PROCEDURE FOR ESTABLISHMENT OF A UNIT. 3. Consideration of proposals for setting up o f U nit in a special economic zone

Transcription

1 Destination for the next Economic Miracle PROCEDURE FOR ESTABLISHMENT OF A UNIT 1. Flow-chart 2. Application 3. Consideration of proposals for setting up o f U nit in a special economic zone 4. General requirements 5. Sector specific requirements 6. Proposal not to be considered in certain cases 7. Conditions applicable to FTWZ 8. Conditions for services provided to overseas entities 9. Letter of approval to a unit 10. Validity of Letter of Approval 11. Lapse of letter of approval 12. Separate books of accounts 13. Foreign Companies in.

2 1. Flow Chart on establishment of a unit Application in Form F (5 copies) to Development Commissioner with a copy to developer along with Project Report If Proposal relates to Foreign Collaborations and FDI in or granting license to Industrial undertaking No Development Commissioner shall scrutinize proposal and place before approval committee Yes Development Commissioner shall place the proposal before Board Within 15 days Approval Committee approve the proposal Within 45 days Boards shall approve the proposal Development Commissioner will issue a letter of approval in Form G for setting up the unit

3 2. Application A consolidated application seeking permission for setting up of a Unit and other clearances, including those indicated below, shall be made to the Development Commissioner, in Form F, in five copies, with a copy to the Developer:- (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) Setting up of unit in a Special Economic Zone; Annual permission for sub-contracting; Allotment of Importer-Exporter Code number; Allotment of land/industrial sheds in the Special Economic Zone; Water connection; Registration-cum-Membership Certific ate; Small Scale Industries Registration; Registration with Central Pollution Control Board; Power connection; Building approval plan; Sales-tax registration; Approval from inspectorate of factories; Pollution control clearance, wherever required; Any other approval as may be required from the State Government. Content of Form F includes: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) Nature of industrial undertaking Items of manufacture activity/service activity Investment in Plant and machinery Import and indigenous requirements of material and other inputs Infrastructure requirements Details of Foreign collaboration Pattern of shareholding Foreign Exchange Balance sheet for the 5 years Details of Industrial license or LOI / LOA under / EOU / STP / EHTP Scheme Details of sub-contracting in manufacturing operations The Development Commissioner shall get the proposal scrutinized and get it placed before the Approval Committee for its consideration. The proposals received under following clauses shall be placed before the Board by the Development Commissioner for its consideration. a) Granting of approval to the Developers or Units (other than the Developers or the Units which are exempt from obtaining approval under any law or by the Central Government) for foreign collaborations and foreign direct investments, (including investments by a person resident outside India), in the Special Economic Zone for its Development, operation and maintenance; b) Granting, notwithstanding anything contained in the Industries (Development and Regulation) Act, 1951, a licence to an industrial undertaking referred to in clause (c) of Section 3 of that Act, if such undertaking is established, as a whole or part thereof, or proposed to be established, in a Special Economic Zone.

4 3. Consideration of proposals for setting up of Unit in a Special Economic Zone: The Approval Committee may approve or approve with modification or reject a proposal placed before it within fifteen days of its receipt. Where the approval is to be granted by the Board, the Board shall approve or Approve with modification or reject such proposal within forty-five days of its receipt: Approval Committee or the Board, shall record the reasons, in writing, where it approves a proposal with modifications or where it rejects a proposal and Development Commissioner by order shall communicate such reasons to the person making the proposal. 4. General Requirements The Approval Committee shall approve the proposal if it fulfills the following requirements, (i) Net foreign exchange earning requirement The proposal meets with the positive net foreign exchange earning requirement (ii) Availability of infrastructure - Availability of space and other infrastructure support applied for is confirmed by the Developer in writing, by way of a provisional offer of space - Developer shall enter into a lease agreement and give possession of the space in the Special Economic Zone to the entrepreneur only after the issuance of Letter of Approval by the Development Commissioner: - A copy of the registered lease deed shall be furnished to the Development Commissioner concerned within six months from the issuance of the Letter of Approval. (iii) Environmental norms The applicant undertakes to fulfill the environmental and pollution control norms. (iv) Proof of residence The applicant submits proof of residence, namely, passport or ration card or driving license or voter identity card or any other proof of the proprietor or the partners of partnership firms or Directors of the Company, as the case may be, to the satisfaction of Development Commissioner; (v) Income tax returns, The applicant submits the Income tax returns, along with annexures, of the Proprietor or Partners, or in the case of a company, audited balance sheet for the last three years. (vi) Net Foreign Exchange Earnings.- The Unit shall achieve Positive Net Foreign Exchange to be calculated cumulatively for a period of five years from the commencement of production according to the following formula, namely:-

