropean countries only 20 percent of total revenue has
been generated through domestic sales. But due to some problems
by the date of 30th Sept. 2008 only Rs. 36,00,000 have been
remitted
in India in the foreign currency conversion
account. The company¶s Profit & Loss Account is depicting the
operating result as Rs. 5,00,000(Cr) for the F.Y. 2007-08
Question-Discuss whether the company can enjoy Tax
Holiday or not if yes, then under which section and up to
what amount company can claim deduction

Special Provisions in respect of newly

established Units in SpecialEconomic zone
Sec. 10 AA
Conditions:
1.Assessee should be entrepreneur as per sec. 2(j) of SEZ
Act, 2005.
2.The unit should begins production or provide service
during the financial year 2005-06 or any subsequent
year.
3.It¶s not formed by the splitting up or reconstruction of
already existing business
4.Should not be formed by the transfer of old machinery.
However, it can be formed by transfer of old plant &
machinery to the extent of 20%.
5.The Assessee must have export income
6.Audit report should be furnish in form no 56F along with
 the return of income

Amount of Deduction
Profit of the Business Undertakingx Export Turnover
Total turnover of the business

Period Of Deduction
If all the conditions are satisfied, the Assessee can
claim the deduction U/S 10 AA from his total
income in following manner:
 First 5 years-100% of Profit derived from export
 6thYear to 10thYear-50% of such profit
 11th year to 15th Year-For this 5 years, a further
deduction would be available to the extent of 50%
of the profit and an equivalent amount is debited to
P&L a/c of the previous year and credited to SEZ
Re-investment Allowance Reserve Account
Special Provisions in respect of newly
established hundred per cent export-
oriented undertakings {Sec. 10 B}
General
As per this section, a deduction of such profits and gains as
are derived by a 100% export-oriented unit from the export
articles or things or computer software for a period of 10
consecutive years beginning with the A.Y. relevant to the P.Y
in which the undertaking begins to manufacture or produce
articles or things or computer software, as the case may be
shall be allowed from the total income of the assessee.

Conditions:
1.It must be an approved hundred per cent export
oriented undertaking
2.It must produce or manufacture articles or things
or computer software
3.It¶s not formed by the splitting up or
reconstruction of already existing business
4.Should not be formed by the transfer of old
machinery
5.There must be repatriation of sale proceeds into
India
6.Audit report should be furnish in form no 56G
along with the return of income
7.Return of income as per guidelines of sec. 139(1
Amount of Deduction
Profit of the Business Undertakingx Export Turnover
Total turnover of the
business

Some Points to be kept in mind:

1.Period of tax holiday-same as in sec 10 A
2.Existing undertaking will get benefit for
unexpired period-
same as in Sec. 10 A
3. Ban on enjoyment of other tax benefit-same as
sec 10 A
4. WDV of assets after tax holiday-
same as
Sec 10 A
5. Consequences of Merger & Amalgamation-same
as Sec 10

Special Provision in respect of export of

artistic hand-made wooden articles
Section 10 BA
General:
Subject to the provisions of this section, a
deduction of such profits and gains are derived
by an undertaking from the export of wooden
hand-made artistic articles, shall be allowed
from the total income of the assessee.

However, where in computing the total income of

the undertaking for any A.Y., deduction U/S 10
A or Sec 10B has been claimed, the
undertaking shall not be entitled to the
deduction under this section

Conditions to claim deduction U/S Sec 10

BA (this deduction is applicable from the
A.Y. 2004-05)
1.It should manufacture eligible articles or things
2.It should be a new undertaking.
3.It should not be formed by transfer of old
machinery or plant previously used for any
purpose.
4.90% sale should be in overseas market.
5.Employment of 20 or more workers
6.There must be repatriation of sale proceeds into
India
7.The Audit report should be furnish in Form No. 56H
8.The primary raw material should be wood and
shouldn't be imported
Amount of Deduction
Profit of the Business Undertakingx Export Turnover
Total turnover of the business
Period of Deduction
The aforesaid amount of profit is deductible for six
Assessment Years. i.e. A.Y. 2004-05 to 2009-
10.

Case
The Raunak Crafts Ltd. is engaged in manufacturing of wooden
hand made artistic goods. It has been established by Mr.
Raunak Suri who came to India from Germany in the
October 1994, and established his company which start
manufacturing in January 1995. At the time when he came
to India he brought a polishing machine from Germany
with himself against which he paid duty in India and
completed all the formalities. In the year 1995 he started
his business with only 10 workers but from next F.Y. he
increased his workers strength to 25. Up to financial year
1998-99 his total revenue consist of 70% export turnover
and rest from the domestic market. after that Mr. Raunak
had changed his marketing strategy and focused more on
International market and resulting right from the F.Y.
1999-2000 he is able to earn more than 90% of his
turnover from the export.
for the year ending on 31st March 2008 Raunak Crafts Ltd.
depicted the following P&L a/c-

particulars amt particulars amt

Cost of good sold 3500000 Sales turnover 8000000
Other exp 50000 Int on bank deposit 500000
Net profit 4950000
8500000 8500000

out of the sales turnover of Rs.8000000, sales in overseas

market is 7500000 and sale in domestic market is Rs.500000.
out of the export of 7500000, amount remitted to India in
convertible foreign exchange till September 30, 2008 is Rs.
6650000. it includes Rs. 50000 for freight charges.