A client wants to set up a new SEZ unit. Can it still claim s.10AA, and what exactly does an existing unit get in years eleven to fifteen?
No new unit can get into s.10AA. The section applies only where the Unit begins to manufacture or produce articles or things or provide services "during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, but before the first day of April, 2021", so the gate is shut on anyone commencing now. The last previous year in which a Unit could commence and qualify is FY 2019-20, that is, commencement by 31 March 2020. For a Unit that got in before the cut-off the deduction runs for fifteen assessment years: hundred per cent of the profits derived from export for the first five, fifty per cent for the next five, and for the last five so much of the profit, not exceeding fifty per cent, as is debited to the profit and loss account and credited to a Special Economic Zone Re-investment Reserve Account.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2017-04-01, reported as Section 10AA of the Income-tax Act, 1961, as amended up to 2026. It bears on section 10AA, section 10AA(1), section 10AA(2), section 10AA(3), section 10A(1B), section 139(1) of the Income Tax Act 1961, in Capital Gains Exemptions and Deductions & Disallowances matters.
Practitioners still receive s.10AA queries from promoters who have been told the SEZ scheme is open. It is not: the deduction is closed to new entrants and every remaining claim is a run-off claim on a unit that commenced years ago. The years eleven to fifteen are where the disputes now sit, because that tranche is not automatic — it is capped at the amount actually debited to the profit and loss account and credited to the reserve, the reserve must be spent on machinery or plant first put to use within three years of the year the reserve was created, and until it is spent it may be used only for the business of the undertaking and not for dividends, for remittance outside India as profits, or for creating any asset outside India. s.10AA(3) then claws the money back: an amount used for any other purpose is deemed to be profits of the year of misuse, and an amount left unspent is deemed to be profits of the year immediately following the three-year period. The eligibility conditions live in s.10AA(4) and the realisation condition in s.10AA(4A); those are separate entries.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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This is a statement of the statutory position, not a case. The text relied on is section 10AA as it currently stands. Sub-section (1) opens: "Subject to the provisions of this section, in computing the total income of an assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005), from his Unit, who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, but before the first day of April, 2021, the following deduction shall be allowed". Clause (i) gives hundred per cent of profits and gains derived from the export of such articles or things or from services for five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce or provide services, and fifty per cent of such profits and gains for a further five assessment years. Clause (ii) gives, for the next five consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year and credited to a reserve account to be called the "Special Economic Zone Re-investment Reserve Account", to be created and utilised for the purposes of the business of the assessee in the manner laid down in sub-section (2). Explanation 1 clause (iv) defines "relevant assessment year" as any assessment year falling within a period of fifteen consecutive assessment years referred to in the section.
Statutory position. The deduction is confined to a Unit that began to manufacture, produce or provide services in a previous year relevant to an assessment year commencing on or after 1 April 2006 and before 1 April 2021; it then runs for fifteen consecutive assessment years in the three tranches set out in s.10AA(1)(i) and (ii). The third tranche is conditional: s.10AA(2)(a) requires the amount credited to the Special Economic Zone Re-investment Reserve Account to be utilised for acquiring machinery or plant first put to use before the expiry of three years following the previous year in which the reserve was created, and until acquisition only for the purposes of the business of the undertaking, and not for distribution by way of dividends or profits, for remittance outside India as profits, or for the creation of any asset outside India; s.10AA(2)(b) requires the particulars specified by the Board under s.10A(1B)(b) to be furnished along with the return for the assessment year relevant to the previous year in which the plant or machinery was first put to use. s.10AA(3) deems an amount used for any other purpose to be the profits of the year in which it was so utilised, and an amount not utilised within the three-year period to be the profits of the year immediately following that period, in each case chargeable to tax.