5 Positive Net Foreign Exchange = A - B >0 Where: A is Free on Board value of exports, including exports to Nepal and Bhutan against freely convertible currency, by the Unit and the value of following supplies of their products, namely: - (a) Supply of goods against Advance License or Duty Free Replenishment Certificate under the Duty Exemption or Remission Scheme or Diamond Imprest License under the Foreign Trade Policy; (b) Supply of capital goods to holders of license under the Export Promotion Capital Goods scheme under the Foreign Trade Policy; (c) supply of goods to projects financed by multilateral or bilateral agencies or funds as notified by the Department of Economic Affairs, Ministry of Finance under International Competitive Bidding in accordance with the procedures of those agencies or funds, where the legal agreements provide for tender evaluation without including the customs duty; (d) Supply of capital goods, including those in unassembled or disassembled condition as well as plants, machinery, accessories, tools, dies and such goods which are used for installation purposes till the stage of production and spares. to the extent of ten per cent of the free on rail value to fertilizer plants; (e) Supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty; (f) Supply of goods to the power projects and refineries not covered in (e) above; (g) Supply to projects funded by United Nations Agencies; (h) supply of goods to nuclear power projects through competitive bidding as opposed to International Competitive Bidding; (i) Supply made to bonded warehouses set up under the Foreign Trade Policy or under section 65 of the Customs Act and free trade and warehousing zones, where payment is received in foreign exchange; (j) Supply against special entitlements of duty free import of goods under the Foreign Trade Policy; (k) export of services by services units including services rendered within Special Economic Zone or services rendered in the Domestic Tariff Area and paid for in free foreign exchange or such services rendered in Indian Rupees which are otherwise considered as having been paid for in free foreign exchange by the Reserve Bank of India; (l) supply of Information Technology Agreement items and notified zero duty telecom or electronic items, namely, Color Display Tubes for monitors and Deflection components for colour monitors or any other items as may be notified by the Central Government; (m) Supply to other units and Developers in the same or other Special Economic Zone or Export Oriented Unit or Electronic Hardware Technology Park or Software Technology Park Units or Bio-te chnology Park Unit provided that such goods and services are permissible for import or procurement by such units and Developers; (n) Supply of goods to Domestic Tariff Area against payment in foreign exchange from the Exchange Earners Foreign Currency account of the Domestic Tariff Area buyer or Free Foreign Exchange received from overseas; (o) Supply of goods against free foreign exchange by a Free Trade and Warehousing Zone Unit;

6 B. Consist of sum of the following:- (a) (b) (c) (d) sum total of the Cost Insurance and Freight value of all imported inputs used for authorized operations during the relevant period and the Cost Insurance and Freight value of all imported capital goods including goods purchased on high seas basis even though paid for in Indian Rupees and the value of all payments made in foreign exchange by way of export commission, royalty, fees, dividends, interest on external commercial borrowings during the first five year period or any other charges; Value of goods obtained from other Unit or Export Oriented Unit or Electronic Hardware Technology Park or Software Technol ogy Park Unit or Bio-technology Park Unit or from bonded warehouses or procured from international exhibitions held in India or precious metals procured from nominated agencies; the Cost Insurance Freight value of the goods and services, including prorata Cost Insurance Freight of capital goods, imported duty free or leased from a leasing company or received free of cost and or on loan basis or on transfer for the period they remain with Unit; For annual calculation of Net Foreign Exchange, value of imported capital goods and lump sum payment of foreign technical know-how fee shall be amortized at the rate of ten per cent every year from the first year to tenth year. 5. Sector specific requirements The proposal shall also fulfill the following sector specific requirements, namely:- (a) (b) Export of high-grade iron ore that is sixty-four per cent. Fe and above, except iron ore of Goa origin and Redi origin, which would be subject to approval of Board No sub-contracting or job work of polyester yarn shall be permitted in Domestic Tariff Area or in Export Oriented Unit or Units in other Special Economic Zone: This restriction shall not apply to the Units which intend to send the fabric, made by them out of polyester or texturised yarn, for subcontracting but the third party exports shall not be permitted. 6. Proposals not be considered in certain cases (a) (b) (c) Recycling of plastic scrap or waste: Enhancement of the approved import quantum of plastic waste and scrap beyond the average annual import quantum of the unit since its commencement of operation to the existing Units; Reprocessing of garments or used clothing or secondary textiles materials and other recyclable textile materials into clipping or rags or industrial wipers or shoddy wool or yarn or blankets or shawls:

