Sez
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
05 November 2012
What are the tax exemptions available to SEZ units i.e. companies operating from SEZ?
08 November 2012
ncome Tax
Part-1 Income Tax incentives for SEZ units
Tax exemption for SEZ units engaged in manufacture or providing services- A new section 10AA has been introduced in the IT Act by SEZ Act, 2005 which provides that the units in SEZ which start manufacturing or producing articles/ things or which start providing services on or after April 1, 2005 will be eligible for a deduction of 100 percent of export profits for the first five years from the year in which such manufacture/ provision of services commences and 50 percent of the export profits for the next five years. Further, for the next five years a deduction shall be allowed of upto 50 percent of the profit as is debited to the profit and loss account and credited to the Special Economic Zone Reinvestment Reserve Account (subject to conditions).
Tax exemption for Offshore Banking units in SEZ- A deduction in respect of certain incomes would be allowed under the new section 80LA, to scheduled banks or foreign banks having an Offshore Banking unit in SEZ or to a unit of IFSC. The deduction shall be for 100 percent of income for five consecutive years beginning from the year in which permission/ registration has been obtained under the Banking Regulation Act or the SEBI Act or any other relevant law and 50 percent of income for next five years.
Interest received by non-residents and not ordinary residents on deposits made with an Offshore Banking Unit on or after April 1, 2005 shall be exempt from tax.
Exemption from Minimum Alternate Tax ("MAT")- Income arising or accruing on or after April 1, 2005 from any business carried on, or services rendered by SEZ unit would be exempt from MAT under section 115JB.
Exemption from Capital Gains- Capital gains arising on transfer of assets (machinery, plant, building, land or any rights in buildings or land) on shifting of the industrial undertaking from an urban area to any SEZ would be exempt from capital gains tax. The exemption would be allowable if within one year before or three years after such transfer:
Machinery or plant is purchased for the purposes of business of industrial undertaking in SEZ by the assessee.
Assessee has acquired land or building or has constructed building for the purposes of business in SEZ.
The original assets are shifted and establishment of the industrial undertaking is transferred to SEZ; and other specified expenses are incurred.
The amount of exemption for capital gains would be restricted to the costs and expenses incurred in relation to all or any of the purposes mentioned above.
Part-2 Income Tax incentives for SEZ Developer
Tax holiday for SEZ developers- A new section 80-IAB has been introduced in the IT Act vide SEZ Act, 2005 whereby a deduction of 100 percent of profits derived from the business of developing SEZ (notified on or after April 1, 2005) would be available to developer of SEZ for any 10 consecutive years out of 15 years beginning from the year in which SEZ has been notified.
Exemption under section 10(23G) that was available to infrastructure capital fund or a cooperative bank on interest and long term capital gains investment had been extended to investment made by SEZ developers qualifying for tax holiday under section 80-IAB of the IT Act. However, this exemption has been withdrawn with effect from assessment year 2007-08.
Exemption from Dividend Distribution Tax ("DDT")- No DDT would be payable by a developer of SEZ on dividend declared, distributed or paid on or after April 1, 2005 out of current income.
Exemption from MAT- Any income earned on or after April 1, 2005 by a SEZ developer would be exempt from MAT under section 115JB of the Act.
from Domestic Tariff Area (DTA) to SEZ.
Part-1 Income Tax incentives for SEZ units
Tax exemption for SEZ units engaged in manufacture or providing services- A new section 10AA has been introduced in the IT Act by SEZ Act, 2005 which provides that the units in SEZ which start manufacturing or producing articles/ things or which start providing services on or after April 1, 2005 will be eligible for a deduction of 100 percent of export profits for the first five years from the year in which such manufacture/ provision of services commences and 50 percent of the export profits for the next five years. Further, for the next five years a deduction shall be allowed of upto 50 percent of the profit as is debited to the profit and loss account and credited to the Special Economic Zone Reinvestment Reserve Account (subject to conditions).
Tax exemption for Offshore Banking units in SEZ- A deduction in respect of certain incomes would be allowed under the new section 80LA, to scheduled banks or foreign banks having an Offshore Banking unit in SEZ or to a unit of IFSC. The deduction shall be for 100 percent of income for five consecutive years beginning from the year in which permission/ registration has been obtained under the Banking Regulation Act or the SEBI Act or any other relevant law and 50 percent of income for next five years.
Interest received by non-residents and not ordinary residents on deposits made with an Offshore Banking Unit on or after April 1, 2005 shall be exempt from tax.
Exemption from Minimum Alternate Tax ("MAT")- Income arising or accruing on or after April 1, 2005 from any business carried on, or services rendered by SEZ unit would be exempt from MAT under section 115JB.
Exemption from Capital Gains- Capital gains arising on transfer of assets (machinery, plant, building, land or any rights in buildings or land) on shifting of the industrial undertaking from an urban area to any SEZ would be exempt from capital gains tax. The exemption would be allowable if within one year before or three years after such transfer:
Machinery or plant is purchased for the purposes of business of industrial undertaking in SEZ by the assessee.
Assessee has acquired land or building or has constructed building for the purposes of business in SEZ.
The original assets are shifted and establishment of the industrial undertaking is transferred to SEZ; and other specified expenses are incurred.
The amount of exemption for capital gains would be restricted to the costs and expenses incurred in relation to all or any of the purposes mentioned above.
