Comparison of fiscal benefit available to SEZ, SEZ developer & 100% EOU

AREA

General provisions

· 100% FDI through automatic route

· No licence required for Import

· Developer permitted to transfer infrastructure facility for operation and maintenance.

· Generation, transmission and distribution of power allowed.

· Authorized to provide and maintain service like water, electricity, security, restaurants and recreation centers on commercial lines

· Supplies from DTA to SEZ units treated as Physical Exports

· Profits allowed to be repatriated freely

· There is no requirement for a SEZ developer to be NFE positive

· 100% FDI through automatic route

· No licence for import including second hand machineries.

· No cap on Foreign Investments for SSI reserved items

· SEZ unit to be positive net foreign exchange earner within 3 years

· No fixed wastage norms

· Facility to retain 100% Foreign exchange receipts in EEFC account

· Facility to realize and repatriate export proceeds within 12 months

· SEZ unit may have transactions of import and also export with the same foreign customer. In such case, exporter can net off export receivables against import payments. The transactions should be between same two properties and there should be proper documentation. This permission is only for SEZ units. (RBI Circular 8/2005-06 dated 01/07/2005)

· SEZ units may sub contract part of production or production process through units in the DTA or through other EOU/ SEZ units.

· SEZ units may also sub-contract part of their production process abroad.

· 100% FDI through automatic route

· Units undertaking to export their entire production of goods and services except to the extent of permissible sales in the DTA

· Second hand capital goods, without any age limit, may also be imported duty free.

· Facility to retain 100% Foreign exchange receipts in EEFC account

· Trading units can be only set up under a SEZ

· Export proceeds will be realized with in 12 months

· Shall be a positive net foreign exchange earner

· LOP shall have an initial validity of 3 years. Once unit commences production, LOP issued shall be valid for 5 years. May be extended for further 5 years at a time.

· Only projects having minimum 1 Crore in plant & machinery are considered for establishment as EOU

· Sale in the DTA shall also be permissible up to 50% of FOB value of exports subject to fulfillment of positive NFE on payment of concessional duties

· Scrap/ waste/ remnants arising during production may be sold in DTA on payment of concessional duties as applicable within overall ceiling of 50% of FOB value of exports. Scrap/ waste/ remnants may also be exported.

· There shall be no duties/ taxes on scrap/ waste/ remnants in case same are destroyed with permission of Customs authorities.

· Permitted level of rejects

Income Tax

Section 80-IAB of the Income Tax Act, 1961,

Deduction of 100 percent of profits.

Period of deduction

For 10 consecutive assessment years out of 15 years beginning from the year in which the special economic zone has been notified by the Central Government.

Conditions

· Taxpayer is a developer of a SEZ

· Gross Total Income of the taxpayer includes profits and gains derived by an undertaking from any business of developing a Special Economic Zone

· SEZ is notified on or after April 1, 2005

· The books of accounts are audited.

· Return of income is submitted on or before the due date.

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.

Income of Infrastructure capital fund/ Company from investments in SEZ exempt from Income Tax.

Investments made by Individuals etc in a SEZ company also eligible for deduction u/s 88 of Income Tax Act.

Exemption of Capital Gains from transfer of Capital Assets

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) under Sec 54 GA of the Income Tax Act, 1961.

Conditions

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.

The amount of capital gain which is not so utilized 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

Exemption

The amount of exemption will be equal to a) Amount of capital gains in shifting or b) cost and expenses incurred in shifting etc. whichever is lower.

· No Minimum Alternate Tax

· No Dividend Distribution Tax

Section 10AA of the Income Tax Act, 1961

a newly established unit in SEZ (Which has been granted a letter of approval by Development Commissioner and begins to manufacture or produce article or things or provide services including computer software during the financial year 2005-06 or any subsequent year and has income from export (out of India) of articles or thing or from services from such unit and books of accounts should be audited) is entitled to a deduction of an amount computed as follows:

Profits of the business X Export Turnover/Total Turnover

Quantum and Period of deduction

For first 5 Assessment years: 100%

For Sixth to Tenth Assessment years: 50%

For Eleventh to Fifteenth Assessment Years: 50% of the profit provided an equal amount is debited to P&L a/c and credited to the Special Economic Zone Re-investment Allowance Reserve account which is to be utilized

i.for the purposes of acquiring machinery or plant which is first put to use before the expiry of a period of three years following the previous years in which the reserve was created,

i.until the acquisition of machinery or plant as aforesaid, 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.

i.Prescribed particulars are furnished in (Form no. 56FF) the prescribed form along with the return of income for the previous year in which such plant and machinery was first put to use.

Where amount of SEZRARA has been utilized for the unspecified purposes or has not been utilized before the expiry of specified period the amount not so utilized or mis-utilized shall be charged to tax accordingly.