7 (d) (e) (f) Import of other used goods for recycling: Reconditioning, repair and reengineering may be permitted subject to the condition that exports shall have one to one correlation with imports and all the reconditioned or repaired or re-engineered products and scrap or remnants or waste shall be exported and none of these goods shall be allowed to be sold in the Domestic Tariff Area or destroyed; Export of Special Chemicals, Organisms, Materials, Equipment and Technologies unless it fulfils the conditions indicated in the Import Trade Control (Harmonized System) Classifications of export and import items; If there is any instance of violation of law or public policy by the promoters, having a bearing on the merits of the proposal. 7. Conditions applicable to units in FTWZ The Units in Free Trade and Warehousing Zones or units in Free Trade and Warehousing Zone set up in other Special Economic Zone, shall be allowed to hold the goods on account of the foreign supplier for dispatches as per the owner's instructions and shall be allowed for trading with or without labeling, packing or repacking without any processing; Refrigeration for the purpose of storage and assembly of Completely Knocked Down or Semi Knocked Down kits shall also be allowed by the Free Trade and Warehousing units undertaking the said activities: These Units may also re-sell or re-invoice or re-export the goods imported by them. All transactions by a Unit in Free Trade and Warehousing Zone shall only be in convertible foreign currency; 8. Conditions for services provided to overseas entities Overseas Entity means a non-resident or a person of foreign origin and includes a company not incorporated in India Units may also be setup for providing services or manufacturing services to Overseas Entities subject to following conditions, namely:- (a) (b) (c) (d) (e) Capital goods, raw materials including consumables sub-assemblies, components, semi-finished goods shall be supplied by the Overseas Entity free of cost; Capital goods for setting up such facilities may also be supplied on loan or lease basis, provided the notional value of such capital goods shall be taken into account for calculation of Net Foreign Exchange Earnings. Finished goods shall be exported out of the country or transferred to the Customs Bonded Warehouse to be maintained by the Overseas entity; The Unit shall receive the consideration for its manufacturing services in convertible foreign exchange directly from the said overseas entity; Separate accounts shall be maintained for the manufacturing and service activity. In case the said manufacturing facility is used by the Unit for carrying out production on its own account.

8 9. Letter of Approval to a Unit- On approval of a proposal Development Commissioner shall issue a Letter of Approval in Form G, for setting up of the Unit: The Letter of Approval shall specify. (i) (ii) (iii) (iv) (iv) (v) Items of manufacture Particulars of service activity, including trading or warehousing, Projected annual export for the first five years of operations, Projected Net Foreign Exchange Earning for the first five years of operations Limitations, if any on Domestic Tariff Area sale of finished goods, by-products and rejects Other terms and conditions, if any, stipulated by the Board or Approval Committee: Approval Committee may also approve proposal for broad banding, diversification, enhancement of capacity of production, change in the items of manufacture or service activity Approval Committee may also approve change of the entrepreneur of an approved unit, if the incoming entrepreneur undertakes to take over the assets and liabilities of the existing Unit. An entrepreneur holding Letter of Approval shall only be entitled to set up a Unit in processing area of the Special Economic Zone or Free Trade and Warehousing Zone, as the case may be: A proposal for setting up of a Unit in a Special Economic Zone or Free Trade Warehousing Zone shall be entertained only after the processing area of the Special Economic Zone or Free Trade Warehousing Zone has been demarcated. 10. Validity period of Letter of approval The Letter of Approval shall be valid for one year within which period the Unit shall commence production or service or trading or Free Trade and Warehousing activity and the Unit shall intimate date of commencement of production or activity to Development Commissioner: Further extension may be granted by the Development Commissioner for valid reasons to be recorded in writing for a further period not exceeding two years upon a request by the entrepreneur The Development Commissioner may grant further extension of one year subject to the condition that two-thirds of activities including construction, relating to the setting up of the

9 Unit is complete and a chartered engineer's certificate to this effect is submitted by the entrepreneur. 11. Lapse of Letter of approval If the Unit has not commenced production or service activity within the validity period or the extended validity period, the Letter of Approval shall be deemed to have been lapsed with effect from the date on which its validity expired. The Letter of Approval shall be valid for five years from the date of commencement of production or service activity and it shall be construed as a licence for all purposes related to authorized operations, and, after the completion of five years from the date of commencement of production, the Development Commissioner may, at the request of the Unit, extend validity of the Letter of Approval for a further period of five years, at a time. 12. Separate Books of Accounts If an enterprise is operating both as a Domestic Tariff Area unit as well as a Special Economic Zone Unit, it shall have two distinct identities with separate books of accounts, but it shall not be necessary for the Special Economic Zone unit to be a separate legal entity 13. Foreign Companies in Foreign companies can also set up manufacturing units as their branch operations in the Special Economic Zones in accordance with the provisions of Foreign Exchange Management (Foreign. exchange derivatives contracts) Regulations, FISCAL BENEFITS FOR DEVELOPERS OF & FT&WZ AND UNITS IN & UNITS IN FT & WZ This chapter includes A) Benefits other than Income Tax B) Income Tax benefits

