Section 10A of ITA, 1961 : Section 10A: Special Provision In Respect Of Newly Established Undertakings In Free Trade Zone, Etc

Explanation using Example

Imagine a company named "TechExports Pvt. Ltd." that manufactures computer software and begins operations in a Special Economic Zone (SEZ) on April 1, 2021. According to Section 10A of the Income-tax Act, 1961, TechExports is eligible to claim a 100% deduction on its profits derived from the export of software for the first five consecutive assessment years. This means that for the assessment years 2022-2023 to 2026-2027, the company can reduce its taxable income by the full amount of profits earned from exports.

After the initial five years, the company will then be eligible for a 50% deduction on such profits for the next two consecutive assessment years, i.e., 2027-2028 and 2028-2029. Following that, for the next three consecutive assessment years, TechExports can claim a deduction of up to 50% of the profit that is reinvested in the business as per the conditions laid out in the act.

However, if TechExports fails to use the amount credited to the Special Economic Zone Re-investment Allowance Reserve Account for the purchase of new machinery or plant within three years, or uses it for other purposes, that amount will be treated as profits of the year in which it was misused or the year following the expiry of the specified period, and will be taxable accordingly.

It's important to note that TechExports must also file its income tax return on time to be eligible for these deductions, as per the provisions of Section 10A.