Not a decided case. The structure of the section is that sub-section (1) fixes both the entry gate and the quantum, sub-section (2) makes the third tranche conditional on the creation and correct application of the reserve, and sub-section (3) supplies the charge that reverses the benefit where the conditions in sub-section (2) are broken. The entry gate and the fifteen-year period are separate ideas: the cut-off words in sub-section (1) govern only the year of commencement, while Explanation 1(iv) confirms that a Unit which has passed the gate has a fifteen-consecutive-assessment-year run.
who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, but before the first day of April, 2021, the following deduction shall be allowed
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Handle my notice → Ask a CA on WhatsAppNo new unit can get into s.10AA. The section applies only where the Unit begins to manufacture or produce articles or things or provide services "during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, but before the first day of April, 2021", so the gate is shut on anyone commencing now. The last previous year in which a Unit could commence and qualify is FY 2019-20, that is, commencement by 31 March 2020. For a Unit that got in before the cut-off the deduction runs for fifteen assessment years: hundred per cent of the profits derived from export for the first five, fifty per cent for the next five, and for the last five so much of the profit, not exceeding fifty per cent, as is debited to the profit and loss account and credited to a Special Economic Zone Re-investment Reserve Account. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 10AA, section 10AA(1), section 10AA(2), section 10AA(3), section 10A(1B), section 139(1) of the Income Tax Act 1961. It is reported as Section 10AA of the Income-tax Act, 1961, as amended up to 2026. Practitioners still receive s.10AA queries from promoters who have been told the SEZ scheme is open. It is not: the deduction is closed to new entrants and every remaining claim is a run-off claim on a unit that commenced years ago. The years eleven to fifteen are where the disputes now sit, because that tranche is not automatic — it is capped at the amount actually debited to the profit and loss account and credited to the reserve, the reserve must be spent on machinery or plant first put to use within three years of the year the reserve was created, and until it is spent it may be used only for the business of the undertaking and not for dividends, for remittance outside India as profits, or for creating any asset outside India. s.10AA(3) then claws the money back: an amount used for any other purpose is deemed to be profits of the year of misuse, and an amount left unspent is deemed to be profits of the year immediately following the three-year period. The eligibility conditions live in s.10AA(4) and the realisation condition in s.10AA(4A); those are separate entries. If it applies to you, the first step is this: Fix the previous year in which the Unit first began to manufacture, produce or provide services, from the Development Commissioner's records and the first year's return — that single date decides whether the section applies at all and starts the fifteen-year clock. The Unit must have begun by 31 March 2020.
This is a statement of the statutory position, not a case. The text relied on is section 10AA as it currently stands. Sub-section (1) opens: "Subject to the provisions of this section, in computing the total income of an assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005), from his Unit, who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, but before the first day of April, 2021, the following deduction shall be allowed". Clause (i) gives hundred per cent of profits and gains derived from the export of such articles or things or from services for five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce or provide services, and fifty per cent of such profits and gains for a further five assessment years. Clause (ii) gives, for the next five consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year and credited to a reserve account to be called the "Special Economic Zone Re-investment Reserve Account", to be created and utilised for the purposes of the business of the assessee in the manner laid down in sub-section (2). Explanation 1 clause (iv) defines "relevant assessment year" as any assessment year falling within a period of fifteen consecutive assessment years referred to in the section. The matter was decided on 2017-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position. The deduction is confined to a Unit that began to manufacture, produce or provide services in a previous year relevant to an assessment year commencing on or after 1 April 2006 and before 1 April 2021; it then runs for fifteen consecutive assessment years in the three tranches set out in s.10AA(1)(i) and (ii). The third tranche is conditional: s.10AA(2)(a) requires the amount credited to the Special Economic Zone Re-investment Reserve Account to be utilised for acquiring machinery or plant first put to use before the expiry of three years following the previous year in which the reserve was created, and until acquisition only for the purposes of the business of the undertaking, and not for distribution by way of dividends or profits, for remittance outside India as profits, or for the creation of any asset outside India; s.10AA(2)(b) requires the particulars specified by the Board under s.10A(1B)(b) to be furnished along with the return for the assessment year relevant to the previous year in which the plant or machinery was first put to use. s.10AA(3) deems an amount used for any other purpose to be the profits of the year in which it was so utilised, and an amount not utilised within the three-year period to be the profits of the year immediately following that period, in each case chargeable to tax.