10 A. BENEFITS OTHER THAN INCOME TAX Benefits other than Income Tax can be grouped under the following heads: 1) CUSTOM DUTY 2) CENVAT 3) SERVICE TAX 4) CENTRAL SALES TAX 5) SECURITIES TRANSACTION TAX 6) OTHER TAXES, DUTIES OR CESS 7) BENEFITS UNDER COMPANIES ACT ) DRUGS AND COSMETICS ACT 9) OTHER BENEFITS 1) CUSTOM DUTY (I) Developer of may import/procure goods or provide services in, a Special Economic Zone or a unit without payment of duty for the development, operation and maintenance of. Chapter X-A of Customs Act 1962 deals with various exemptions under Customs Act 1962 Details of sections in Chapter X-A are as under Section 76E deals with Exemption from duties and as per this section any goods admitted to a Special Economic Zone shall be exempt from duties of customs without prejudice to the provisions of sections 76F, 76G and 76H. Section 76F relates to Levy of duties of customs and states that subject to the conditions as may be specified in the rules made in this behalf,- (a) (b) (c) any goods admitted to a Special Economic Zone from the domestic tariff area shall be chargeable to export duties at such rates as. are leviable on such goods when exported any goods removed from a Special Economic Zone for home consumption shall be chargeable to duties of customs including anti-dumping, countervailing and safeguard duties under the Customs Tariff Act, 1975, where applicable, as leviable on such goods when imported; and. the rate of duty and tariff valuation, if any applicable to goods admitted to, or removed from, a Special Economic Zone shall be the rate and tariff valuation in force as on the date of such admission of removal, as the case may be, and where such date is not ascertainable, on the date of payment of the duty. Section 76G sates that all goods admitted to a Special Economic Zone shall undergo such operations i.e. authorized operations including processing or manufacturing as may be specified in the rules made inn this behalf. Section 76H deals with the Goods utilized within a Special Economic Zone and according to this section.

11 (1) The Central Government may make rules in the behalf to enumerate the cases in which goods to be utilized inside a Special Economic Zone may be admitted free of duties of customs and lay down the requirements which shall be fulfilled. (2) Goods utilized contrary to the provisions of rules made under sub-section (1) shall be chargeable to duties of customs in the same manner as provided under clause (b) of Section 76F as if they have been removed for home consumption. (ii) (iii) (iv) Every Developer and the entrepreneur shall be entitled to exemption from any duty of customs, under the Customs Act, 1962 or the Customs Tariff Act, 1975 or any other law for the time being in force, on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside India. DRAWBACK ON GOODS ADMITTED TO A SPECIAL ECONOMIC ZONE: As per Section 76-L any goods admitted or services provided to a Special Economic Zone or unit from the domestic tariff area for the purposes authorized under this Chapter shall be eligible for drawback under section 75 as if such goods are export goods for the purposes of that section. EXEMPTION TO CASTOR OIL CAKE MA NUFACTURED IN (Notification No. 113/2003-Cus, dated ) As per section 25(1) of the Customs Act,1962read with Section 3(6) Of Customs Tariff Act,1975 the central Government, being satisfied that it is necessary in the public interest so to do hereby exempts castor oil cake falling under item of the first schedule to the Customs Tariff Act, when manufactured from indigenous castor oil seeds on indigenous plant and machinery by a unit in Special Economic Zone which was in existence prior to 15 day of Novenmber,2000 and brought to domestic tariff area in accordance with provisions of Foreign Trade Policy, from the whole of the duty of customs duty leviable thereon under the first schedule and the additional duty, if any leviable u/s 3 of the Customs Tariff Act. (v) EXEMPTION FROM AVCD UNDER SECTION 3(5) (Notification No 45/2005-Cus, dated ) As per section 25(1) of the Customs Act, 1962, the central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts all goods produced or manufactured in Special Economic Zone and brought to any other place in India in accordance with the provisions of Foreign Trade Policy , from the whole of the additional duty of custom leviable thereon under sub-section (5) of Section 3 of the Customs Tariff Act, 1975 Provided that no such exemption shall be applicable if such goods, when sold in domestic tariff area, are exempted by the state government from payment of sales tax or value added tax. 2) BENEFITS UNDER CENTRAL EXCISE ACT, 1944 (i) Every Developer and the entrepreneur shall be entitled to exemption from any duty of excise, under the Central Excise Act, 1944 or the Central Excise Tariff Act, 1985 or any other law for the time being in force, on goods brought from

