Exemptions withdrawn from Developers & SEZ Units !

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The tax relief or exemption given to units developing Special Economic Zone or units located in a special economic got a severe beating in this budget 2011-12 which has now made units operating in SEZ units Liable to Minimum Alternate Tax , where as the developer or maintaining and running a SEZ units are made to –pay MAT and also tax on distributed income ( Dividend Distribution Tax ).

Effect of Budget on units operation in Special Economic Zones

Under the existing provisions of section 10AA of the Income-tax Act, a deduction of hundred per cent. is allowed in respect of profits and gains derived by a unit located in a Special Economic Zone (SEZ) from the export of articles or things or services for the first five consecutive assessment years; of fifty per cent. for further five assessment years; and thereafter, of fifty per cent. of the ploughed back export profit for the next five years.

Under the existing provisions of section 115JB(6), an exemption is allowed from payment of minimum alternate tax (MAT) on book profit in respect of the income accrued or arising on or after 1st April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone (SEZ), as the case may be.

Effect of Budget on Developer of Special Economic Zones

Under section 80-IAB of the Income-tax Act, a deduction of hundred per cent. is allowed in respect of profits and gains derived by an undertaking from the business of development of an SEZ from the total income for any ten consecutive assessment years out of fifteen years beginning from the year in which the SEZ is notified by the Central Government.

Further, under the existing provisions of section 115-O(6), an exemption is allowed from payment of tax on distributed profits [Dividend Distribution Tax (DDT)] in respect of the total income of an undertaking or enterprise engaged in developing or developing and operating or developing, operating and maintaining a Special Economic Zone for any assessment year on any amount declared, distributed or paid by such Developer or enterprise, by way of dividends (whether interim or otherwise) on or after 1st April, 2005 out of its current income. Such distributed income is also exempt from tax under section 10(34) of the Act.

It is proposed under Budget 2011- there will not be any exemption from minimum alternate tax in the case of SEZ Developers and units in SEZs in the Income-tax Act as well as the SEZ Act. From 1st April 2012

Finance Bill 2011-12 further proposes to discontinue the availability of exemption from dividend distribution tax in the case of SEZ Developers for dividends declared, distributed or paid on or after 1st June, 2011. As a corolory, Explanation to section 10(34) of the Income-tax Act.