incomes exempt from tax

INCOMES EXEMPT FROM TAX

Sections 10, 10A, 10AA, 10B, 10BA, 11, 12, 13 and 13A deal with income which

does not form part of an assessees total income. While section 10 appends a list of income absolutely exempt from tax, sections 10A, 10AA, 10B, 10BA, 11, 12, 13 and

13A deal with specific exemptions available to newly established industrial

undertakings in free trade zones, charitable trust and political parties.

SECTIONS INCOMES NOT FORMING PART OF TOTAL INCOME

10(1) Agricultural income

10(2) Payments received from family income by a member of a HUF

10(2A) Share of profit of a partner from a firm

10(4) Interest received by a non-resident from prescribed securities

10(4B) Interest received by a person who is resident outside India on

amounts credited in the Non-resident (External) Account

10(5) LTC provided by the employer to his Indian citizen employee

10(6) Remuneration to persons who are not citizens of India

10(6)/5(B) Remuneration of a technician in India (This exemption is not

available from the assessment year 2003-04)

10(6)(i) Value of concessional passage to a foreign national employee (The

exemption is not available from the assessment year 2003-04)

10(6)(ii) Remuneration received by diplomats, etc.

10(6)(vi) Remuneration received by a foreign citizen as an employee of a

foreign enterprise provided his stay in India does not exceed 90 days

10(6)(viii) Salary received by a non-resident foreign citizen as a member of

ships crew provided his total stay in India does not exceed 90 days

10(6)(xi) Remuneration of employee of foreign Government during his

training in India

10(6A) Exemption from tax paid on royalty or fees for technical service on

behalf of foreign companies

10(6B) Tax paid on behalf of non-residents/foreign companies in respect of

other income

10(6BB) Tax payable on income from leasing of aircraft, etc.

10(6C) Income arising to notified foreign companies from services provided

in or outside India in projects connected with the security of India

10(7) Foreign allowance or perquisites granted by the Government of

India to its employees posted abroad

10(8) & (9) Remuneration received from a foreign Government by an individual

who is in India in connection with any sponsored co-operative

technical assistance programme with a foreign Government and the

income of the family members of such employee

10(8A)/(8B)

(9)

Remuneration/fees received by non-resident consultants and their

foreign employees

10(10) Death-cum-retirement gratuity received by an employee

10(10A) Commuted value of pension and any payment received by way of

commutation of pension by an individual out of annuity plan of LIC

or any other insurer from a fund set up by that corporation or insurer

10(10AA) Leave salary/Leave encashment

10(10B) Retrenchment compensation

10(10BB) Compensation received by victims of Bhopal gas leak disaster

10(10BC) Compensation from the Central Government or a State Government

or a local authority received by an individual or his legal heir on

account of any disaster

10(10C) Compensation received from a public sector company at the time of

voluntary retirement or separation

10(10CC) Tax on non-monetary perquisites paid by employer

10(10D) Any sum (including bonus) received on life insurance policy (not

being Keyman Insurance Policy)

10(11) Payments made from Provident Fund to retiring employees

10(12) Payments from Recognised Provident Fund

10(13) Any payment from an approved superannuation fund to legal heirs

of the employee

10(13A) House Rent Allowance subject to certain limits

10(14) Notified Special Allowance granted to an employee

10(14A) Income received as exchange risk premium (No exemption is

available from the assessment year 2003-04)

10(15) Interest, premium or bonus on specified investments

10(15A) Lease rent for leasing of an aircraft

10(16) Scholarships granted to meet the cost of education

10(17) Daily allowance of MPs or MLAs (entire amount is exempt), and

any other allowance subject to certain conditions

10(17A) Awards or Rewards given by the Central or State Government for

literary, scientific or artistic work or attainment or for service for

alleviating the distress of the poor, the weak and the ailing, or for

proficiency in sports and games or gallantry awards approved by the

Government

10(18) Pension and family pension of gallantry award winners

10(19) Family pension received by family members of armed forces

10(19A) Notional property income of any one palace occupied by former

rulers of Indian States

10(20) Income of local authorities

10(20A) Any income of housing boards constituted in India for planning,

development or improvement of cities, towns or villages

10(21) Any income of an approved scientific research association

10(22B) Income of specified news agency (i.e., PTI and UNI) for the

assessment year 1994-95 to 2008-09

10(23A) Any income (other than interest on securities, income from property,

income received for rendering any specific services and income by

way of interest or dividends) of approved professional bodies

10(23AA) Any income received by any person on behalf of any Regimental

Fund or non-public fund established by the armed forces of the

Union for the welfare of the past and present members of such

forces or their dependents

10(23AAA) Income of fund established for welfare of employees and their

dependents

10(23AAB) Any income of the pension fund set up by LIC or any other insurer

approved by the Controller of Insurance or Insurance Regulatory

and Development Authority

10(23B) Any income (other than business income) of a trust or a society

approved by Khadi and Village Industries Commission

10(23BB) Income of an authority whether known as Khadi and Village

Industries Board or by any other name for the development of Khadi

and Village Industries

10(23BBA) Income arising to any body or authority established, constituted or

appointed under any enactment for the administration of public,

religious or charitable trusts or endowments or societies for religious

or charitable purposes

10(23BBB) Income of the European Economic Community derived in India by

way of interest, dividends or capital gains in certain cases under the

European Community International Partners Scheme, 1993

10(23BBC) Any income of SAARC Fund for Regional Projects

10(23BBD) Any income of the Secretariat of Asian Organisation of Supreme

Audit Institutions

10(23BBE) Income of Insurance Regulatory and Development Authority

10(23BBF) Income of North-Eastern Development Finance Corporation Limited

to the extent of 60 per cent for the assessment year 2007-08

10(23BBG) Income of the Central Electricity Regulatory Commission

(applicable from the assessment year 2008-09)

10(23C) Income received by any person on behalf of specified national

funds, approved public charitable institutions, educational

institutions and hospitals

10(23D) Income of a Mutual Fund set up by a public sector bank or public

financial institution

10(23EA) Income of Investor Protection Fund set up by recognised stock

exchanges

10(23EB) Income of Credit Guarantee Funds Trust for Small Industries

10(23EC) Income of Investor Protection Fund by way of contributions from

commodity exchange and the members thereof (applicable from the

assessment year 2008-09)

10(23FA) Income by way of dividend (other than dividends referred to in

section 115-O) or long-term capital gains of venture capital

fund/undertaking

10(23FB) Income of venture capital fund/venture capital company

10(24) Income by way of interest on securities, property income from other

sources of a registered trade union or an association of registered

trade unions

10(25) Any income received by a person on behalf of statutory provident

fund, recognised provident fund, approved superannuation fund,

approved gratuity fund and approved coal-mines provident fund

10(25A) Income of Employees State Insurance Fund

10(26) Income of a member of Scheduled Tribe, residing in Nagaland,

Manipur, Tripura, Arunachal Pradesh, Mizoram and Ladakh from

any source arising by reason of his employment therein and income

by way of dividend and interest on securities

10(26AA) Income of Sikkimese individual which accrues or arises to him/her from any source in the State of Sikkim or income from

dividend/interest on securities from anywhere in the world

(exemption not available to a Sikkimese woman who, on or after

April 1, 2008, marries a non-Sikkemese individual)

