Sub : Implications of Budget on EOUs & SEZ Units

The Union Budget 2005-06 has been announced by Hon’ble Finance Minister on 28-2-2005. Highlights of the Budget and complete Finance Bill is available on the website www.cbec.gov.in. In respect of the impact of the Budget on the EOUs and SEZ Units the following may please be seen:-

(1) EPCES had requested to Ministry of Commerce as well as Ministry of Finance that sunset clause under Section 10B of the Income Tax Act for the EOUs should be removed. EPCES had also made a detailed presentation before the Revenue Secretary on 6-1-2005 and discussed with Hon’ble Commerce & Industry Minister on 19-1-2005. Subsequently as desired by Hon’ble Commerce & Industry Minister a paper giving economic reasons for continuation of the Income Tax benefits to EOUs was also submitted. However in the Budget the sunset clause under Section 10B has not been removed. EPCES will take up this matter again.

(2) In respect of SEZs, Section 10A of the Income Tax Act has been amended. As per the proposed amendment in Section 10A of the Income Tax Act, in Sub-section (1A), after Clause (ii), the following provision shall be inserted w.e.f. 1-4-2006, viz:-

“Provided that no deduction under this Section shall be allowed to any undertaking, which begins to manufacture or produce articles or things or computer software after the 31st day of March, 2009, in any Special Economic Zone”.

This provision will adversely affect large multi-product SEZs. At present there was no sunset clause under Section 10A for SEZ Scheme and even in the draft SEZ Bill there was no provision. However, this proposed amendment brings the sunset clause under the SEZ Scheme and according to this amendment no deduction of the income tax will be allowed to any undertaking, which begins to manufacture or produce articles or things or computer software after the 31st day of March, 2009 in any SEZ. EPCES has already taken up this matter with the Ministry of Commerce & Industry.