12 Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the authorized operations by the Developer or entrepreneur. (ii) As per Section 5A(1) of the Central Excise Act,1944,read with Section 3(3) of Additional Duties of Excise(Goods of Special Importance) Act, 1957 the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts all excisable specified in the first Schedule to the Central Excise Tariff Act, 1985,produced or manufactured by a unit when supplied to units in Special Economic Zone, from the additional duty of excise leviable under sub-section(1) of section 3 of the Additional Duties of Excise(Goods of Special Importance) Act,1957. Goods should be cleared under Invoice ARE- procedure should be followed. Bill of Export should be prepared. 3) BENEFITS UNDER SERVICE TAX The Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts taxable service of any description as defined in clause (105) of section 65 of the Finance Act,1994 provided to Developer of Special Economic Zone -or a Unit (including unit under construction) of Special Economic Zone by any service provider for consumption of services within such Special Economic Zone, from the whole of service tax leviable thereon under Section 66 of the Finance Act, ) BENEFITS UNDER CENTRAL SALES TAX ACT, 1956 No tax under the CST Act, 1956 shall be payable by any dealer in respect of sale of any goods made by such dealer in the course of inter state trade or commerce to a registered dealer for the purpose of setting up, operation, maintenance, manufacture, trading, production, processing, assembling, repairing, reconditioning re-engineering, packaging or for use as packaging material or packaging accessories in a unit located in Special Economic Zone or for development operation and maintenance of Special Economic Zone by the developer of Special Economic Zone, if such registered dealer has been authorized to establish such unit or to develop, operate or maintain such Special Economic Zone by the authority specified by the central Government in this behalf. 5) SECURITIES TRANSACTION TAX BENEFIT Securities Transaction Tax means tax livable on taxable securities transaction. Taxable securities transaction means a transaction of purchase of securities entered into in a recognized stock Exchange. There shall be charged a securities transaction tax at a rate of 0.15 % of the value of taxable securities transactions entered into any recognized stock exchange and such tax shall be payable by the purchaser of the securities. Every Developer and the entrepreneur shall be entitled to exemption from the securities transaction tax leviable under section 98 of the Finance (No. 2) Act, 2004 in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre. International Financial Service Center is also exempt from Securities Transaction Tax.

13 6) EXEMPTION FROM TAXES, DUTIES OR CESS As per Section 7 of the Special Economic Zones Act, 2005 any goods or services exported out of, or imported into; or procured from the Domestic Tariff Area by, - (i) (ii) a Unit in a Special Economic Zone; or a Developer; shall, subject to such terms, conditions and limitations, as may be prescribed, be exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule. THE FIRST SCHEDULE Enactments 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). 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). 7) Relaxations of Provision under Companies Act 1956 A) Managerial Remuneration under Companies Act, 1956 Restriction in respect of managerial remuneration under companies Act has been relaxed in case of companies in. The remuneration can be up to Rs.20 lakhs per month (Rs.2.40 crores per annum) without approval of central government. The relaxation applicable if: (a) (b) The company has not raised any money by public issue of shares or debentures in India. The company has not made any default in India in repayment of any of its debts (including public deposits) or debentures or interest payable thereon for continuous period of 30 days in any financial year.

14 B) There are no restrictions on appointment of non-resident as Managing Director / Wholetime Director. He should have a proper employment visa from Indian Mission abroad and should furnish details of company, principal employer and terms of appointment along with visa application. 8) CONCESSIONS UNDER DRUGS AND COSMETICS ACT units have been exempted from the requirements of Import licence, import registration and import through notified ports in respect to drugs and cosmetics under Drugs and Cosmetics Rules, 1945 vide Dept. of Health Notification GSR 528(E) dated ) OTHER BENEFITS (i) 100% Foreign Direct Investment allowed for ¾ Townships with residential, educational and recreational facilities. ¾ Franchise for basic telephone services in. (ii) Full freedom in allocation of developed plots to approved units on purely commercial basis. (iii) Full authority to provide services like water, electricity, security, restaurants, recreation centers etc. on commercial lines (iv) (v) (vi) (vii) (viii) (ix) Freedom in allocation of space and built up area to approved units on commercial basis Generation, Transmission and Distribution of Power in s allowed. As per Section 42(7) of the Reserve Bank of India Act,1934,RBI hereby exempts every scheduled commercial bank from maintenance of average Cash Reserve Ratio(CRR) prescribed under section 42 of the Reserve Bank of India Act,1934on the demand and time liabilities in respect of their offshore Banking Units. Proviso (3) to Section 3 of Indian Stamp Act, 1899 gives complete exemption from stamp duty to any instrument executed by, or, on behalf of, or in favor of, the Developer or unit or in carrying out of purposes of. The exemption applies only to stamp duties leviable by central Government and all stamp duties in case of Union territories units can supply goods against advance authorization - units can supply goods against advance authorization (earlier known as `Advance -License' up to It is not necessary to convert advance authorization into advance release order(aro).the supplier will get benefit of deemed exports. No limit for receipts of export proceeds- Normally export proceeds should be received in India within 6 months. However in case of units exporting goods or software, the time limit fro receipt of full export value of goods or software does not apply.

