| Special
Economic Zones V/s Export Oriented Units-
A comparison of schemes for setting up a manufacturing-export
base in India |
 |
| A
foreign investor, intending to set up a manufacturing-export
base in India, may set up its unit under a Special
Economic Zones (SEZ) Scheme or under an Export Oriented
Unit (EOU) Scheme. SEZ / EOU Units are entitled
to certain tax and non-tax benefits in India1.
A brief overview and the salient features of both
these schemes are noted below |
|
Sr
No
|
SEZ
Scheme
|
EOU
Scheme
|
1.
|
No
minimum investment criteria
|
Minimum
investment of Rs. 10 million in building, plant
& machinery
|
2.
|
The
unit has to be located in a specifically delineated
duty free area
|
Unit
can be set up anywhere in India
|
3.
|
SEZ
unit does not require bonding their premises
as they are based in a especially delineated
area
|
EOU
unit requires bonding registration with customs
/ excise authorities
|
4.
|
Goods
& services entering SEZ from local units
(DTA units) outside SEZ are termed as deemed
exports for such local units
|
Goods
& services are not termed as exports when
supplied / provided to EOU units
|
5.
|
SEZ
units are exempted from excise duty and Central
Sales Tax when they procure goods from DTA units |
EOU
units are exempted from excise duty and are
refunded the Central Sales Tax charged on local
procurement
|
6.
|
SEZ
units are exempted from custom duty on all imports
effected by them which are used in specified
products
|
EOU
units are also exempted from customs duty on
all imports effected by them which are used
in production of specified products
|
7.
|
SEZ
units have to be a positive foreign exchange
earner
|
EOU
units also have to be a positive foreign exchange
earner
|
8.
|
SEZ
units are allowed to sell their full production
in DTA
|
EOU
units are not allowed to sell goods in excess
of 50% of FOB value of exports into DTA |
| 9. |
SEZ units are exempted from levy of service
tax when they consume services provided from
DTA |
EOU units do not have any such exemption |
|
| |
|
SEZ / EOU units are also entitled
to certain corporate tax exemption under the Indian
Income-tax Act, 1961. Following conditions need
to be satisfied to claim tax exemption:
The corporate tax exemption is
available to undertakings located in SEZ or to an
EOU unit deriving profits from the export of articles
or things or computer software2.
The unit should be engaged in manufacture or production
of articles or things or computer software.
The sale proceeds of articles or
things or computer software should be received in
India or brought into India in convertible foreign
exchange within a period of six months from the
end of the previous year or within such extended
period as the Indian regulatory authorities may
allow.
The said undertaking should not
be formed by splitting up, or the reconstruction,
of a business already in existence.
The said undertaking should not
be formed by transfer of plant or machinery previously
used for any purpose.
The taxpayer has to furnish along
with the Return of Income a Report of a CPA certifying
the deduction has been correctly claimed. If above
conditions are satisfied, a SEZ / EOU unit would
be entitled to tax exemption / deduction as under:
|
| |
Sr.
No
|
SEZ
Scheme
|
EOU
Scheme
|
| 5. |
100%
of profits3
and gains for period of five consecutive
financial years beginning with the financial
year relevant to year in which undertaking
begins to manufacture or produce.
50% of the profits for further two consecutive
years.
For further next three financial years,
the amount equal to amount credited to
special reserve account and utilized for
the purpose of business4,
subject to maximum of 50% of the profits.
|
100%
of profits and gains for period of ten
consecutive financial years beginning
with the financial year relevant to year
in which undertaking begins to manufacture
or produce.
No deduction shall be allowed to any undertaking
after 31-03-2009.
|
|
|
| |
1 - Besides EOU / SEZ Schemes,
there is a another scheme for software entities
called Software Technology Park of India (STPI)
Scheme, which is similar to the EOU / SEZ Schemes,
discussed here. |
| |
2 -
The profits and gains derived from on site development
of computer software outside India shall be deemed
to be profits from export of computer software. |
| |
3
- “Profits” derived from such
exports shall be the amount, which bears to the
business of undertaking, the same proportion as
the export turnover in respect of such articles,
things or software bears to the total turnover of
the business carried on by the undertaking. |
| |
4
- The amount credited to Special Investment
Zone Re-investment Account is to be utilized –
For the purposes of acquiring new machinery or plant
which is first put to use before expiry of three
years next following the previous year in which
the reserve was created.
Until the acquisition of new machinery or plant
as aforesaid, for the purpose of business of undertaking
other than distribution by way of dividends or profits
or for remittance outside India as profits or for
creation of any asset outside India. |
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