10(26AAB) Income of an agricultural produce market committee or board

constituted for the purpose of regulating the marketing of

agricultural produce (applicable from the assessment year 2009-10)

10(26B) Any income of a statutory corporation or of a body/institution,

financed by the Government formed for promoting the interest of

Scheduled Castes/Tribes

10(26BB) Income of National Minorities Development and Finance

Corporation

10(26BBB) Income of ex-servicemen corporations established for the welfare

and economic upliftment of ex-servicemen

10(27) Income of co-operative societies promoting the interests of members

of Scheduled Castes/Tribes

10(29A) Income of certain Commodity Boards and Authorities

10(30) Subsidy from the Tea Board for replanting or replacement of tea

bushes or for rejuvenation or consolidation of areas used for

cultivation of tea in India

10(31) Income of Subsidy from Rubber Board or Coffee Board or Spices

Board or any other Notified Board, received by planters

10(32) Income of a minor child up to Rs.1,500/- in respect of each minor

child whose income is includible under section 64(1A)

10(33) Capital gain on transfer of units of US 64

10(34) Dividend on or after April 1, 2003 from domestic companies

10(35) Interest on units of a Mutual Fund on or after April 1, 2003

10(36) Long-term Capital gains on transfer of listed equity shares

10(37) Capital gain on compulsory acquisition of urban agricultural land

situated within specified urban limits

10(38) Long-term capital gains on transfer of equity shares/units not

chargeable to tax in cases covered by securities transaction tax

10(39) Exemption of specified income from any international sporting

event held in India

10(40) Exemption in respect of Grant, etc., received by subsidiary

company from its holding company engaged in the business of

generation, etc., or distribution of power

10(41) Exemption of Capital Gain on transfer of an asset of an undertaking

engaged in business of generation and distribution of power

10(42) Exemption of Income of notified non-profit body/authority

10(43) Any amount received by an individual as a loan (either in lump sum

or instalment) in a transaction of reverse mortgage

10 A Income of newly established industrial undertakings in Free Trade

Zones

10 AA Special provisions in respect of newly established Units in Special

Economic Zones

10 B Special provisions in respect of newly established hundred per cent

Export Oriented Undertakings

10 BA Special provision in respect of export of artistic hand-made wooden

articles

11 Income from property held for charitable or religious purposes

12 Income of trusts or institutions from contributions

12A Registration of Trust

12AA Procedure for Registration of Trust

13 Sections 11 and 12 not to apply in certain cases

13A Income of political parties

* * *

INCOMES EXEMPT FROM TAX

INCOMES EXEMPT UNDER SECTION 10

Agricultural income [Section 10(1)]: Agricultural income is exempt from tax if it

comes within the definition of agricultural income as given in section 2(1A). In some cases however, agricultural income is taken into consideration to find out tax on

non-agricultural income.

Receipts by a member from a Hindu Undivided Family [Section 10(2)]: Any sum

received by an individual, as a member of a Hindu Undivided family, either out of the

income of the family or out of income of estate belonging to the family, is exempt

from tax. Such receipts are not chargeable to tax in the hands of an individual

member even if tax is not paid or payable by the family on its total income. The

exemption is based upon the principle of avoidance of double taxation. Income of a

Hindu undivided family is taxable in its own hand. Section 10(2), therefore exempts

family. Only those members of a Hindu undivided family can claim exemption under

this clause who are entitled to maintenance under the Hindu law. Some of the receipts

from a Hindu undivided family are however, taxable, Vide section 64(2).

Share of profit from partnership firm [Section 10(2A)]: Share of profit received by

partners from a firm is not taxable in the hands of partners.

Casual and non-recurring receipts [Section 10(3)]: The exemption of Rs.5,000/- in

respect of casual and non-recurring receipts shall not be available from the assessment

year 2003-04.

Interest to non-residents [Section 10(4), (4B)]:

a) In the case of a non-resident, interest on bonds or securities notified by the Central Government including income by way of premium on the redemption

of such bonds;

b) In the case of a person resident outside India [under section 2(q) of the Foreign Exchange Regulation Act] income from interest on money standing to

credit in a Non-resident (External) Account in India, in accordance with the

said Act.

Leave travel concession to an Indian citizen [Section 10(5)]: The employee is

entitled to exemption under section 10(5) in respect of the value of travel concession

or assistance received by or due to him from his employer or former employer for

himself and his family, in connection with his proceeding:

(a) on leave to any place in India. (b) to any place in India after retirement from service or after the termination

of his service.

Remuneration to persons who are not citizens of India [Section 10(6)]: In case of

an individual who is not a citizen of India, the following income shall be exempt:

(i) Remuneration received by diplomats, etc. [Section 10(6)(ii)]: Any remuneration received by diplomats/or by a foreign national as an official by

whatever name called of any embassy, high commission, legation,

commission, consulate, trade representation of a foreign state, or as a member

of staff of any of these officials for service in such capacity.

(ii) Remuneration received by a foreign national as employee of a foreign enterprise [Section 10(6)(vi)]: Any remuneration received by an individual

(non-citizen) as an employee of a foreign enterprise for services rendered by

him during his stay in India, provided certain conditions are fulfilled.

(iii) Non-resident employed on a foreign ship [Section 10(6)(viii)]: Any salary received by an individual (non-citizen foreign national) being a non-resident

employed on a foreign ship provided his stay in India does not exceed 90 days

in the previous year.

(iv) Remuneration of employee of foreign Government during his training in India [Section 10(6)(xi)]: Any remuneration received by an individual (non-citizen)

as an employee of the Government of a foreign State, during his stay in India

in connection with his training in any establishment or office of, or in any

undertaking owned by the Government or other specified bodies.

Tax payable on royalty or fees for technical service on behalf of foreign company

[10(6A)]: The tax payable under the terms of agreement, by Government, by

Government or the Indian concern to the Central Government on income, derived by

the foreign company by way of royalty or fee for technical services shall not be

considered as taxable income of the foreign company if certain conditions are

satisfied.

Tax paid on behalf of non-residents/foreign companies in respect of other income

[Section 10(6B)]: The following conditions should be satisfied

1) The taxpayer is a non-resident (not being a company) or a foreign company.

2) It gets income (not being salary, royalty or technical fees) from the Central Government, State Government or an Indian concern.

3) The above income is generated in pursuance of an agreement entered into (before June 1, 2002) by the Central Government with a foreign

Government/international organisation or any related agreement approved by

the Central Government (before June 1, 2002).

4) Tax liability of the recipient in respect of the above income is met by the payer.

If the above conditions are satisfied, then the tax liability of the recipient borne by the

payer, is not taxable in the hands of the recipient (income will not be grossed up).

