Income Tax 2025

Appearance

Special provisions in respect of newly established Unitsin Special Economic Zones. ​

144 ​

In respect of any tax year , where––

  • (a) in computing the total income of an assessee, being an entrepreneur as referred to in section 2(j) of the Special Economic Zones Act, 2005, who begins to manufacture or produce articles or things or provide any services referred to in section 10AA of the Income-tax Act, 1961; and

  • (b) such assessee is eligible to claim a deduction from the profits and gains derived from the export, of such articles or things or from services for such tax year under the provisions of the said section, if the said Act had not been repealed,

    there shall be allowed, in computing the total income of the assessee, a deduction from the profits and gains derived from such business, subject to the conditions that—

    • (i) the amount of deduction is calculated as per the provisions of section 10AA of the Income-tax Act, 1961; and
    • (ii) the deduction under this Act shall be allowed only for such tax years, as would have been allowed under section 10AA of the Income-tax Act, 1961, if the said Act had not been repealed.
Explanation

Section Summary: ​

Section 144 of the new income tax law provides special provisions for entrepreneurs operating in Special Economic Zones (SEZs). It allows them to claim deductions on profits and gains derived from the export of goods or services, similar to the benefits previously available under Section 10AA of the Income-tax Act, 1961. This section ensures continuity of tax benefits for SEZ units, even after the repeal of the earlier law.

Key Changes: ​

  1. Continuity of Deductions: The section ensures that SEZ units can continue to claim deductions under the new law, as they would have under Section 10AA of the Income-tax Act, 1961, even though the latter has been repealed.
  2. Eligibility Criteria: The deduction is available only if the entrepreneur meets the conditions specified in Section 10AA of the Income-tax Act, 1961.

Practical Implications: ​

  1. For SEZ Entrepreneurs: Entrepreneurs operating in SEZs can continue to enjoy tax deductions on export profits, provided they meet the eligibility criteria. This ensures stability and predictability in tax planning for businesses in SEZs.
  2. Tax Compliance: Businesses must ensure they comply with the conditions of Section 10AA of the Income-tax Act, 1961, to claim deductions under this section.
  3. Impact on Revenue: The government continues to incentivize SEZ units, promoting exports and economic growth.

Critical Concepts: ​

  1. Special Economic Zones (SEZs): Designated areas where businesses enjoy tax and regulatory benefits to promote exports and investments.
  2. Section 10AA of the Income-tax Act, 1961: Provided tax deductions to SEZ units on profits derived from exports. This section is now replicated in the new law under Section 144.
  3. Deduction Calculation: The deduction is calculated based on the provisions of Section 10AA, which typically allows a phased deduction over a specified period (e.g., 100% of profits for the first 5 years, 50% for the next 5 years, etc.).

Compliance Steps: ​

  1. Eligibility Verification: Ensure the business qualifies as an SEZ unit under the Special Economic Zones Act, 2005.
  2. Profit Calculation: Calculate profits and gains derived from the export of goods or services.
  3. Deduction Claim: Apply the deduction as per the phased structure outlined in Section 10AA of the Income-tax Act, 1961.
  4. Documentation: Maintain records of export transactions, profits, and compliance with SEZ regulations to substantiate the deduction claim.

Examples: ​

Scenario 1: A software company in an SEZ exports IT services and earns ₹10 crore in profits in the first year of operation. Under Section 144, the company can claim a 100% deduction on the ₹10 crore, reducing its taxable income to zero for that year.

Scenario 2: A manufacturing unit in an SEZ exports goods and earns ₹20 crore in profits in the 6th year of operation. Under Section 144, the company can claim a 50% deduction on the ₹20 crore, reducing its taxable income to ₹10 crore for that year.

This section ensures that SEZ units continue to benefit from tax incentives, encouraging investment and export-oriented growth.