Part-2 Income Tax incentives for SEZ Developer
Tax holiday for SEZ developers- A new section 80-IAB has been introduced in the IT Act vide SEZ Act, 2005 whereby a deduction of 100 percent of profits derived from the business of developing SEZ (notified on or after April 1, 2005) would be available to developer of SEZ for any 10 consecutive years out of 15 years beginning from the year in which SEZ has been notified.
Exemption under section 10(23G) that was available to infrastructure capital fund or a cooperative bank on interest and long term capital gains investment had been extended to investment made by SEZ developers qualifying for tax holiday under section 80-IAB of the IT Act. However, this exemption has been withdrawn with effect from assessment year 2007-08.
Exemption from Dividend Distribution Tax ("DDT")- No DDT would be payable by a developer of SEZ on dividend declared, distributed or paid on or after April 1, 2005 out of current income.
Exemption from MAT- Any income earned on or after April 1, 2005 by a SEZ developer would be exempt from MAT under section 115JB of the Act.
from Domestic Tariff Area (DTA) to SEZ.
Querist : Anonymous
Querist :
Anonymous
(Querist)
09 November 2012
Thanks a lot Sir. But isn't MAT applicable effective from April 2012?
25 July 2025
Great question! Here's a detailed overview regarding tax exemptions for units operating in Special Economic Zones (SEZs) in India, along with the applicability of Minimum Alternate Tax (MAT) from April 2012:
---
### Tax Exemptions Available to SEZ Units
1. **Income Tax Holiday (Section 10AA of the Income Tax Act):**
* SEZ units are eligible for a **100% income tax exemption for the first 5 years** from the date of commencement of operations.
* Then, a **50% exemption for the next 5 years**.
* Followed by a **50% exemption on profits reinvested for another 5 years**.
2. **Exemption from Dividend Distribution Tax (DDT):**
* Dividends paid by SEZ units are exempt from DDT.
3. **Customs and Excise Benefits:**
* SEZ units enjoy exemption from customs duties on import of capital goods, raw materials, consumables, spares, and components.
* They are also exempt from excise duty on procurement of goods from the Domestic Tariff Area (DTA).
4. **Goods and Services Tax (GST) Benefits:**
* SEZ units typically enjoy GST exemptions or zero-rated supplies on goods and services procured.
---
### Applicability of MAT (Minimum Alternate Tax)
* **Yes, MAT is applicable to SEZ units effective from April 1, 2012.**
The **Finance Act, 2012** introduced the provision that SEZ units are liable to pay MAT under Section 115JB of the Income Tax Act.
* Before this amendment, SEZ units were completely exempt from income tax (under Section 10AA), and hence MAT was not applicable.
* After April 2012, even if the SEZ unit's income is exempt under Section 10AA, MAT will apply if the book profits are positive.
* **However**, units can still claim the benefit of MAT credit (MAT paid can be carried forward and set off against future regular tax liabilities).
---
### Summary
| Benefit | Status Before April 2012 | Status After April 2012 |
| ------------------------------- | ------------------------ | -------------------------- |
| Income Tax Exemption (Sec 10AA) | Fully exempt | Exempt, but subject to MAT |
| MAT (Section 115JB) | Not applicable | Applicable |
| Customs/Excise/GST Benefits | Applicable | Applicable |
---
If you're an SEZ unit or planning to invest in one, keep in mind this MAT applicability when doing your tax planning post-2012.
Would you like me to provide references from the Income Tax Act or case law on this topic?
---
### Tax Exemptions Available to SEZ Units
1. **Income Tax Holiday (Section 10AA of the Income Tax Act):**
* SEZ units are eligible for a **100% income tax exemption for the first 5 years** from the date of commencement of operations.
* Then, a **50% exemption for the next 5 years**.
* Followed by a **50% exemption on profits reinvested for another 5 years**.
2. **Exemption from Dividend Distribution Tax (DDT):**
* Dividends paid by SEZ units are exempt from DDT.
3. **Customs and Excise Benefits:**
* SEZ units enjoy exemption from customs duties on import of capital goods, raw materials, consumables, spares, and components.
* They are also exempt from excise duty on procurement of goods from the Domestic Tariff Area (DTA).
4. **Goods and Services Tax (GST) Benefits:**
* SEZ units typically enjoy GST exemptions or zero-rated supplies on goods and services procured.
---
### Applicability of MAT (Minimum Alternate Tax)
* **Yes, MAT is applicable to SEZ units effective from April 1, 2012.**
The **Finance Act, 2012** introduced the provision that SEZ units are liable to pay MAT under Section 115JB of the Income Tax Act.
* Before this amendment, SEZ units were completely exempt from income tax (under Section 10AA), and hence MAT was not applicable.
* After April 2012, even if the SEZ unit's income is exempt under Section 10AA, MAT will apply if the book profits are positive.
* **However**, units can still claim the benefit of MAT credit (MAT paid can be carried forward and set off against future regular tax liabilities).
---
### Summary
| Benefit | Status Before April 2012 | Status After April 2012 |
| ------------------------------- | ------------------------ | -------------------------- |
| Income Tax Exemption (Sec 10AA) | Fully exempt | Exempt, but subject to MAT |
| MAT (Section 115JB) | Not applicable | Applicable |
| Customs/Excise/GST Benefits | Applicable | Applicable |
---
If you're an SEZ unit or planning to invest in one, keep in mind this MAT applicability when doing your tax planning post-2012.
Would you like me to provide references from the Income Tax Act or case law on this topic?
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