Tax payable on income from leasing of aircraft, etc. [Section 10(6BB)]: In case

the Government of a foreign State or a foreign enterprise gives an aircraft or an

aircraft engine to an Indian Company which is engaged in the business of operation of

aircrafts and the tax on such income is paid by the Indian company, then the tax so

paid shall be exempt and will not be treated as the income of the foreign State or

enterprise, provided the agreement is entered into after 31.3.1997 but before 1.4.1999.

This exemption of tax paid will also be allowed on all such agreements which are

entered into after 31.3.2007 (Foreign enterprise means a person who is non-resident).

Technical fees received by a notified foreign company [Section 10(6C)]: Income

by way of royalty or fees for technical services received by a notified foreign

company is exempt, if such income is received in pursuance of an agreement entered

into with the Central Government to provide services in or outside India in projects

connected with security of India.

Foreign allownce [Section 10(7)]: Any allowances or perquisites paid or allowed, as

such, outside India by the Government to a citizen of India for rendering services

outside India, are exempt.

Income of a foreign Government employee under co-operative technical

assistance programmes [Section 10(8)]: Income of individual serving in India in

connection with any co-operative technical assistance programme in accordance with

an agreement entered into by the Central Government and a foreign Government is

exempt from tax. The exemption, however, available only if:

(a) the remuneration is received by the individual, directly or indirectly, from the foreign Government; and

(b) any other income of such individual which accrues or arises outside India and is not deemed to accrue or arise in India, provided such individual is

required to pay income-tax (including social security tax) to the foreign

Government.

Remuneration of fees received by non-resident consultants and their foreign

employees [Section 10(8A), (8B)]: The following will not be chargeable to tax

1) Any remuneration or fee received by him out of the funds made available to an international organisation under a technical assistance grant agreement

between the agency and the Government of a foreign State.

2) Any other income which accrues or arises to him or it outside India, and is not deemed to accrue or arise in India, in respect of which such consultant is

required to pay any income or social tax to the Government of the country of

his or its origin.

Under section 10(8B), the remuneration received by an employee of the consultant is

exempt from income-tax provided such employee is either not a citizen of India or

being a citizen of India, is not ordinarily resident in India and the contract of his

service is approved by the prescribed authority before commencement of his service.

Income of family members of an employee serving under a co-operative technical

assistance programme [Section 10(9)]: Any family member of an employee of the

consultant which accrues or arises outside India in respect of which tax is payable in

the foreign State shall also be exempt from tax.

Death-cum-retirement gratuity received by an employee [Section 10(10)]:

Gratuity is exempt upto a certain limit.

Payment in commutation of pension received by the employees [Section 10(10A):

Any payment received by way of commutation of pension by an individual out of

annuity plan of the LIC of India from a fund set up by that Corporation shall be

exempt.

Leave encashment [Section 10(10AA)]: Leave encashment of accumulated leave at

the time of retirement, whether on superannuation or otherwise, is exempt from tax.

Retrenchment compensation [Section 10(10B)]: Any compensation received by a

workman at the time of his retrenchment, under the Industrial Disputes Act, 1947 or

under any other Act or rules or any order or notification issued there under; or any

standing order; or any award, contract of service or otherwise, shall be exempt upto

certain limits.

Compensation received by victims of Bhopal gas leak disaster

[Section 10(10BB)]: Compensation received by victims of Bhopal gas leak disaster is

exempt from tax.

Compensation on account of any disaster [Section 10(10BC)]: Any amount

received or receivable from the Central Government or State Government or a local

authority by an individual or his legal heir by way of compensation on account of any

disaster shall not be included in the total income.

Amount received on voluntary retirement [Section 10(10C)]: The amount

received/receivable by an employee on account of his voluntary retirement will

qualify for exemption.

Tax on perquisite paid by employer [Section 10(10CC)]: If tax is paid by an

employer on behalf of an employee, the same being in the nature of an obligation

which but for such payment, would have been payable by the employee, is considered

a perquisite, and is chargeable to tax. The amount of tax actually paid by an

employer, at his option, on no-monetary perquisites on behalf of an employee, is not

taxable in the hands of the employee.

Amount received under a life insurance policy [Section 10(10D)]: Any sum

received under a life insurance policy, including the sum allocated by way of bonus

on such policy, is wholly exempt from tax.

Payment from Provident Fund [Section 10(11)]: Any payment from a Provident

Fund to which the Provident Fund Act, 1925 applies or from Public Provident Fund

set up by the Central Government shall be exempt.

Payments from Recognised Provident Fund [Section 10(12)]: The accumulated

balance due and becoming payable to an employee participating in a Recognised

Provident Fund, to the extent provided in rule 8 of Part-A of the Fourth Schedule of

Income-tax Act, 1961, shall be exempt.

Payment from an approved superannuation fund [Section 10(13)]: Any payment

from an approved superannuation fund shall be exempt provided it is made:

(i) on death of a beneficiary; or (ii) to any employee in lieu of or in commutation of annuity on his

retirement at or after a specified age or on his becoming incapacitated prior to

such retirement; or

(iii) by way of refund of contribution to on the death of a beneficiary; or (iv) by way of refund of contribution to an employee on his leaving the

service in connection with which the fund is established otherwise than by

retirement at or after a specified age or on his becoming incapacitated prior to

such retirement to the extent to which such payment does not exceed the

contributions made prior to the commencement of this Act (i.e., 1.4.1962) and

interest thereon.

House Rent Allowance [Section 10(13A)]: House Rent Allowance is exempt to the

extent of the minimum of the following three amounts:

(a) Actual House Rent Allowance received by the employee in respect of the relevant period.

(b) Excess of rent paid for the accommodation occupied by him over 10 % of the salary for the relevant period.

(c) 50 % of the salary where the residential house is situated at Mumbai, Calcutta, Delhi or Chennai and 40 % of the salary where the house is situated

at any other place, for the relevant period.

Specific/Notified Special Allowances [Section 14]: The provisions are given below:

When exemption depends upon actual expenditure by the employee: The following

allowances are exempt under section 10(14) to the extent of:

(a) the amount of the allowance; or (b) the amount utilised for the specific purpose for which allowance is given,

whichever is lower.

When exemption does not depend upon Expenditure: In cases where the exemption

does not depend upon the expenditure incurred by the employee, the allowances are

exempt, regardless of the amount of expenditure, to the extent of

(a) the amount of allowance; or (b) the amount specified in rule 2 BB,

whichever is lower.

Interest on securities [Section 10(15)]:

Interest on securities is exempt from tax to the extent permitted to be invested or

deposited therein.

Lease Rent of Aircraft [Section 10(15A)]:

Any payment made, by an Indian company engaged in the business of operation of

aircraft, to acquire an aircraft or an aircraft engine (other than a payment for providing

spares, facilities or services in connection with the operation of the leased aircraft) on

lease from the Government of a Foreign State or a foreign enterprise under an

agreement entered into either before 1.4.1997 or after 31.3.1999 and approved by the

Central Government, shall be exempt in the hands of such foreign Government or

foreign enterprise.

Educational Scholarship [Section 10(16)]:

Scholarship granted to meet the cost of education is exempt from tax.

