SEZ Tax Exemption — Section 10AA

Income Tax Act, 1961: Section 10AA grants a profit-linked tax exemption to units set up in Special Economic Zones (SEZs) that begin manufacture, production, or provision of services during the eligible period. The exemption runs for 15 consecutive assessment years on a taper: 100% of export profits for the first 5 consecutive assessment years, 50% of export profits for the next 5 assessment years, and, for the final 5 assessment years, a deduction of 50% of export profits subject to an equivalent amount being credited to a Special Economic Zone Re-investment Reserve Account and utilised for acquiring new plant and machinery. The exemption claim must be accompanied by a report of a chartered accountant in Form 56F, certifying the computation of the deduction. This basis reflects the core Section 10AA framework as it applies to units set up under the SEZ Act, 2005; unit-specific SEZ registration and eligibility conditions should be separately verified for each unit's facts.

Section 10AA advisory covers the tax exemption for the export income of the units in the Special Economic Zones under Section 10AA of the Income-tax Act 1961 — the deduction for the profits and the gains derived from the export of the goods and the services by an entrepreneur in the SEZ, for the first five years at the prescribed percentage, the next five years at the lower percentage, and the following five years against the ploughing back of the profits into the reinvestment allowance, subject to the conditions the section prescribes — the export from the SEZ unit, the receipt of the proceeds in the convertible foreign exchange, and the maintenance of the separate accounts.

The Section 10AA deduction is the tax benefit of the SEZ unit — the exemption of the export profits on the declining percentage scale over the fifteen years, with the conditions that make the deduction real: the export from the unit, the foreign exchange receipt within the prescribed period, and the accounts that isolate the export business. The deduction is the reason many businesses locate in the SEZs, and its compliance is the discipline that keeps the benefit.

The cost of a mishandled Section 10AA position is the withdrawal of the deduction: the proceeds not received within the period, the export business not isolated in the accounts, the computation wrong — each an addition at the assessment with the interest.

This service is for SEZ units claiming the Section 10AA deduction. We compute the eligible export profits and the deduction under the section, structure the unit's accounts and the export documentation, manage the conditions — the proceeds, the separate accounts — prepare the returns with the deduction claimed, and handle the assessments so the SEZ benefit is retained.