Friday, 3 January 2020

Unit 6: Tax Planning: FTZ, SEZ and 100 % EOUs

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Unit 6: Tax Planning: FTZ, SEZ and 100 % EOUs


Free Trade Zone, also called Foreign-trade Zone, formerly Free Port, an area within which goods may be landed, handled, manufactured or reconfigured, and re-exported without the intervention of the customs authorities.


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.


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.


Section 10AA was inserted in the Income-tax Act, 1961 by the Special Economic Zones Act, 2005 (the SEZ Act) with effect from 10-2-2006.


Where an undertaking is transferred to another company under a scheme of amalgamation or demerger, the deduction under section 10AA shall be allowable in the hands of the amalgamated or the resulting company.


Section 54GA has been inserted to give exemption in case of shifting of an industrial undertaking from urban area to a special economic zone.


The Export Oriented Unit (EOU) Scheme, which had been introduced in the early 1980s remains in the forefront of country’s export production schemes.


The main objectives of the EOU scheme is to increase exports, earn foreign exchange to the country, transfer of latest technologies stimulate direct foreign investment and to generate additional employment.


A 100 per cent export-oriented unit is an industrial unit offering for export its entire production, excluding the permitted levels of domestic tariff area sales.


EOUs may be set up with a foreign equity participation of up to 100 per cent.


Amalgamation: An amalgamation is distinct from a merger because neither of the combining companies survives as a legal entity.

Assessment Years: An assessment year means the current year.

Convertible foreign exchange: It 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 (46 of 1973), and any rules made there under or any other corresponding law for the time being in force.

Deductions: An expense subtracted from adjusted gross income when calculating taxable income, such as for state and local taxes paid, charitable gifts, and certain types of interest payments.

Unit 6: Tax Planning: FTZ, SEZ and 100 % EOUs Notes    151 Demerger: Demerger is a form of corporate restructuring in which the entity’s business operations are segregated into one or more components.

Electronic Hardware Technology Park (EHTP): It means any park set up in accordance with the Electronic Hardware Technology Park Scheme notified 21 by the Government of India in the Ministry of Commerce and Industry Export turnover: Export turnover means the consideration in respect of export 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 Free Trade Zone (FTZ): A free trade zone or export processing zone (EPZ), also called foreign-trade zone, formerly free port is an area within which goods may be landed, handled, manufactured or reconfigured, and re-exported without the intervention of the customs authorities.

Relevant assessment year: It means any assessment year falling within a period of ten consecutive assessment years referred to in this section.

Software Technology Park (STP): It 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 (SEZ): It 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.

Tax benefit: A tax benefit is an allowable deduction on a tax return intended to reduce a taxpayer’s burden while typically supporting certain types of commercial activity.

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