Daily and constituency allowance, etc. received by MPs and MLAs

[Section 10(17)]:

The following incomes shall be exempt in the hands of persons specified:

(i) daily allowance received by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof;

(ii) any allowance received by any person by reason of his membership of Parliament under the Members of Parliament (Constituency Allowance)

Rules, 1986;

(iii) any constituency allowance received by any person by reason of his membership of any State Legislature under any Act or Rules made by

that State Legislature.

Award or Reward [Section 10(17A)]:

Any payment made, whether in cash or in kind, shall be exempt from tax provided it

is made:

(i) in pursuance of any award instituted in the public interest by the Central Government or any State Government or instituted by any other body

and approved by the Central Government in this behalf; or

(ii) as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this

behalf in the public interest.

Pension to Gallantry award Winners [Section 10(18)]:

Any income by way of pension/family pension received by an individual or any

member of his family shall be exempt if such individual or any member of his family

shall be exempt if such individual has been in the service of Central/State

Government and has been awarded Param Vir Chakra or Maha Vir Chakra or Vir

Chakra or such other gallantry award as may be notified.

Exemption of family pension received by the family members of armed forces

[Section 10(19), applicable from the assessment year 2005-06]:

Where the death of a member of the armed forces (including para-military forces) of

the Union has occurred in the course of operational duties, in such circumstances and

subject to such conditions as may be prescribed, the family pension received by the

widow or children or nominated heirs as the case may be, shall be exempt from tax.

Income of a local authority [Section 10(20)]:

The entire income of a local authority shall be exempt from tax except the income

derived from the supply of commodity or service (other than water and electricity)

outside its own jurisdictional area.

Income of an approved scientific research association [Section 10(21)]:

Any income of a scientific research association, approved [Form No.3CF for

obtaining approval] under section 35(1)(ii) is exempt from tax if certain conditions are

satisfied.

Income of specified news agency [Section 10(22B)]:

Any income of notified news agency, set up in India solely for collection and

distribution of news, is exempt from income-tax.

Income of professional institution [Section 10(23A)]:

Any income (other than income chargeable under the head Income from house property or any income received for rendering any specific services or income by way of interest or dividends derived from its investments) of a professional

association/institution shall be exempt provided certain conditions are satisfied.

Income of armed forces fund [Section 10(23AA)]:

Any income received by the person on behalf of any Regimental Fund or Non-Public

Fund established by the armed forces of the Union for the welfare of the past and

present members of such forces or their dependants, shall be exempt from tax.

Income of certain funds established for welfare of employees and their

dependants [Section 10(23AAA)]:

Any income received by any person on behalf of a fund established, for such purposes

as may be notified by the Board in the Official Gazette, for the welfare of employees

or their dependants and of which fund such employees are members shall be exempt if

such fund fulfils certain conditions.

Income of Pension Fund [Section 10(23AAB)]:

Any income of a fund set up by the Life Insurance Corporation of India on or after

1.8.1996 or any other insurer to which contribution is made by any person for

receiving pension from such fund, and which is approved by the Controller of

Insurance or the Insurance Regulatory and Development Authority, has been

exempted from income-tax.

Income from Khadi or Village industries [Section 10(23B)]:

Any income of an institution, constituted as a public charitable trust or registered as a

society and existing solely for the development of Khadi or Village Industries or both

and not for the purpose of profit, to the extent such income is attributable to the

business of production, sale, marketing of Khadi or products of Village Industries

shall be exempt.

Income of Khadi and Village Industries Board, etc. [Section 10(23BB)]:

Any income of an authority established in a State by or under a State or Provincial

Act for the development of Khadi or Village Industries in the State is exempt.

Income of statutory bodies for the administration of public charitable trust

[Section 10(23BBA)]:

Any income of bodies or authorities established or constituted or appointed under any

enactment for the administration of public, religious or charitable trusts or

endowments (including maths, temples, gurudwaras, wakfs, churches, synagogues,

agiaries or other public places of religious worship) or societies for religious or

charitable purposes, is exempt from tax. It has, however, been clarified that the

exemption will not apply to the income of any such trust, endowment or society.

Income of European Economic Community (EEC) [Section 10(23BBB)]:

Any income of the European Economic Community derived in India by way of

interest, dividends or capital gains, from investments made out of its funds under a

notified scheme i.e., European Community International Institutional Partners (ECIIP)

Scheme, 1993, is exempt from tax.

Income of SAARC Fund [Section 10(23BBC)]:

Any income derived by the SAARC fund for Regional Projects is exempt from tax.

Income of the Secretariat of Asian Organisation of Supreme Audit Institutions

[Section 10(23BBD)]:

Income of the Secretariat of Asian Organisation of Supreme Audit Institutions is

exempt from tax for the assessment years 2001-02 to 2010-11.

Income of Insurance Regulatory and Development Authority

[Section 10(23BBE)]:

Income of Insurance Regulatory and Development Authority is exempt from tax.

Income of North-Eastern Development Finance Corporation Limited

[Section 10(23BBF)]:

Income of North-Eastern Development Finance Corporation Ltd. being a company

formed and registered under the Companies Act, 1956 shall be exempt to a certain

extent and the balance total income shall be taxable.

Income of Central Electricity Regulatory Commission [Section 10(23BBG)]:

Any income of Central Electricity Regulatory Commission is exempt from tax with

effect from the assessment year 2008-09.

Income of certain national funds, educational institutions and hospitals

[Section 10(23C)]:

Any income received by any person on behalf of the following is exempt from tax:

(i) The Prime Ministers National Relief Fund; or (ii) The Prime Ministers Fund (Promotion of Folk Art); or (iii) The Prime Ministers Aid to Students Fund; or (iv) The National Foundation for Communal Harmony; or (v) Any University or other educational institution existing solely for

educational purposes of profit; or

(vi) Any hospital or other institution for the reception and treatment of persons (i) suffering from illness or (ii) mental defectiveness or (iii)

during convalescence or (iv) requiring medical attention or

rehabilitation, existing solely for philanthrophic purpose and not for the

purpose of profit.

Income of Notified Mutual Funds [Section 10(23D)]:

Any income of the following mutual funds (subject to provisions of sections115 R to

115 T) is not chargeable to tax (a) a mutual fund registered under SEBI Act or regulation made thereunder; (b) a notified mutual fund set up by a public sector bank, or a public

financial institution or authorised by RBI.

Income of investor protection fund [Section 10(23EA)]:

Any income by way of contributions received from recognised stock exchanges and

the members thereof of such Investor Protection Fund set up by recognised stock

exchanges in India, either jointly or separately, as the Central Government may, by

notification in the Official Gazette, specify in this behalf, shall be exempt.

Exemption of Income of Credit Guarantee Fund Trust for Small Industries

[Section 10 (23EB)]:

Any income of the Credit Guarantee Fund Trust for Small Industries (being a trust

created by the Government of India and the Small Industries Development Bank of

India) is exempt from tax for assessment years 2002-03 to 2006-07.

Income of Investor Protection Fund set up by commodity exchanges

[Section 10(23EC)]:

This section has been inserted with effect from the assessment year 2008-09. It

provides that any income by way of contributions received from commodity

exchanges and the members thereof, of notified Investor Protection Fund set up by

commodity exchanges in India, either jointly or separately shall not be included in the

total income.