Consequences in case of amalgamation or demerger

The deduction for the remaining period shall be allowed to merged company.

Consequences of claiming deduction under Section 10AA

· Unabsorbed depreciation allowances or unabsorbed capital expenditure on scientific research or family planning pertaining to assessment years 2005-06 or earlier years aren’t allowed to be carried forward and set off against the income of the assessment years following the period of deduction.

· Losses under section 72(1) – business loss or 74(1) – Short Term Capital loss or 74(3) – Long Term capital Loss (pertaining to the assessment year 2005-06 or earlier years) aren’t allowed to be carried forward and set off against the income of the assessment years following the period of deduction.

· The deduction under section 80-IA or 80-IB shall also not be available to such undertakings after the expiry of tax holiday period.

· In the assessment years following period of deduction, the depreciation will be computed on the written down value of the asset as if the depreciation has actually been allowed in respect of each assessment year falling in the period of exemption.

· No Minimum Alternate Tax

Section 10B of the Income Tax Act, 1961

a 100% EOU (an approved 100% EOU by the board in this behalf and must manufacture or produce any article or thing or computer software and which is transmitted or exported from India to any place outside India by any means and it should not have been formed by splitting / reconstruction of business and it should not be formed by transfer of old machinery and there must be repatriation of sale proceeds into India and audit report should be submitted in the prescribed form and must not transfer ownership or beneficial interest in undertaking)

Amount of deduction

Profits of the business X Export Turnover/ Total Turnover

Provided further that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software

Period of deduction

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.

No deduction shall be allowed under section 10B to any undertaking from the assessment year 2010-11.

Section 10B will be applicable to all eligible undertakings unless the assessee opts out of the scheme by making a declaration before the due date of furnishing return of income.

This section applies to the undertaking, if the 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 six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf

Consequences of claiming deduction under Section 10B

· Unabsorbed depreciation allowances or unabsorbed capital expenditure on scientific research or family planning pertaining to assessment years 2005-06 or earlier years aren’t allowed to be carried forward and set off against the income of the assessment years following the period of deduction.

· Losses under section 72(1) – business loss or 74(1) – Short Term capital loss or 74(3) – Long Term capital loss (pertaining to the assessment year 2005-06 or earlier years) aren’t allowed to be carried forward and set off against the income of the assessment years following the period of deduction.

· The deduction under sections 80HH, 80HHA, 80-I, 80-IA or 80-IB shall also not be available to such undertakings after the expiry of tax holiday period.

· In the assessment years following period of deduction, the depreciation will be computed on the written down value of the asset as if the depreciation has actually been allowed in respect of each assessment year falling in the period of exemption.

Customs and Excise

· Duty free import/ domestic procurement of goods for development, operation and maintenance.

· Exemption from customs duty on import of capital goods, raw materials, consumables, spares etc.

· Exemption for Central Excise duty on procurement of capital goods, raw materials, consumable spares etc. from the domestic market.

· Re-export imported goods found defective, goods imported from foreign suppliers on loan basis etc. without G.R. waiver under intimation to the Development Commissioner

· Duty free export of goods or services from a SEZ or a Unit to any place outside India

· Duty free import/ domestic procurement of goods for setting up of SEZ units.

· May import or procure from domestic sources, duty free, all their requirements of capital goods, raw materials, consumables, spares, packing materials, office equipments, DG sets etc. for implementation of their project in the Zone without any licence or specific approval.

· Goods imported/ procured locally duty free could be utilized over the approval period of 5 years

· Domestic sales will now be exempt from SAD

· Domestic sale of finished products, by-products on payment of applicable custom duty

· Domestic sale rejects and waste and scrap on payment of applicable Custom Duty on the transaction value

· Duty free export of goods or services from a SEZ or a Unit to any place outside India

· Routine examination of goods by Customs in the EOU is common. SEZ units function on self – certification basis.

· No excise duty on goods bought from DTA to a SEZ or a Unit (Exemption is also available to contractor appointed by developer or co developer provided all documents are in joint name of developer and contractor)

· Supplies from DTA will be regarded as “deemed exports” and will be free of applicable taxes else, deemed export duty drawback can be get.

Central Sale Tax

Service Tax

Cenvat Credit on service tax paid

Articles reserved for SSI

Exemption from industrial licensing for manufacture of items reserved for SSI sector.

