Section 10AA of ITA, 1961 : Section 10Aa: Special Provisions In Respect Of Newly Established Units In Special Economic Zones

Explanation using Example

Imagine a company, XYZ Pvt Ltd, which has set up a software development unit in a Special Economic Zone (SEZ) in the financial year 2021-22. As per Section 10AA of the Income-tax Act, 1961, XYZ Pvt Ltd is eligible for tax deductions on its export profits from this unit.

For the first five assessment years, starting from AY 2022-23, the company will get a 100% deduction on profits earned from the export of software services. From the sixth to the tenth assessment year, they can claim a 50% deduction on such profits.

Moreover, if the company decides to set aside 50% of its export profits into a Special Economic Zone Re-investment Reserve Account, and plans to use this reserve for purchasing new machinery for the SEZ unit, they can claim this amount as a deduction for the next five years, provided the machinery is used within three years of creating the reserve.

XYZ Pvt Ltd must also comply with the conditions laid out by the Central Board of Direct Taxes and furnish the required particulars regarding the machinery in their tax return for the year the machinery is first put to use.