April 18, 2023

The Indian government has launched a plan called the Special Provision for Newly Established Undertakings in Free Trade Zone, etc. This strategy is designed to promote investment in particular regions of the country by providing tax benefits and other incentives to newly established undertakings operating in Free Trade Zones (FTZs) and Special Economic Zones (SEZs). This program is covered under Section 115A of the Income Tax Act, 1961, and applies to any new industrial undertaking that commences operations on or after April 1, 2002, in a free trade zone, export processing zone, software technology park, or special economic zone. These undertakings can avail of tax benefits under the program for a period of five years, starting from the year in which the undertaking starts operating. Under the Special Provision scheme, newly established undertakings are subject to a reduced tax rate of 15% for the initial five years of operation. This tax rate is significantly lower than the standard corporate tax rate of 30% for domestic companies. Moreover, newly established undertakings are not liable to pay Minimum Alternate Tax (MAT) for the first five years of operation. MAT is a tax imposed on companies that have a book profit but pay little or no tax due to exemptions and deductions. Furthermore, newly established undertakings can benefit from various non-tax incentives, such as exemption from customs and excise duties on imported and indigenous goods used in the production process, the liberty to outsource production processes, and permission to sell goods in the domestic market subject to specific terms and conditions. Nevertheless, newly established undertakings must meet specific criteria to qualify for the benefits of the Special Provision scheme. For example, they must not have been established by splitting up or reconstructing an existing business, and they must not have been formed due to the transfer of an existing business to a new location. In conclusion, the Special Provision for Newly Established Undertakings in Free Trade Zone, etc. is a valuable scheme for newly established undertakings operating in FTZs and SEZs. This scheme provides a range of tax and non-tax incentives that can significantly reduce the financial burden on these undertakings, fostering investment in these regions and contributing to the growth of the economy. Section 10A of Income Tax Act, 1961 (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten 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, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years : Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or export processing zone into a special economic zone, the period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the undertaking began to manufacture or produce such articles or things or computer software in such free trade zone or export processing zone : Provided also 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 : Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years. (1A) Notwithstanding anything contained in sub-section (1), the deduction, in computing the total income of 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 the 1st day of April, 2003, in any special economic zone, shall be,— (i)  hundred per cent of profits and gains derived from the export of such articles or things or computer software for a period of five 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, as the case may be, and thereafter, fifty per cent of such profits and gains for further two consecutive assessment years, and thereafter; (ii)  for the next three consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the “Special Economic Zone Re-investment Allowance Reserve Account”) to be created and utilised for the purposes of the business of the assessee in the manner laid down in sub-section (1B) : Provided that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139. (1B) The deduction under clause (ii) of sub-section (1A) shall be allowed only if the following conditions are fulfilled, namely:— (a)  the amount credited to the Special Economic Zone Re-investment Allowance Reserve Account is to be utilised—  (i)  for the purposes of acquiring new machinery or plant which is first put to use before the expiry of a period of three years next

The Income Tax Act provides for various types of income that are not taxable and are thus excluded from an individual’s total income. Let’s discuss some of the most common examples of such income. Agricultural income is a typical category of income that is exempt from tax. It refers to any income earned from selling agricultural produce or renting agricultural land. However, if a person’s non-agricultural income exceeds the basic exemption limit, then the agricultural income will be taken into account for taxation purposes. Another type of income that is not included in total income is dividend income received from Indian companies. Nevertheless, the company distributing the dividend must pay a dividend distribution tax of 15% on the gross amount of dividend paid. Gifts received by an individual from specific relatives such as parents, siblings, spouses, or children are also not included in total income. However, any gift received from non-relatives exceeding Rs. 50,000 in a financial year is taxable as income from other sources. The proceeds received from a life insurance policy on the death of the insured are not included in the total income of the nominee. However, any interest earned on the proceeds is taxable. Scholarships granted to cover the cost of education are not included in the total income of the student. However, any scholarship granted for research or any other purpose is taxable. Gratuity received by an employee on retirement, death, or disablement is exempt up to a certain limit based on the number of years of service. The exemption limit is Rs. 20 lakhs. Leave encashment received by an employee at the time of retirement or resignation is exempt up to a certain limit based on the number of years of service. The exemption limit is Rs. 3 lakhs. Long-term capital gains on the sale of listed securities, units of equity-oriented mutual funds, and immovable property are exempt if the gains are invested in specified assets. However, the exemption is subject to certain conditions and limits. Lastly, interest income earned on tax-free instruments such as PPF, EPF, and tax-free bonds is not included in the total income. However, interest earned on fixed deposits, savings accounts, and other taxable instruments is taxable. It’s important for individuals to be aware of these exemptions as they can aid in financial planning and reduce tax liability. Consulting a tax expert is advised to better understand these exemptions and their implications. Section 10 of Income Tax Act 1961 In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— (1) agricultural income ; (2) subject to the provisions of sub-section (2) of section 64, any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family ; (2A) in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. Explanation.—For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits ; (3) [***] (4) (i) in the case of a non-resident, any income by way of interest on such securities or bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf, including income by way of premium on the redemption of such bonds : Provided that the Central Government shall not specify, for the purposes of this sub-clause, such securities or bonds on or after the 1st day of June, 2002; (ii) in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Management Act, 1999 (42 of 1999), and the rules made thereunder : Provided that such individual is a person resident outside India as defined in clause (w) of section 2 of the said Act or is a person who has been permitted by the Reserve Bank of India to maintain the aforesaid Account ; (4B) in the case of an individual, being a citizen of India or a person of Indian origin, who is a non-resident, any income from interest on such savings certificates issued before the 1st day of June, 2002 by the Central Government as that Government may, by notification in the Official Gazette, specify in this behalf : Provided that the individual has subscribed to such certificates in convertible foreign exchange remitted from a country outside India in accordance with the provisions of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made thereunder. Explanation.—For the purposes of this clause,— (a) a person shall be deemed to be of Indian origin if he, or either of his parents or any of his grandparents, was born in undivided India ; (b) “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 Management Act, 1999 (42 of 1999), and any rules made thereunder ; (4C) any income by way of interest payable to a non-resident, not being a company, or to a foreign company, by any Indian company or business trust in respect of monies borrowed from a source outside India by way of issue of rupee denominated bond, as referred to in clause (ia) of sub-section (2) of section 194LC, during the period beginning from the 17th day of September, 2018 and