15 (x) (xi) (xii) (xiii) (xiv) (xv) (xvi) (xvii) Branch /Office /Unit in by person resident outside India-Branch /Office /Unit can be established in to undertake manufacturing and service activities without permission of RBI in those sectors where 100% FDI is permitted. Such unit should function on standalone basis i.e. it should be isolated and restricted to and it should not carry on business outside. Payment to by DTA unit in Foreign Exchange-A EOU//STP/EHTP/BTP may supply goods to unit in DTA. In such case the DTA unit can pay for the goods in foreign exchange, for which foreign exchange can be released by authorized dealers External commercial Borrowings (ECB) by -The unit can raise ECB for its own requirements and borrowed funds shall not be transferred to its sister concern or any other unit in DTA. Foreign Exchange Derivative Contracts-A unit in can enter into contact in commodity exchange or market outside India to hedge the price risk in the commodity on export/import, without prior approval of RBI. However it should be on stand alone basis. Job Work abroad and direct dispatch- unit can undertake job work abroad 1and export goods from that country itself. Exporter has to make satisfactory arrangements for realization of full export proceeds subject to GR procedure. Direct dispatch of Documents to Foreign Buyer- the unit can dispatch export documents direct to the consignee outside India. These need not be routed through authorized dealer. However, remittance should be obtained and GR/SDF form should be submitted to authorize dealer within 21 days for monitoring. Netting off by unit- In some cases, unit may have transactions of in 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 units. Foreign Currency Account- A unit located in can hold, open and maintain a Foreign Currency Account with authorized dealer in India. All Foreign Exchange Funds received by 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 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 unit. (xviii) Develop Standard Design Factory (SDF) building in exiting Special Economic Zones. (xix) 'Write Off" of unrealized export bills up to 5%. (xxi) Exemption from Industrial Licensing requirement for items reserved for SSI sector.

16 (xx) (xxi) No routine examination by Customs of export and import cargo. No separate documentation required for customs and Exim Policy in house customs Clearance. (xxii) Support services like banking, post office clearing agents etc. provided in Zone Complex. B) Income Tax benefits to special economic zones 1) Sec 10A 2) Sec 10AA 3) Sec 54 GA 4) Sec 80- IA 5) Sec 80-IAB 6) Sec 80 L 7) Sec 115 JB 8) Sec 115- O 9) Sec 197A 10) Other amendments by Act,2005

17 1) Sec 10A Income of Newly Established undertaking in Free Trade Zone, etc: A deduction of such profit and gains as are derived by an undertaking from the export-to out of country of article or thing or computer software shall be allowed from total income of assessee. Essential Conditions: (i) It should begin manufacturing or producing articles/things or computer software during previous year (a) Assessment Year or thereafter in any free trade zone. (b) or thereafter in any EHTP or STP (c) or thereafter in any special Economic Zone (ii) (iii) It should not be formed by splitting up or reconstruction of an existing business. It should not be formed by transfer of machinery or plant, previously used for any purpose to new business. (iv) The sale proceeds of the article or thing should be brought into India by assessee in convertible foreign Exchange within 6month from the end of previous year. Period of Tax Holiday: The profits and gain will not be included in the total income of the assessee in respect of any 10 consecutive assessment years beginning with the year in which undertaking begins to manufacture produce article or thing or computer software Section 10A (1 A) Units established in special Economic Zone on or after ) A deduction of 100% of profit and gains from such business from the total income for first 5 assessment years. 2) Thereafter 50% of such profits and gains for next 2 yrs. 3) Deduction beyond 7 year mentioned above for next 3 years can be claimed if certain conditions satisfied. Consequent to insertion of new section 10AA providing for a tax holiday in respect of newly established Units in, sub-section (7B) has been inserted in section 10A, "The provisions of this section shall not apply to any undertaking, being a Unit referred to in clause (zc) of section 2 of the Special Economic Zones Act, 2005, which has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone."