Income by way of dividend and long-term capital gains of venture capital funds

and venture capital funds and venture capital companies [Section 10(23FA)]:

Clause (23 FA) is applicable from the assessment year2000-01 if the following

conditions are satisfied Any income by way of dividends (not being dividend covered by section 115-O) or

long-term capital gains of a venture capital fund or a venture capital company from

investments made up to March 31, 2000 by way of equity shares in a venture capital

undertaking is exempt if other conditions are satisfied.

Income of venture capital fund or venture capital company [Section 10(23FB)]:

Any income of a venture capital company or a venture capital fund set up to raise

funds for investments in a venture capital undertaking shall be exempt.

Income of an infrastructure capital fund/company [Section 10(23G)]:

Exemption under section 10(23G) is available up to the assessment year 2006-07.

Income of trade unions [Section 10(24)]:

Income from house property and income from other sources of a registered union within the meaning of the Indian Trade Unions Act, 1926 or an association of such

Trade Unions Act, 1926 or an association such Trade Unions, formed primarily for

the purpose of regulating the relations between workmen and employers or between

workmen and workmen, is exempt from income-tax.

Income of trustees of provident fund, gratuity fund, superannuation fund, etc.

[Section 10(25)]:

The following income is exempt from tax under this clause:

a) interest on securities held by a statutory fund and any capital gains arising from the sale exchange or transfer of such securities;

b) any income received by the trustees on behalf of a recognised provident fund, and approved superannuation fund, or an approved gratuity fund;

and

c) any income received by the Board of Trustees on behalf of Deposit-Linked Insurance Fund.

Income of Employees State Insurance Fund [Section 10(25A)]: Any income of the Employees State Insurance Fund set up under the provisions of the Employees State Insurance Act, 1948 shall be exempt.

Income of a member of Scheduled Tribe residing in specified areas

[Section 10(26)]:

Income of a member of a Scheduled Tribe residing in specified areas, if certain

conditions are satisfied is exempt.

Income of a body for promoting interest of Scheduled Castes/Tribes

[Section 10(26B)]:

Any income of a corporation established by a Central, State or Provincial Act or of

any other body, institution or association (wholly financed by the Government),

formed for promoting the interests of the members of the Scheduled

Cases/Tribes/Backward classes, is exempt from tax.

Income of a corporation for promoting the interest of Minority Community

[Section 10(26BB)]:

Any income of a corporation established by the Central Government or any State

Government for promoting the interests of the members of such minority

communities (as are notified by the Central Government from time to time) is exempt

from tax.

Income of a corporation for the welfare, etc., of ex-servicemen

[Section 10(26BBB)]:

Any income of a corporation established by a Central, State or Provincial Act for the

welfare and economic upliftment of ex-servicemen being the citizens of India, shall

be exempt from tax.

Income of co-operative societies promoting the interest of members of Scheduled

Castes/Tribes [Section 10(27)]:

Any income of a co-operative society formed for promoting the interest of the

members of either the scheduled castes or the scheduled tribes or both referred to in

clause (26B), is exempt from tax on the condition that the membership of the

co-operative society consists of only other co-operative societies formed for similar

purposes and the finances of the society are provided by the Government and such

other societies.

Income of Commodity Boards and Authorities [Section 10(29A)]:

The income of Certain Commodity Boards and Export Development authorities is

exempt from income-tax.

Subsidy from the Tea Board [Section 10(30)]:

In the case of an assessee who carries on the business of growing and manufacturing

tea in India, the amount of any subsidy received from or through the Tea Board under

any such scheme for replantation or replacement of tea bushes or for rejuvenation or

consolidation of areas used for cultivation of tea as the Central Government may

notification in the Official Gazette specify, shall be exempt.

Subsidy received by planters [Section 10(31)]:

In the case of an assessee who carries on the business of growing and manufacturing

rubber, coffee, cardamon or such other commodity in India, as the Central

Government may notify in this behalf, the amount of any subsidy received from or

through the concerned Board under any such scheme for replantation or replacement

of rubber plants, coffee plants, cardamon plants or plants for the growing of such

other commodity or for rejuvenation or consolidation of areas used for cultivation of

rubber, coffee, cardamon or such other commodity as the Central Government may

notify shall be exempt.

Income of minor clubbed in the hands of a parent [Section 10(32)]:

In case the income of an individual includes the income of his minor child in terms of

section 64(1A), such an individual shall be entitled to exemption of Rs.1,500/- in

respect of each minor child if the income of such minor is includible under section

64(1A). However, the exemption cannot exceed the income of any minor so

includible in the total income of the individual.

Capital gain on transfer of US 64 [Section 10(33)]:

Any income arising from the transfer of a capital asset being a unit of US 64 and

where the transfer of such assets takes place on or after April 1, 2002, shall be exempt

from tax. This rule is applicable whether the capital asset (US 64) is long-term capital

asset or short-term capital asset. If income from a particular source is exempt from

tax, loss from such source cannot be set off against income from another source under

the same head of income. Consequently, loss arising on transfer of units of US 64

cannot be set off against any income in the same year in which it is incurred and the

same cannot be carried forward.

Dividends and interest on units [Section 10(34)/(35)]:

The following income is not chargeable to tax from the assessment year 2004-05:-

a) any income by way of dividend referred to in section 115-O [i.e., dividend, not being covered by section 2(22)(e), from a domestic

company];

b) any income in respect of units of a mutual fund; c) income from units received by a unit holder of UTI; d) income in respect of units from a specified company.

The person paying dividends on shares or interest on units will have to pay additional

tax on dividend/income distributed under sections 115-O and 115-R.

Long-term capital gains on transfer of listed equity shares [Section 10(36)]

[w.e.f. A.Y. 2004-05]:

Any income arising from the transfer of a long-term capital asset, being an eligible

equity share in a company shall be exempt provided these are acquired on or after

1.3.2003 but before 1.3.2004 and held for a period of 12 months or more.

Note: Eligible equity share for this purpose means:-

a) any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as on March 1, 2003 and the transactions

of purchase and sale of such equity share are entered into on a

recognised stock exchange in India; or

b) any equity share in a company allotted through a public issue on or after March 1, 2003 and listed in a recognized stock exchange in India before

March 1, 2004 and the transaction of sale of such share is entered into on

a recognised stock exchange in India.

Capital gain on compulsory acquisition of urban agricultural land

[Section 10(37)]:

In the case of an individual/Hindu undivided family, capital gain arising on transfer

by way of compulsory acquisition of urban agricultural land is not chargeable to tax

from the assessment year 2005-06 if such compensation is received after March 31,

2004 and the agricultural land was used by the assessee (or by any of his parents) for

agricultural purposes during 2 years immediately prior to transfer.

Long-term capital gains on transfer of equity shares/units in cases covered by

securities transaction tax [Section 10(38)]:

Long-term capital gain arising on transfer of equity shares or units of equity oriented

mutual fund is not chargeable to tax from the assessment year 2005-06 if such

transaction is covered by securities transaction tax.

