Special Economic Zone New Scheme at a Glance 2006

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Special Economic Zone New Scheme at a
Glance2006
By Anusha Balaji A.C.A
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Agenda

• The Indian Advantage
• Emerging Trends
• The Transition
• SEZ Advantage
• SEZ Developer-Approval Parameters
• Tax Incentives to Developer
• SEZ Unit- Approval Parameters
• Tax Incentives to Unit
• Indirect Tax Incentives to SEZs
• Recently Approved SEZs
• Thank You

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The Indian Advantage

• India has competitive advantage of cheap labour
  and materials. Hence a global manufacturing base
  could be set up in India (eg. auto ancillaries,
  etc)
• Foreign Trade Policy, 2004-2009 provides for
  setting up SEZs in India with a view to provide
  an internationally competitive and hassle free
  environment for exports
• Units may be set up in an SEZ for manufacture of
  goods and rendering of services.

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Emerging Trends

• In May 2000, the government promulgated Special
  Economic Zone policy framework to unleash second
  generation reforms
• This financial year, 2005-2006 has seen the
  emergence of a new Act,
• Special Economic Zone Act 2005 passed on
  23.6.2005 with the effective date of, 1 April
  2006.
• Special Economic Zone Rules 2006 being notified
  on, gtgtgtgtgtgtgtgt

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The Transition

• All existing SEZs and SEZ units set up under the
  FTP will be deemed to be notified under the new
  Act

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SEZ Advantage

• Liberlised Tax Incentives for, SEZ Developers
  who develops, operates and maintains the SEZ.
  It includes Co-Developer(s)
• Liberlised Tax Incentives for SEZ Entrepreneur
  who sets up a unit in a notified SEZ
• Also contains provisions for Free Trade And
  Warehousing Zone, International Financial
  Service Centre and Offshore Banking Units

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SEZ Advantage

• Liberlised Tax Incentives for,
• SEZ Developers who develops, operates and
  maintains the SEZ. It includes Co-Developer(s)
• SEZ Entrepreneur who sets up a unit in a
  notified SEZ
• SEZ Act, contains provisions for Free Trade And
  Warehousing Zone, International Financial
  Service Centre and Offshore Banking Units

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SEZ Developer-Parameters for Approval

• Central Government while notifying an area as SEZ
  considers the following factors namely,
• Minimum hectare requirement depending on the
  nature of SEZ. Ex. Multi Product SEZ, should
  have minimum of 1000 hectares
• Minimum Processing Area requirement
• Socio Economic Benefits like,
• Generation of additional economic activity
• Creation of employment opportunities
• Promotion of exports of goods and services
• Development of infrastructure facilities

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Tax Incentives to SEZ Developers

• Deduction under section 80-IAB of the Income-tax
  Act
• 100 of the profits derived from the business
  of developing such SEZ
• Deduction for 10 consecutive years out of 15
  years starting from the year in which the SEZ is
  notified.
• Conditions of sub-sections (5) and (7) to (12)
  of 80-IA to apply
• Exemption from Dividend Distribution Tax and
  Minimum Alternate Tax
• Interest, dividend and capital gains of an
  investor exempted if the SEZ developer is
  approved u/s 10(23G)

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SEZ Units Approval Parameters

• To be a positive net foreign exchange (NFE)
  earner cumulatively for a period of 5 years. NFE
  being calculated as per the prescribed formula-
  provision as previously contained in Foreign
  Trade Policy 2004-09
• Availability of space and infrastructure
  facilities in the SEZ
• Registered Lease Deed to be filed with the DC
  within 6 months of the issue of LOA
• Undertaking to be furnished for fulfillment of
  applicable environmental and pollution control
  norms

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Tax Incentives to SEZ Units

• Deduction under section 10AA of the Income-tax
  Act
• 100 of the profits for the first 5 consecutive
  years
• 50 of the profits for the next 5 consecutive
  years
• Maximum of 50 of the profits for the next 5
  consecutive years subject to fulfillment of
  certain additional conditions relating to
  creating and utilisation of prescribed reserves
• Existing units in SEZ to get deduction for
  balance number of years
• Does not contain reconstruction provisions
• Provisions of sub-section (5) (6) and (7) of
  section 10A to apply

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Tax Incentives to SEZ Units Contd

• Profits of SEZ Unit not liable for MAT
• Exemption from capital gains under section 54GA
  of the Income-tax Act on transfer of assets in
  case of shifting of industrial undertaking from
  any urban area to a SEZ subject to fulfillment of
  certain conditions

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Indirect Tax Incentives

• Exemptions to SEZ Developer and Entrepreneur
• - Customs Duty
• - Excise Duty
• - Service tax
• - Central Sales Tax
• - R D Cess
• - All state and local taxes including VAT
• - Stamp Duty
• - Electricity duty

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Recently Approved SEZs
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• Thank you