18 2) Sec 10AA Special provisions in respect of newly established units in Special Economic Zone [Sec. 10AA] A new section 10AA has-been inserted by the Act, 2005 to give income-tax concession to newly established units in Special Economic Zone. Conditions: The following conditions should be satisfied to claim deduction under section 10AA 1. The assessee should be an entrepreneur as defined in section 2(j) of Act, Entrepreneur is a person who has been granted a letter of approval by the Development Commissioner to set a unit in a Special Economic Zone. 2. The unit in Special Economic Zone begins to manufacture or produce articles or things or provide services during the financial year or any subsequent year. Manufacture for this purpose means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining. 3. The assessee has income from export of articles or thing or from services from such unit. In other words, the assessee has exported goods or provided services out of India from the Special Economic Zone by land, sea, air or by any other mode, whether physical or otherwise. 4. Books of the account of the taxpayer should be audited. The taxpayer should submit audit report in Form No. 56F along with the return of income. Amount of deduction: (subject to above conditions being fulfilled) Deduction depends upon quantum of profit derived from export of articles or things or services (including computer software). It is calculated as under- Profits of the business of the undertaking x Export turnover business carried on by the undertaking Total turnover of the For this purpose, 'export turnover' means the consideration in respect of export by the undertaking of articles or things or services received in, or brought into India by the assessee, but does not include the following: a. freight ; b. telecommunication charges; c. insurance attributable to the delivery of the articles or things or computer software outside India;

19 d. Expenses, if any incurred in foreign ex change in providing the technical services (including computer software) outside India. Profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. Deduction for First Five Assessment Years: 100 per cent of the profit and gains derived from export of articles or things or from services is deductible for a period of 5 consecutive assessment years. Deduction for the first year is available in the assessment year relevant to the previous year in which the unit begins to manufacture or produce articles or things or provide services. Deduction for Sixth Assessment Year To Tenth Assessment Year: 50 per cent of the profit and gains derived from export of articles or things or from services is deductible for the next 5 years. Deduction for Eleventh Assessment Year To Fifteenth Assessment Year: For the next 5 years, a further deduction would be available to the extent of 50 per cent of the profit provided an equivalent amount is debited to the profit and loss account of the previous year and credited to Special Economic Zone Re-investment Allowance Reserve Account (hereinafter referred to as Special Reserve Account). The following conditions should be satisfied- 1. The Special Reserve Account should be utilised for the purpose of acquiring new plant and machinery. 2. The new plant and machinery should be first put to use before the expiry of 3 years from the end of the year in which the Special Reserve Account was created. For instance, if the reserve account was created during the previous year ending March 31, 2007, it should be utilized for acquiring machinery or plant on or before March 31, Until the acquisition of new plant and machinery the Special Reserve Account can be utilised for the business purposes of the undertaking but it cannot be utilised for distribution of dividends/profits or for remittance outside India as profits or for creating an asset outside India. 4. Prescribed particulars [Form No. 56FF] should be submitted in respect of new plant and machinery along with the return of income for the previous year in which such plant and machinery was first put to use. 5. If the Special Reserve Account is misutilised, then the deduction would be taken back in the year in which the Special Reserve Account is misutilised. If the Special Reserve Account is not utilised for acquiring new plant and machinery within three years as stated above then the deduction would be taken back in the year immediately following the period of three years.

20 Special provisions for existing units: In respect of an undertaking setup in Special Economic Zone on or after April 1, 2003 a deduction is available under section 10A(1A). This deduction is available for 10 assessment years. If an undertaking is setup in a Special Economic Zone during April 1, 2003 and March 31, 2005, then such undertaking can claim deduction for the first ten assessment years under the provisions of section 10A(1 A). Such undertaking can further claim deduction from eleventh year to fifteenth year under section 10AA. 1) If deduction has already been claimed by an undertaking (other than the undertaking mentioned above) under section 10A for ten consecutive assessment years before the commencement of Act, such Unit shall not be eligible for deduction under section 10AA. 2) Where a unit 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 and has completed the period of 10 consecutive assessment years referred to above, it shall not be eligible for deduction from income. Consequences for merger and demerger: 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. However, no deduction shall be admissible under this section to the amalgamating company or the demerged company for the previous year in which amalgamation or demerger takes place. Consequences of claiming deduction under section 10AA: One should note the following consequences For the assessment year(s) succeeding the last assessment year for which the deduction is claimed under this section, deduction under section 32 and the expenditures under sections 35 and 36(1)(ix) pertaining to the assessment year (or earlier year) would be considered as had been given full effect to for the period covered under the period of deduction. Thus, unabsorbed depreciation allowances or unabsorbed capital expenditure on scientific research or family planning (pertaining to the assessment year or earlier years) are not allowed to be carried forward and set off against the income of assessment years following the period of deduction. The losses under section 72(1) or 74(1) or 74(3) (pertaining to the assessment year or earlier years) are not allowed to be carried forward in assessment years succeeding the period of deduction. The deductions under section 80-IA or 80=1B shall also not be available to such undertakings after the expiry of tax holiday period. In the assessment year 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.