Not a decided case. The structure of the section is that sub-section (1) fixes both the entry gate and the quantum, sub-section (2) makes the third tranche conditional on the creation and correct application of the reserve, and sub-section (3) supplies the charge that reverses the benefit where the conditions in sub-section (2) are broken. The entry gate and the fifteen-year period are separate ideas: the cut-off words in sub-section (1) govern only the year of commencement, while Explanation 1(iv) confirms that a Unit which has passed the gate has a fifteen-consecutive-assessment-year run. In the words reproduced by the source cited on this page: "who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, but before the first day of April, 2021, the following deduction shall be allowed"
It was decided by the CBDT Circulars & Instructions on 2017-04-01 and is reported as Section 10AA of the Income-tax Act, 1961, as amended up to 2026. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 10AA, section 10AA(1), section 10AA(2), section 10AA(3), section 10A(1B), section 139(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position. The deduction is confined to a Unit that began to manufacture, produce or provide services in a previous year relevant to an assessment year commencing on or after 1 April 2006 and before 1 April 2021; it then runs for fifteen consecutive assessment years in the three tranches set out in s.10AA(1)(i) and (ii). The third tranche is conditional: s.10AA(2)(a) requires the amount credited to the Special Economic Zone Re-investment Reserve Account to be utilised for acquiring machinery or plant first put to use before the expiry of three years following the previous year in which the reserve was created, and until acquisition only for the purposes of the business of the undertaking, and not for distribution by way of dividends or profits, for remittance outside India as profits, or for the creation of any asset outside India; s.10AA(2)(b) requires the particulars specified by the Board under s.10A(1B)(b) to be furnished along with the return for the assessment year relevant to the previous year in which the plant or machinery was first put to use. s.10AA(3) deems an amount used for any other purpose to be the profits of the year in which it was so utilised, and an amount not utilised within the three-year period to be the profits of the year immediately following that period, in each case chargeable to tax. It arises in Capital Gains Exemptions and Deductions & Disallowances matters, on section 10AA, section 10AA(1), section 10AA(2), section 10AA(3), section 10A(1B), section 139(1) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For a unit now in years eleven to fifteen, check that the amount claimed is actually debited to the profit and loss account and credited to a reserve account named as the "Special Economic Zone Re-investment Reserve Account"; a claim computed on paper without the debit and the credit fails clause (ii) of s.10AA(1). Diarise the three-year deadline for putting the machinery or plant to use, and keep the purchase and put-to-use evidence with the reserve account, because s.10AA(3)(b) deems the unutilised amount to be profits of the year following that period. Confirm the particulars required by clause (b) of s.10AA(2) — those specified by the Board under s.10A(1B)(b) — were furnished along with the return for the year in which the plant or machinery was first put to use. Do not advise a promoter that a unit commencing operations now can claim s.10AA; consider instead whether s.80-IAC or s.115BAB (both already covered in the library) fit the facts. Read this entry with the separate entries on the s.10AA(1) proviso and Explanation, on s.10AA(4)/(4A), and on the s.10AA(4) conditions in Macquarie Global Services.
Still good law. This states section 10AA as it currently stands, and the sunset in sub- section (1) is settled. The current text carries no amendment footnote list, but the commencement of the cut-off words is established from the footnotes on the archived printings for 2016 and 2017, which attribute them to Act No. 28 of 2016 with effect from 1 April 2017. No amendment later than the Finance Act 2023 has been checked for and none is asserted, so the section should be read for the year in hand before a computation is made. The 1961 Act continues to govern every assessment year up to and including AY 2026-27 by virtue of s.536 of the Income-tax Act, 2025; no position under the 2025 Act is stated in this entry and the corresponding provision there has not been examined. No judicial decision on the sunset itself has been found, which is unsurprising: the words are unambiguous and the cohort they exclude has no claim to litigate. Where the litigation now is, and where this entry cannot help, is on three other questions. Whether a Unit that commenced before 31 March 2020 but was reconstituted, transferred or amalgamated afterwards keeps the remainder of its fifteen-year run is not addressed by sub-section (1) and is not dealt with here. What counts as profits 'derived from' the export of articles or things, as against profits merely attributable to the business, is the oldest dispute under the section's predecessors and is not touched. And the consequences of a defective reserve under sub-section (2) — in particular whether a reserve credited but applied to plant first put to use just outside the three years is wholly lost or only pro tanto — turn on sub-section (3) and have not been tested in anything recorded here. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
