Tax Planning through Investments

1. Tax Planning through Investments • SECTION 10A • SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE, ETC. CA. Rajat Mohan B.Com(H),ACA, ACS, DISA

2. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

3. (A).TAXPAYER CATEGORY- SECTION 10A This benefit is available to all categories of taxpayers. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

4. (B).CONDITIONS SECTION 10A • (1). Profits and gains as are derived by an undertaking from the export of articles or things or computer software. • (2). Commencement of operations criteria — Undertaking has begun or begins to manufacture or produce articles or things or computer software: MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

5. (B). CONDITIONS SECTION 10A • (3). New Business undertaking criteria — Eligible Undertaking shall not be formed by splitting up, or the reconstruction, of a business already in existence. However, this condition shall not apply in respect of an undertaking, which is formed as a result of the re-establishment, reconstruction, or revival by the assessee of the business of any such undertaking as is referred to in section 33B. • (4). Dual deduction is not allowed criteria— No deduction shall be allowed under section 80-IA or section 80-IB in relation to the profits and gains of the undertaking. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

6. (B). CONDITIONS SECTION 10A • (5). New Plant and Machinery criteria — Eligible Undertaking shall not be formed by the inward transfer to a new business of machinery or plant previously used for any purpose. • This condition shall be deemed to be complied with if value of used machinery or plant or any part thereof transferred to a new business does not exceed 20% of the total value of the machinery or plant used in the business. • 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: MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

7. (B). CONDITIONS SECTION 10A • (i) Such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; • (ii) Such machinery or plant is imported into India from any country outside India; and • (iii) 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 for any period prior to the date of the installation of machinery or plant by the assessee. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

8. (B). CONDITIONS SECTION 10A • (6). Repatriation of foreign exchange criteria — Sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of 6 months from the end of the previous year (or such further period as the competent authority may allow in this behalf). • Sale proceeds shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

9. (B). CONDITIONS SECTION 10A • (7) .Audit of Accounts criteria — The deduction shall not be admissible unless the accounts of the undertaking audited by an accountant for the previous year for which the deduction is claimed. Report of such audit is to be furnished in the Form no. 56F duly signed and verified by such accountant. This report shall be accompanied by the Profit and Loss Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. • (8). Depreciation criteria — Written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation under Section 32 for each of the relevant assessment year. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

10. (B). CONDITIONS SECTION 10A • (9).Inter-unit transaction at market value as per Section 10A (7) criteria — Where any goods or services are transacted (purchase or sale) eligible business or any other business carried on by the assessee shall be at market value. However where the consideration for such transfer as recorded in the accounts of the eligible business does not correspond to the market value as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer had been made at the market value of such goods or services. Where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

11. (B). CONDITIONS SECTION 10A • (10). Inter-unit transaction at market value as per Section 80A(6) criteria— Where any goods or services held for the purposes of the undertaking or unit or enterprise or eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the undertaking or unit or enterprise or eligible business and, the consideration, for such transfer as recorded in the accounts of the undertaking or unit or enterprise or eligible business does not correspond to the market value[1] of such goods or services as on the date of the transfer, then, for the purposes of any deduction under this Chapter, the profits and gains of such undertaking or unit or enterprise or eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

12. (B). CONDITIONS SECTION 10A • (11) Transaction between closely connected assessee criteria — Where it appears to the assessing officer that, owing to the close connectionbetween the assessee carrying on the eligible business and any other person, that the business transacted between them produces more than the ordinary profits to such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived there from. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

13. (B). CONDITIONS SECTION 10A (12) Dual benefit not allowed criteria — Where any amount of profits and gains is claimed and allowed under this section, deduction to the extent of such profits and gains shall not be allowed under any other provisions of Section 10B or Section 10BA or Chapter-VIA under the heading ‘C. Deductions in respect of certain incomes’. Deduction under this section shall not exceed the profits and gains of eligible business. • (13)Carry forward and set-off of losses and unabsorbed depreciation criteria — Unabsorbed depreciation, unabsorbed capital expenditure on scientific research or unabsorbed family planning expenditure will be carried forward and set-off as per the provisions of income tax act normally. Similarly brought forward losses under section 72(1), 74(1) and 74(3) will also be carried forward and set-off as per the provisions of income tax act normally. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

14. (B). CONDITIONS SECTION 10A • (14).Amalgamation or Demerger criteria — Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger. (a) Amalgamating or the Demerged company — No deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place. (b) Amalgamated or the Resulting company — Deduction shall be admissible under this section to the amalgamated or the resulting company for the unexpired period of deduction. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

15. (B). CONDITIONS SECTION 10A • (15). Return of income criteria — Assessee shall furnish his return of income or before due date under section 139(1). In addition, the claim of this deduction shall be compulsorily made in the return of income. • (16). Option to assessee criteria — Assessee may at his option, before the due date for furnishing the return of income under section 139(1), furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

16. (C). AMOUNT OF DEDUCTION- SECTION 10A • Deduction shall be 100% profits and gains derived by an undertaking from the export of articles or things or computer software for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software. However, no deduction under this section shall be allowed to any undertaking for the assessment year beginning on 1 April, 2012 and subsequent years. • However, deduction for an undertaking, which begins to manufacture or produce articles or things or computer software during the previous year relevant to any assessment year commencing on or after 1 April, 2003, in any special economic zone, shall be: MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

17. (C). AMOUNT OF DEDUCTION- SECTION 10A MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

18. D).CALCULATION OF ‘PROFITS DERIVED FROM EXPORTS’ • SECTION 10A Profits derived from export of articles or things or computer software shall be the amount, which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles, or things or computer software bears to the total turnover of the business carried on by the undertaking. In other words formula for calculating Profits derived from exports shall be Export Turnover of the undertaking to which section 10A applies X Profits of such undertaking Total Turnover of the undertaking to which section 10A applies MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

19. (E). MEANING- SECTION 10A i) ‘Computer software’ means (i) Any computer programme recorded on any disc, tape, perforated media or other information storage device; or (ii) Any customized electronic data or any product or service of similar nature, as may be notified (Notification No. SO 890(E), dated 26-9-2000.) by the Board, which is transmitted or exported from India to any place outside India by any means. ii) ‘Convertible foreign exchange’ means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973, and any rules made there under or any other corresponding law for the time being in force. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

20. (E). MEANING- SECTION 10A • ‘Electronic hardware technology park’ means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce and Industry. iv)‘Export turnover’ means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

21. (E). MEANING- SECTION 10A • ‘Free trade zone’ means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone, which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section. • ‘Software technology park’ means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry. • ‘Special economic zone’ means a zone, which the Central Government may, by notification in the Official Gazette, specify as a special economic zone for the purposes of this section. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

22. THANKYOU Your comments and suggestions are of utmost importance and are always welcomed. CA. Rajat Mohan B.Com(H), ACA, ACS, DISA MOHAN AGGARWAL & ASSOCIATES Chartered Accountants Head Office F-31 D.B. Gupta Market, Karol Bagh, New Delhi-110005 Office Phone: 011-23672609 / 23535809 Branch Office 18A, IInd Floor, North Avenue Road, West Punjabi Bagh, New Delhi-110026 office Phone: 011-47322696/97 Website: www.delhicamohan.com E-mail: rajat.mohan@icai.org