Income from any International sporting event [Section 10(39)]:

Income arising from a notified international sporting event is exempt from tax from

the assessment year 2006-07 if such event is approved by the international body and

has participation by more than two countries.

Grant received by subsidiary company from holding company [Section 10(40)]:

In the case of reconstruction or revival of an existing business of power generation by

way of transfer of business to an Indian company [notified under section 80-

IA(4)(v)(a)] if any grant (or otherwise) is received by a subsidiary company from its

Indian holding company, it is not chargeable to tax.

Capital gain in the above case [Section 10(41)]:

Any long-term/short-term capital gain arising in the aforesaid case is not chargeable

to tax if the transfer takes place before April 1, 2006.

Income of notified non-profit body/authority [Section 10(42)]:

Any specified income of a non-profit body or authority notified by the Central

Government is exempt from tax. Such body or authority should be established,

constituted or appointed under a multilateral treaty, agreement or convention, to

which the Central Government is a signatory.

Special provision in respect of newly-established undertakings in free trade zone,

etc [Section 10A]:

Subject to the provisions of this section, a deduction of such profits and gains as

derived by an undertaking from the export of articles or things or computer software,

as the case may be, shall be allowed from the total income of the assessee. Exemption

under this section is available to all categories of assesses, viz., individuals, firms,

companies, etc., who derive any profits or gains from an undertaking engaged in the

export of articles or things or computer software.

The exemption shall apply to an undertaking which fulfils all the following

conditions:

(i) It has begun or begins to manufacture or produce articles or things or computer software during the previous year,

(a) relevant to the assessment year 1981-82 or thereafter, in any free trade zone;

(b) relevant to the assessment year 1994-95 or thereafter, in any electronic hardware technology park, or as the case may be, software

technology park;

(c) relevant to the assessment year 2001-02 or thereafter, in any special economic zone but before April 1, 2005.

Note: In the case of units which begin to manufacture or produce an

article or thing or computer software on or after April 1, 2005 in a

special economic zone, deduction will not be available under section 10

A. Such unit can claim deduction under section 10 AA.

(ii) It should be formed by splitting up or reconstruction of an existing business. However, exemption is provided if the unit is formed as a

result of the re-establishment, reconstruction or revival by the assessee of

the business of the undertaking as is referred to and satisfying the

conditions in section 33 B.

(iii) It should also not be formed by the transfer of machinery or plant, previously used for any purpose, to a new business. However, the

following are the two exceptions to this condition:

(1) machinery or plant which was used outside India by any person other than the assessee shall not be regarded or machinery or plant

previously used for any purpose, if the following conditions are

fulfilled.

(a) The machinery or plant should not be previously used in India. (b) The machinery or plant should be imported into India from a

foreign country.

(c) No deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable in

computing the total income of any person for any period prior

to the installation of the machinery or plant by the assessee.

(2) this tax concession is not denied in a case where the total value of used machinery or plant transferred to the new business does not

exceed 20 per cent of the total value of the machinery or plant used

in that business.

(iv) The sale proceeds of articles or things or computer software exported out of India should be received in, or brought into, India by the assessee in

convertible foreign exchange, within a period of six months from the end

of the previous year, or within such further period as the RBI may allow

in this behalf.

(v) Return of income should be submitted on or before the due date of submission or return of income given by section 139(1). If return is not

submitted or return is submitted belatedly, deduction under this section is

not available. The assessee should furnish along with the return of

income, the report of a chartered accountant in Form No.56F certifying

that the deduction has been correctly claimed in accordance with the

provisions of this section, i.e., Section 10A.

Amount of deduction: - General provisions

If the aforesaid conditions are satisfied, the deduction under section 10A may be

computed as under:

Profits from business of the undertaking X

Export turnover

Total turnover of the business carried

on by the undertaking

Provisions illustrated:

R Ltd. furnishes the following particulars for the previous year 2006-07:

Total sales of the above undertaking Rs.50,00,000/-

Export sales Rs.40,00,000/-

Domestic sales Rs.10,00,000/-

Money brought to India in convertible foreign exchange

up to 30.09.2006

Rs.36,00,000/-

Profit from the above undertaking Rs. 5,00,000/-

Compute the deduction available from the total income under section 10A.

Solution:

Amount of deduction of available under section 10A.

Profits from business of the undertaking X

Export turnover



5,00,000 X 36,00,000

50,00,000

= 3,60,000/-

Deduction available under section 10A shall be Rs.3,60,000/-.

The following points should be considered:

1) For this purpose export turnover means the consideration in respect of export by the undertaking of articles or things or computer software

received in (or brought into) India by the assessee in convertible foreign

exchange within the prescribed period 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;

(d) expenses, if any, incurred in foreign exchange in providing the technical services outside India.

2) The 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.

3) Deduction under section 10A has to be allowed in respect of profit on account of foreign exchange gain

4) Royalty earned from export of software is entitled to relief under section 10A.

5) Interest income earned by assessee on bank fixed deposits is ineligible for deduction under section 10A. For the purposes of section 10A, only

net interest income can be excluded from profits. However, where the

assessee needed funds to run industrial undertaking and the bank

provided the funds on the condition of depositing sufficient margin

money with the bank in the form of a fixed deposit, interest earned on

such fixed deposit is eligible for deduction under section 10A.

Period of deduction:

If the aforesaid conditions are satisfied, the assessee can claim deduction under

section 10A from his total income for a period of 10 consecutive assessment years

beginning with the assessment year relevant to the previous year in which the

undertaking begins to manufacture or produce such articles or things or computer

software.

For the undertakings which have claimed exemption up to the assessment year

2000-01 under the old section 10A, the deduction shall be available for the unexpired

period of 10 consecutive assessment years under the new section 10A.

For an undertaking which was initially located in free trade zone or export processing

zone and is subsequently located in a special economic zone by reason of conversion

of such zones into a special economic zone, the deduction shall be available for

10 years from the previous year in which the undertaking begins to manufacture or

produce such articles or things or computer software in such free trade zone or export

processing zone.

Relevant assessment year means any assessment year falling within a period of ten consecutive assessment years referred to in section 10A.

The aforesaid deduction is not available to any undertaking from the assessment year

2010-11.

Amount of deduction: Special provision

The deduction under section 10A in the case of an undertaking which begins to

manufacture or produce articles or things or computer software during April 1, 2002

and March 31, 2005 in any special economic zone, shall be as follows:-

It is available for the first 10 assessment years (even beyond the assessment year

2009-10).

First 5 years:- 100 per cent of profits and gains derived from the export of such

articles or things or computer software is deductible for a period of 5 consecutive

years (beginning with the assessment year relevant to the previous year in which the


software, as the case may be).

Sixth and seventh year:- 50 per cent of such profits and gains is deductible for

further 2 assessment years.

Eighth, ninth and tenth year:- For the next 3 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 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.

3) 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 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.