Other Taxes, Duties or Cess

Section 7 and 54 of the Special Economic Zones Act, 2005

Any goods or services exported out of, or imported into, or procured from DTA by a Unit in a SEZ or a developer shall be exempt from the payment of taxes, duties or cess under all enactments specified below:

1. The Agricultural Produce Cess Act, 1940 (27 of 1940).

2. The Coffee Act, 1942 (7 of 1942).

3. The Mica Mines Labour Welfare Fund Act, 1946 (22 of 1946).

4. The Rubber Act, 1947 (24 of 1947).

5. The Tea Act, 1953 (29 of 1953).

6. The Salt Cess Act, 1953 (49 of 1953).

7. The Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (16 of 1955).

8. The Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957).

9. The Sugar (Regulation of Production) Act, 1961 (55 of 1961).

10. The Textiles Committee Act, 1963 (41 of 1963).

11. The Produce Cess Act, 1966 (15 of 1966).

12. The Marine Products Export Development Authority Act, 1972 (13 of 1972).

13. The Coal Mines (Conservation and Development Act, 1974 (28 of 1974).

14. The Oil Industry (Development) Act, 1974 (47 of 1974).

15. The Tobacco Cess Act, 1975 (26 of 1975).

16. The Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978).

17. The Sugar Cess Act, 1982 (3 of 1982).

18. The Jute Manufactures Cess Act, 1983 (28 of 1983).

19. The Agricultural and Processed Food Products Export Cess Act, 1985 (3 of 1986).

20. The Spices Cess Act, 1986 (11 of 1986).

21. The Research and Development Cess Act, 1986 (32 of 1986).

Section 7 and 54 of the Special Economic Zones Act, 2005

Any goods or services exported out of, or imported into, or procured from DTA by a Unit in a SEZ or a developer shall be exempt from the payment of taxes, duties or cess under all enactments specified below:

1. The Agricultural Produce Cess Act, 1940 (27 of 1940).

2. The Coffee Act, 1942 (7 of 1942).

3. The Mica Mines Labour Welfare Fund Act, 1946 (22 of 1946).

4. The Rubber Act, 1947 (24 of 1947).

5. The Tea Act, 1953 (29 of 1953).

6. The Salt Cess Act, 1953 (49 of 1953).

7. The Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (16 of 1955).

8. The Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957).

9. The Sugar (Regulation of Production) Act, 1961 (55 of 1961).

10. The Textiles Committee Act, 1963 (41 of 1963).

11. The Produce Cess Act, 1966 (15 of 1966).

12. The Marine Products Export Development Authority Act, 1972 (13 of 1972).

13. The Coal Mines (Conservation and Development Act, 1974 (28 of 1974).

14. The Oil Industry (Development) Act, 1974 (47 of 1974).

15. The Tobacco Cess Act, 1975 (26 of 1975).

16. The Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978).

17. The Sugar Cess Act, 1982 (3 of 1982).

18. The Jute Manufactures Cess Act, 1983 (28 of 1983).

19. The Agricultural and Processed Food Products Export Cess Act, 1985 (3 of 1986).

20. The Spices Cess Act, 1986 (11 of 1986).

21. The Research and Development Cess Act, 1986 (32 of 1986).

Foreign Currency Account

A unit located in SEZ can hold, open and maintain a Foreign Currency Account with authorized dealer in India. All Foreign Exchange Funds received by SEZ are credited to this account. However, Foreign exchange purchased in India against Rupees can not be credited to this account without permission of RBI. The funds in the account can be used for any bona fide trade transactions with person resident in India or otherwise. The balances in the account are exempt from all restrictions in respect of current account transactions. Restrictions on EEFC account in respect of current account transactions are not applicable to SEZ accounts, except that gifts exceeding US $ 5,000 and donations exceeding US $ 10,000 per remitter/donor per annum are not permitted. Funds in these accounts shall not be lent or made available to any person or entity resident in India, except to another SEZ unit.

(Regulation 6A of FEMA(Foreign Currency accounts by a person resident in India)Regulations ,2000 and RBI Circular 8/2005-6 dated 01/07/2005)

Summary

Development state

· No Customs duty

· No Excise duty

· No sales tax

· No Service tax

· No Purchase tax

· No stamp duty & registration fee

· No stamp duty on mortgages

· No electricity duty

· No Customs duty

· No Excise duty

· No sales tax

· No Service tax

· No Purchase tax

· No stamp duty & registration fee

· No stamp duty on mortgages

· No electricity duty

· No Customs duty

· No Excise duty

· Reimbursement

· CENVAT

· No Purchase tax

· Payable

· Payable

· Payable

Operation State

Profit stage

· No income tax for consecutive 10 years in a block of 15 years

· No MAT

· No Dividend Distribution Tax

· Exemption from Income Tax

· 100% first 5 yrs

· 50% next 5 yrsff

· 50% of the profit ploughed back for the next 5 yrs

· Not MAT

· No income tax for consecutive 10 years beginning with the year of production

Exit and closure

With the approval of Development Commissioner. Such exit from the SEZ shall be subject to payment of applicable duties on the imported or indigenous capital goods, raw materials, components, consumables, spares and finished goods in stock.

If the unit has not achieved positive NFE, the exit shall be subject to penalty.