21 3) Sec. 54GA Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area to any Special Economic Zone. Section 54GA has been inserted by Act, 2005 to give exemption in case of shifting of an industrial undertaking from urban area to a special economic zone. Conditions: Exemption can be availed if the following conditions are satisfied - 1) A capital asset (being plant, machinery, land or building or any right in land or building) used for the purpose of an industrial undertaking situated in an urban area is transferred. 2) The transfer is effected in the course of, or in consequence of, the shifting of such industrial undertaking to any Special Economic Zone. Such Special Economic Zone may be situated in urban area of any other area. 3) The assessee has within a period of one year before or 3 years after the date on which the transfer took place: a) purchased machinery or plant for the purposes of business of the industrial undertaking in the Special Economic Zone to which the said undertaking is shifted; b) acquired building or land or constructed building for the purposes of his business in the Special Economic Zone; c) shifted the original asset and transferred the establishment to Special Economic Zone; and d) Incurred expenses on such other purpose as may be specified in a scheme framed by the Central Government for the purposes of this section. Amount of exemption: If the above conditions are satisfied, then the amount of exemption is equal to- a. the amount of capital gain generated on transfer of capital assets in the case of shifting of an industrial undertaking as stated above; or b. The cost and expenses incurred in relation to all or any of the purposes mentioned in (a) to (d) supra (such cost and expenses being hereinafter referred to as the new asset), whichever is lower.

22 Consequences if the new asset is transferred within 3 years: If the new asset is transferred within a period of 3 years from the date of its purchase / construction/ acquisition, the amount of exemption given earlier under section 54G would be taken back. In such a case, the capital gain on transfer of the new asset will be calculated as follows Sale consideration of the new asset Less: Cost of acquisition (original cost of acquisition of the new asset minus exemption given earlier under section 54GA which is going to be taken back because the new asset is transferred within 3 years) Short-term capital gain Rs. xxxxxx xxxxxx xxxxxx Scheme of deposit in respect of exemption under section 54GA: These provisions have been framed on similar lines as given in sections 54, 54B, etc. 4) Section 80- IA Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. This section applies to- (i) any enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely:- (a) it is owned by a company registered in India or by a consortium of such companies; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Explanation.-For the purposes of this clause, "infrastructure facility" means- (a) (b) (c) (d) a road including toll road, a bridge or a rail system; a highway project including housing or other activities being an integral part of the highway project; a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; a port, airport, inland waterway or inland port; (ii) any undertaking which has started or starts providing telecommunication services whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, 2003;

23 (iii) any undertaking which develops, develops and operates or maintains and operates an industrial park or special economic zone notified by the Central Government in accordance with the scheme framed and notified by that Government for the period beginning on the 1st day of April, 1997 and ending on the 31st day of March, Provided that in case where an undertaking develops an industrial park on or after the 1st day of April,1999 or a special economic zone on or after 1st day of April 2001 and transfer the operation and maintenance of such industrial park or such special economic zone, as case may be, to another undertaking (hereafter in this section referred to as the transferee undertaking), the deduction under sub-section (1) shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee undertaking. (Incorporated vide Finance Bill,2003. (iv) An undertaking which,- (a) (b) (c) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31 st day of March, 2006 ; starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March, Provided that the deduction under this section to an undertaking under sub-clause (b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution. undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on the 31st day of March, 2006 (v) an undertaking owned by an Indian comp anyd set up for reconstruction or revival of a power generating plant, if (a) such Indian company is formed before the 30th day of November, 2005 with majority equity participation by public sector companies for the purposes of enforcing the security interest of the lenders to the company owning the power generating plant and such Indian company is notified before the 31st day of December, 2005 by the Central Government for the purposes of this clause; (b) Such undertaking begins to generate or transmit or distribute power before the 31st day of March, QUANTUM OF DEDUCTION A deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive assessment years. out of 15 years beginning from the year in which the undertaking or the enterprise develops a special economic zone.