Consequences of amalgamation/demerger:

Where an undertaking of an Indian company is transferred to another company under

a scheme of amalgamation or demerger, the deduction under section 10A or 10B shall

be allowable in the hands of the amalgamated or the resulting company. However, no

deduction shall be admissible under these sections to the amalgamating company or

demerged company for the previous year in which the amalgamation or demerger

takes place.

Power of Assessing Officer to recomputed profit:

The Assessing Officer has power to recomputed profit in the following two

situations:-

Transfer between two businesses/units owned by the tax-payer:

The following conditions should be satisfied 1) The taxpayer carries on two or more businesses. At least one of them is

qualified for deduction under section 10A/10B.

2) From the business which is eligible for deduction under section 10A/10B, some goods are transferred to any other business carried on by

the taxpayer which is not eligible for deduction under section 10A/10B,

or vice-versa.

3) The consideration for such transfer, which is recorded in the books of account, is not equal to the market value of such goods on the date of

transfer.

If the aforesaid conditions are satisfied, the Assessing Officer will recomputed profits

of the business qualified for deduction under section 10A/10B as if the transfer in

either case had been made at the market value of the goods on the date of transfer.

Transfer by the assessee to any other person:

The following conditions should be satisfied 1) The taxpayer (eligible for deduction under section 10A/10B) has some

business transactions with any other person.

2) The business transaction is so arranged that the business transacted between them produces to the taxpayer more than the ordinary profits

that might be expected to arise in such eligible business.

3) This is due to close connection between the taxpayer and the other person or due to any other reason.

If the aforesaid conditions are satisfied, the Assessing Officer shall (in computing the

profits of the business eligible for deduction under section 10A/10B for the

purpose of deduction under that section) take the amount of profits as may be

reasonably deemed to have been derived therefrom.

Impact of claiming deduction under section 10A:

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 2000-

01 (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 2000-01 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

2000-01 or earlier years) are not allowed to be carried forward in assessment years

succeeding the period of deduction. The deduction under section 80-IA or 80-IB shall

also not be available to such undertaking after the expiry of tax holiday period.

However, adjustment under sections 70 and 71 is not prohibited.

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.

Option available to new undertakings not to claim deduction under section 10A:

The benefits under this section are optional. If the assessee does not wish to claim the

benefit under section 10A he has to file a declaration to this effect. The declaration

should be submitted before the due date of filing the return for the first assessment

year for which the deduction under this section is available to him.

Special provisions in respect of newly established units in Special Economic Zone

[Section 10AA]:

Section 10AA has been inserted to give income-tax concession to newly established

units in Special Economic Zone. Subject to the provisions of this section, a deduction

of such profits and gains as are derived by an assessee being an entrepreneur from the

export of articles or things or providing any service, as the case may be, from his unit

shall be allowed from the total income of the assessee. The exemption under this

section is available qua the unit and not the assessee.

Exemption under this section is available to all categories of assessees being

entrepreneurs, viz., individuals, firms, companies, etc. who derives any profit or gains

from an undertaking being a unit engaged in the export of articles or things or

providing any service.

The following conditions should be satisfied to claim deduction under section 10AA 1) The assessee is an entrepreneur as defined in section 2(j) of SEZ Act,

2005.

2) The unit in Special Economic Zone begins to manufacture or produce articles or things or provide services during the financial year 2005-06 or

any subsequent year.

3) It is not formed by the splitting up or reconstruction, of a business already in existence.

4) It is not formed by the transfer to a new business, of old plant or machinery. However, it can be formed by transfer of old plant or

machinery to the extent of 20 per cent.

5) The assessee has income from export of articles or things or from services from such unit.

6) Books of 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:

If the above conditions are satisfied, one can claim deduction under section 10AA.

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 business of the undertaking X

Export Turnover



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;

(d) expenses, if any, incurred in foreign exchange 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 profits 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.

3) 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.

Consequences for merger and demerger:-

Where an undertaking is transferred to another company under a scheme

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 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:

For the assessment year(s) succeeding the last assessment year for which the


expenditures under section 35 and 36(1)(ix) pertaining to the assessment year 2005-06

(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 2005-06 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) (pertaining to the assessment year 2005-06 or

earlier years) are not allowed to be carried forward in assessment years succeeding the

period of deduction. The deduction under section 80-IA or 80-IB shall not be

available to such undertakings after the expiry of tax holiday period.

In the assessment year following the period of deduction, the depreciation will be


been allowed in respect of each assessment year falling in the period of exemption.




2) From the business which is eligible for deduction under section 10A/10B, some goods are transferred to any other business carried on by the

taxpayer which is not eligible for deduction under section 10A/10B, or

vice-versa.


transfer.







2) The business transaction is so arranged that the business transacted between them produces to the taxpayer more than the ordinary profits that

might be expected to arise in such eligible business.






Special provisions in respect of newly established hundred per cent Export

Oriented Undertakings [Section 10B]:

A deduction of such profits and gains as are derived by a hundred per cent export-

oriented undertaking from the export of articles or things or computer software for a

period of ten consecutive assessment years beginning with the assessment years


undertaking begins to manufacture or produce articles or things or computer software,

as the case may be, shall be allowed from the total income of the assessee.

Exemption under this provision is applicable to all categories of assessees viz.,

individuals, firms, companies, etc., who derive any profits or gains from hundred per

cent export oriented undertakings.

Essential conditions to claim exemption:-

(i) The undertaking should be an approved hundred per cent export oriented undertaking. It must be approved as a hundred per cent export oriented

undertaking by the Board appointed by the Central Government in this

behalf.

(ii) It must manufacture or produce (including cutting and polishing of precious and semi-precious stones) any article or thing or computer

software.

(iii) It should not be formed by splitting up or reconstruction of an existing business. However, exemption is provided if the unit is formed as a

result of the re-establishment, reconstruction or revival by the assessee of

the business of any such industrial undertaking as is referred to in section

33 B, in the circumstances and within the period specified in that section.

(iv) The industrial undertaking should not have been formed by the transfer of a new business of machinery or plant previously used for any purpose.

Exception One:

For this purpose any machinery or plant which was used outside India by

any person other than the assessee is not regarded as machinery or plant

previously used for any purpose if the following conditions are fulfilled,

viz.,

(a) such machinery or plant was not previously used in India; (b) such machinery or plant is imported into India from a foreign

country; and

(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable in computing

the total income of any person for any period prior to the

installation of the machinery or plant by the assessee.

Exception Two:

Further, this tax concession is not denied in a case where the total value

of used machinery or plant transferred to the new business does not

exceed 20 per cent of the total value of the machinery or plant used in

that business.

(v) Sale proceeds of articles or things or computer software exported out of India must be received in (or brought into) India by the assessee in

convertible foreign exchange during the previous year or within a period

of six months from the end of the relevant previous year.

The aforesaid limit of six months can be extended by the Reserve Bank

of India or such other competent authority as is authorised under any law

for the time being in force for regulating payments and dealings in

foreign exchange.

