Profit-linked deductions for SEZs developed before FY12

Written by fe Bureaus | New Delhi | Updated: Sep 1 2010, 04:56am hrs
In line with the governments plan to gradually put an end to profit-linked deductions on the taxable income, the new Direct Tax Code has proposed to grandfather the benefit now allowed to both special economic zone (SEZ) developers and units in these zones.

The code has introduced cut off dates for SEZ developers and units in these zones for availing the unexpired portion of the profit-linked deductions. As per the DTC Bill, developers will be allowed profit-linked deductions for all SEZs notified on or before March 31, 2012. Units in SEZs that will commence commercial operations by March 31, 2014 too will be allowed profit-linked deductions.

SEZs have so far attracted an investment of about Rs 1.5 lakh crore. Of the 578 approved SEZs, 111 are operational. SEZ is considered operational if at least one unit in it has started exports.

The units in SEZs get 100% income tax exemption on export income for the first five years and 50% for the next five years. They also get exemption on 50% of the ploughed back export profit for the next five years after the first 10 years. They are exempted from MAT as well.

SEZs often come under the scanner of investigating agencies because of the various violations that happen in these zones. Revenue authorites have booked cases against SEZ units for flouting DGFTs norms. There is also conflict between finance and commerce ministries over the formers right to question the valuation of the consignments inside SEZs. The finance ministry fears that SEZ consignments are often underinvoiced or overinvoiced to do illegal fund transfer across borders.