Section 10AA — Section 10AA — SEZ Units

STATUTORY ARCHITECTURE — 18-ROW MAP

Statutory text — Income-tax Act, 1961

10AA. (1) 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—

(i) hundred per cent of profits and gains derived from the export, of such articles or things or from

services for a period of five consecutive assessment years beginning with the assessment year

relevant to the previous year in which the Unit begins to manufacture or produce such articles or

things or provide services, as the case may be, and fifty per cent of such profits and gains for

further five assessment years and thereafter;

(ii) 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 in respect of which the

deduction is to be allowed and credited to a reserve account (to be called the "Special Economic

Zone Re-investment Reserve Account") to be created and utilized for the purposes of the business

of the assessee in the manner laid down in sub-section (2):

Provided that no such deduction shall be allowed to an assessee who does not furnish a return of income

on or before the due date specified under sub-section (1) of section 139.

Explanation.—For the removal of doubts, it is hereby declared that the amount of deduction under this

section shall be allowed from the total income of the assessee computed in accordance with the provisions of

this Act, before giving effect to the provisions of this section and the deduction under this section shall not

exceed such total income of the assessee.

Function in the statutory architecture

Section 10AA gives a deduction to an entrepreneur referred to in section 2(j) of the Special Economic Zones Act, 2005, from his Unit, which begins to manufacture or produce articles or things or provide services during the previous year relevant to an assessment year commencing on or after 1-4-2006 but before 1-4-2021. The deduction is one hundred per cent of the profits and gains derived from export for five consecutive assessment years and fifty per cent for the next five. For the following five years, up to fifty per cent of the profit may be deducted if it is debited to the profit and loss account and credited to a Special Economic Zone Re-investment Reserve Account.

The Unit must not be formed by splitting up or reconstructing an existing business, or by transferring used machinery or plant. Proceeds must be brought into India in convertible foreign exchange within six months from the end of the previous year, or a further allowed period. Export profits follow the ratio of export turnover to total turnover. The deduction cannot exceed the total income computed before giving effect to the section. A return must be filed by the due date under s. 139(1).

Operative consequences

Reserve money used other than for machinery or plant first put to use within three years, or meanwhile for the business, is deemed profit of the year of misuse; reserve not so used is deemed profit of the year after the three-year period (sub-section (3)).
Losses of the Unit may be carried forward or set off under ss. 72 and 74 (sub-section (6)).

Status

The section is operative for AY 2026-27 for Units that began operations within the window, and is time-limited to the fifteen “relevant assessment years”. The 1961 text records that the return proviso, sub-section (4A) and clauses (i) and (ia) of Explanation 1 were inserted or substituted by Act No. 8 of 2023, w.e.f. 1-4-2024. The Finance Act, 2026 does not amend this section.

The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject, the 2025 Act provision is s. 144.

Case law on Section 10AA

ITAT, High Court and Supreme Court judgments applying this section, on BharatTax.net, our income tax case law search.

Section 10AA case laws

← All sections (940)Act 1961 hub

Income-tax Act, 1961	Income-tax Act, 2025
s. 10AA(1)(i) — 100 per cent of export profits for five years, 50 per cent for the next five years	s. 144(i), (ii) — deduction computed as per s. 10AA of the 1961 Act, for the tax years it would have been allowed
s. 10AA(1)(ii), (2), (3) — 50 per cent deduction for a further five years on crediting the Special Economic Zone Re-investment Reserve Account; deemed profits on misuse	s. 144 (computation as per s. 10AA); later inclusions on breach: s. 536(2)(h)
s. 10AA(4), (4A) — eligibility conditions; realisation of proceeds in convertible foreign exchange within six months	s. 144(b) — assessee must be eligible under s. 10AA “if the said Act had not been repealed”