If foreign exchange is not remitted within six months from the end of the

previous year (or within the extended time-limit as approved by RBI),

then deduction under sections 10A, 10B and 10BA is not available. In

such a case a) if the foreign currency is remitted after the expiry of time-limit of 6

months (or after the expiry of extended time limit); b) the Assessing Officer shall amend the order of assessment so as to

allow deduction under sections 10A, 10B and 10BA;

c) the order shall be amended within a period of 4 years from the end of the previous year in which he foreign exchange currency is

remitted.

The assessee should furnish audit report in Form No.56G along with the

return of income.

From the assessment year 2006-07, return of income should be submitted

on or before the due date of submission of return of income given by

section 139(1). If return is not submitted or return is submitted

belatedly, deduction under this section is not available.


If the aforesaid conditions are satisfied, the deduction under section 10 B may be

computed as under:


Export Turnover



For this purpose, export turnover means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into

India by the assessee in convertible foreign exchange within the prescribed period, 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;

(d) expenses, if any, incurred in foreign exchange in providing the technical services 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.

Interest received by an assessee on a deposit made for the purpose of getting a bank

guarantee in favour of the Government of India to import goods free of duty is not

eligible for deduction under section 10B.

Period of deduction:

If the aforesaid conditions are satisfied, the assessee can claim deduction under

section 10B, from his total income for a period of ten consecutive assessment years



software.

For the undertakings which have claimed exemption upto assessment year 2001-02

under the old section 10B, the deduction shall be available for the unexpired period of

10 consecutive assessment years under the new section 10B. Relevant assessment year means any assessment year falling within a period of ten consecutive assessment years referred to in section 10B.

No deduction under section 10B shall be allowed to any undertaking from the

assessment year 2010-11.

Consequences of amalgamation/demerger Where an undertaking of an Indian company is transferred to another company under

a scheme of amalgamation or demerger, the deduction under section 10A or 10B shall

be allowable in the hands of the amalgamated or the resulting company. However, no

deduction shall be admissible under these sections to the amalgamating company or

the demerged company for the previous year in which amalgamation or demerger

takes place.

Power of Assessing Officer to recompute profit:

The Assessing Officer has power to recompute profits in the following two situations




2) From the business which is eligible for deduction under section 10A/10B, some goods are transferred to any other business carried on by

the taxpayer which is not eligible for deduction under section 10A/10B,

or vice-versa.


transfer.







2) The business transaction is so arranged that the business transacted between them produces to the taxpayer more than the ordinary profits

that might be expected to arise in such eligible business.






Impact of availing deduction under section 10B In computing the total income of the assessee of the assessment year immediately

succeeding the deduction period the following points should be noted For the assessment year(s) succeeding the last assessment year for which the


expenditures under sections 35 and 36(1)(ix) (pertaining to the assessment year

2000-01 or earlier years) 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 2005-06 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) (pertaining to the assessment year 2005-06 or

earlier years) are not allowed to be carried forward in assessment years succeeding the

period of deduction. The deduction under section 80-IA or 80-IB shall not be

available to such undertakings after the expiry of tax holiday period. There is no bar

to adjust losses under sections 70 and 71.

In the assessment year following the period of deduction, the depreciation will be


been allowed in respect of each assessment year falling in the period of deduction.

Option available to new undertaking not to claim deduction under section 10B Section 10B will be applicable to all eligible undertakings unless the assessee opts out

of the scheme by making a declaration under sub-section (8). The declaration should

be submitted before the due date of furnishing return of income. If the assessee has

opted out of provisions of section 10B by filing declaration under section 10B(7)

during course of assessment proceedings of relevant assessment year, revenue cannot

thrust exemption provided under section 10B upon assessee.

Subsequent conversion into export-oriented undertaking Where there is an undertaking set up in Domestic Tariff Area (DTA), which derives

profit from export of articles or things or computer software manufactured or

produced by it, and is subsequently converted into an export-oriented undertaking

(EOU), it shall be eligible for deduction under section 10B, on getting approval as

hundred per cent export-oriented undertaking. In such a case, the deduction shall be

available only from the year in which it has got the approval as hundred per cent EOU

and shall be available for the remaining period of ten consecutive assessment years,


undertaking begins to manufacture or produce articles or things or computer software,

as a DTA unit. Further, in the year of approval, the deduction shall be restricted to the

profits derived from exports, from and after the date of approval of the DTA unit as

hundred per cent EOU. Moreover, the deduction on such units in any case will not be

available after the assessment year 2009-10.

Special provision in respect of export of certain artistic hand-made wooden

articles [Section 10BA]:

Subject to the provisions of this section, a deduction of such profits and gains as are

derived by an undertaking from the export out of India of eligible articles or things,

shall be allowed from the total income of the assessee.

However, where in computing the total income of the undertaking for any assessment

year, deduction under section 10A or section 10B has been claimed, the undertaking

shall not be entitled to the deduction under this section.

All assessees owning an undertaking which derives any profit and gains from the

export out of India of eligible articles or things.

The exemption shall apply to an undertaking which fulfils he following conditions:

(a) it manufactures or produces eligible articles or things without the use of imported raw materials;

(Eligible articles or things means all hand-made articles or things, which

are of artistic value and which requires the use of wood as the main raw

material)

(b) it is not formed by splitting up, or the reconstruction of a business already in existence.

However, this condition shall not apply in respect of any undertaking

which is formed as a result of the re-establishment, reconstruction or

revival by the assessee of the business of any such undertaking as is

referred to in section 33B, in the circumstances and within the period

specified in that section.

(c) it is not formed by a transfer to a new business of machinery and plant previously used for any purpose.

This rule, is however, not applicable in the following two cases:

(1) machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant

previously used for any purpose, if the following conditions are

fulfilled:

(a) The machinery or plant should not be previously used in India. (b) The machinery or plant should be imported into India from a

foreign country.

(c) No deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the

provisions of this Act to any person previously.

(2) exemption under section 10BA will, be available if the total value of the second hand machinery or plant transferred to the new

undertaking does not exceed 20 % of the total value of the machinery

or plant used in the industrial unit.

(a) 90 % or more of its sales during the previous year relevant to the assessment year are by way of exports of the eligible articles or

things;

(b) it employs 20 or more workers during the previous year in the process of manufacture or production;

(c) the sale proceeds of the eligible articles or things exported out of India are received in, or brought into, India by the assessee in

convertible foreign exchange, within a period of six months from

the end of the previous year or, within such further period as the

competent authority may allow in this behalf;

(d) the assessee should furnish in the prescribed form (Form No.56H), along with the return of income, the report of a

chartered accountant, certifying that the deduction has been

correctly claimed in accordance with the provisions of this

section;

(e) the provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking

referred to in this section as they apply for the purposes of the

undertaking referred to in section 80-IA.

No deduction under this section shall be allowed to an undertaking for the assessment

years 2010-11 and thereafter.


If the aforesaid conditions are satisfied then deduction is available on the basis of

amount computed as follows:


Export Turnover in respect of eligible

articles or things



1) Export turnover for the purpose means the consideration in respect of export by the undertaking of eligible artic

incomes exempt from tax

Documents

foreign government

government of india

foreign employees

foreign national employee

nonresident foreign

foreign allowance

foreign enterprise

c income