THE SUNSET IS SETTLED AND THIS ENTRY STATES IT AS SETTLED. The cut-off words were inserted by the Finance Act 2016 (Act No. 28 of 2016) with effect from 1 April 2017. The printing as amended up to 2016 carries footnote [93]: "Words 'April, 2006, but before the first day of April, 2021, the following deduction shall be allowed' shall be sub. for 'April, 2006, a deduction of' by Act No. 28 of 2016 (w.e.f. 1-4-2017)", and the printing as amended up to 2017 carries the same footnote as [34]; the printing as amended up to 2015 prints the pre-amendment words without any cut-off. The words "but before the first day of April, 2021" qualify "any assessment year commencing", in parallel with "on or after the 1st day of April, 2006" in the same phrase — a construction confirmed by the first limb, since an assessment year commencing on 1 April 2006 has FY 2005-06 as its previous year, which is the cohort s.10AA was enacted for. THE LAST QUALIFYING ASSESSMENT YEAR OF COMMENCEMENT IS THEREFORE AY 2020-21 AND THE LAST QUALIFYING PREVIOUS YEAR IS FY 2019-20: the Unit must have begun to manufacture, produce or provide services by 31 March 2020. That is also how the amendment was presented to Parliament. The Budget Speech 2016-17 of 29 February 2016 states, "The benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31.3.2020", and that sentence has been confirmed verbatim from two independent sources. 'decided_on' is the commencement date of the amendment that inserted the cut-off, 1 April 2017, and not a decision date. TWO POINTS ON THE SECTION'S OWN STRUCTURE. On the current text the definition of "export turnover" sits at Explanation 1 clause (ia) and not clause (i), but only from assessment year 2024-25; a computation that quotes clause (i) for a later year is quoting the wrong clause, and there is a separate entry on that definition. And the eligibility conditions live in s.10AA(4) and the realisation condition in s.10AA(4A), neither of which is set out here. LEGISLATIVE HISTORY: the printings as amended up to 2012 and up to 2008 carry neither the cut-off nor the proviso to sub-section (1), which is why either of them, if picked up for a current year, will produce advice that the scheme is still open. The current printing carries no amendment footnote list at all, which is why the dating above is taken from the archived printings that do. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position. The deduction is confined to a Unit that began to manufacture, produce or provide services in a previous year relevant to an assessment year commencing on or after 1 April 2006 and before 1 April 2021; it then runs for fifteen consecutive assessment years in the three tranches set out in s.10AA(1)(i) and (ii). The third tranche is conditional: s.10AA(2)(a) requires the amount credited to the Special Economic Zone Re-investment Reserve Account to be utilised for acquiring machinery or plant first put to use before the expiry of three years following the previous year in which the reserve was created, and until acquisition only for the purposes of the business of the undertaking, and not for distribution by way of dividends or profits, for remittance outside India as profits, or for the creation of any asset outside India; s.10AA(2)(b) requires the particulars specified by the Board under s.10A(1B)(b) to be furnished along with the return for the assessment year relevant to the previous year in which the plant or machinery was first put to use. s.10AA(3) deems an amount used for any other purpose to be the profits of the year in which it was so utilised, and an amount not utilised within the three-year period to be the profits of the year immediately following that period, in each case chargeable to tax.
TaxSphere, “Statutory position — s.10AA: the SEZ deduction, its fifteen-year run, and the commencement sunset”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-10aa-quantum-sunset-and-reinvestment-reserve/ (validity last checked 2026-09-08)
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My client has an SEZ unit in profit and other units in loss. Does the s.10AA deduction come off the unit's own profit before the other units' losses, or only after? And does a late return matter?
We filed the original return under MAT claiming MAT credit, then filed a revised return within the due date opting for s.115BAA. The Assessing Officer says that is a prohibited withdrawal of the option. Is it, and what happens to the MAT credit and our brought-forward losses?
We missed the section 139(1) due date by a week and the IFSC unit's whole income is covered by section 80LA. Is the deduction still available, and does alternate minimum tax apply on top?
We claimed s.10AA on our SEZ unit without first setting off the losses of our other units, and the officer now wants to reopen the assessment to undo it. Is that a good reason to reopen?
