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Guide · Salary & Deductions

Section 10AA — SEZ Export-Profit Deduction

The profit-linked deduction for Special Economic Zone units: the 15-year 100%/50%/50% structure, the export-profit formula, the 31 March 2020 sunset and why MAT still applies at 15%.

Written by
TaxClue Editorial Desk
Updated
18 August 2026
Reading time
4 min
Questions
15 answered
  • Updated for AY 2026-27
  • CA Reviewed
  • SEZ Manufacturing & Services
Quick Answer

Section 10AA gives units in a Special Economic Zone (SEZ) a profit-linked deduction on export profits: 100% for the first 5 years, 50% for years 6-10, and 50% for years 11-15 (subject to transferring that amount to the SEZ Re-investment Reserve, SEZRR). Only units that began operations on or before 31 March 2020 qualify (sunset). The deduction does not reduce book profit, so MAT at 15% still applies under Section 115JB.

Year-wise structure

Section 10AA Deduction — 15-Year Blocks

The benefit runs as a 5 + 5 + 5 block from the first year the unit begins manufacture or provides services from the SEZ. It is available to both manufacturing and service units.

BlockYearsDeductionKey condition
Block 1Years 1-5100% of export profitSeparate books; export proceeds in convertible forex
Block 2Years 6-1050% of export profitSame conditions as Block 1
Block 3Years 11-1550% via SEZRRAmount credited to SEZRR & used within 3 years
New unitsStarted after 31 Mar 2020NilSunset — not eligible

From AY 2026-27 the same deduction continues under Section 144 of the Income-tax Act, 2025 — the balance eligible period and amount are still fixed by the old s.10AA; no fresh cycle restarts.

Sunset clause — no new units qualify

Introduced by the Finance Act 2016, the 10AA sunset means only SEZ units that commenced operations on or before 31 March 2020 can claim it. Units that began on or after 1 April 2020 get no 10AA deduction, though other non-tax SEZ Act benefits may still apply. Existing units keep claiming for the balance of their 15-year window.

How it is computed

Section 10AA Deduction Formula

The deduction is proportionate to the SEZ unit's export contribution — it is not a deduction of the whole company's profit.

Formula

Export turnover of unit₹80,00,000
÷ Total turnover of unit₹1,00,00,000
× Profit of the SEZ unit₹20,00,000
Deduction (Year 1, 100%)₹16,00,000

What counts

Export turnoverForex proceeds received/receivable
LessFreight, insurance, telecom in forex
ProfitNet profit from separate SEZ books
Deduction %100% (Block 1)

Deduction = (Export Turnover of Unit ÷ Total Turnover of Unit) × Profit of the SEZ Business. Export turnover excludes freight, insurance and telecom charges paid in convertible foreign exchange. Separate books must be kept for each SEZ unit.

Running a SEZ unit? Get your 10AA computation, SEZRR and Form 10CCB handled by a CA.

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Who can claim

Section 10AA Eligibility Conditions

  • Unit set up in a notified SEZ under the SEZ Act, 2005
  • Commenced operations on or after 1 Apr 2005 and on or before 31 Mar 2020
  • Not formed by splitting up or reconstruction of an existing business
  • Used plant & machinery transferred to the unit does not exceed 20% of total P&M
  • Separate books of accounts maintained for the SEZ unit
  • Return of income filed within the due date under Section 139(1)
  • CA report in Form 10CCB filed along with the return
SEZRR — the years 11-15 reserve

For years 11-15 the 50% deduction is allowed only to the extent profits are credited to the Special Economic Zone Re-investment Reserve (SEZRR). The reserve must be used within 3 years to buy new plant & machinery for the SEZ unit (or other prescribed purposes). If it is not used correctly, the earlier deduction is reversed and taxed in the year of misuse.

Critical planning point

MAT Applies — Effective Tax is Not Zero

Section 10AA does not reduce book profit for Minimum Alternate Tax. Even with a 100% regular-tax deduction, a company pays MAT at 15% of book profit (plus surcharge and cess) under Section 115JB — so the effective floor is roughly 15-16%.

Tax type10AA impactEffective rate
Regular income taxExport profit fully sheltered0% on eligible profit
MAT (Section 115JB)10AA not deducted from book profit15% + surcharge + 4% cess
MAT creditCarried forward up to 15 yearsSet off against regular tax later

IFSC / GIFT City units are governed by separate exemptions (s.10(4D)/(4E)/(4F)/(4G)) — 10AA does not apply to them.

Sources
  1. Act & provisions: incometax.gov.in
  2. Section 10AA, Income-tax Act 1961 (sunset via Finance Act 2016)
  3. MAT: Section 115JB, Income-tax Act 1961
  4. Continuation from AY 2026-27: Section 144, Income-tax Act 2025

Disclaimer: This guide is general information based on the law and notifications in force when it was last updated. It is not professional advice for your case — rates, thresholds and due dates change, so check the current position or speak to our CA team before you act on it.

People also ask

Section 10AA — Frequently Asked Questions

Short, direct answers to the 15 questions readers ask most on this topic.

A unit qualifies if it (1) is set up in a Special Economic Zone notified under the SEZ Act, 2005; (2) began manufacturing goods or providing services on or after 1 April 2005 and on or before 31 March 2020; (3) was not formed by splitting up or reconstruction of an existing business; (4) did not use transferred plant and machinery exceeding 20% of total P&M value; and (5) files its return within the due date and files Form 10CCB. Both manufacturing and service units in a SEZ can claim it.

Yes. Only units that commenced operations on or before 31 March 2020 are eligible. This sunset was set by the Finance Act 2016. Units that started on or after 1 April 2020 cannot claim the 10AA deduction, though other benefits under the SEZ Act itself may still apply. Existing units keep claiming for the remaining years of their 15-year window.

It applies to both. A SEZ unit that provides services (for example IT/ITeS, engineering or consultancy exports) qualifies just like a manufacturing unit, provided it meets the other conditions and export proceeds are received in convertible foreign exchange.

Form 10CCB is the report of a Chartered Accountant certifying the deduction. It must be filed along with the return of income to claim Section 10AA. Without a timely Form 10CCB and a return filed by the due date under Section 139(1), the deduction can be denied.

It follows a 15-year taper from the first year of export: 100% of export profit for years 1-5, 50% for years 6-10, and 50% for years 11-15 provided the amount is transferred to the SEZ Re-investment Reserve (SEZRR). It is not a flat 100% for the entire period.

Deduction = (Export Turnover of the Unit ÷ Total Turnover of the Unit) × Profit of the SEZ Business, multiplied by the applicable percentage (100% or 50%). Export turnover is the consideration received or receivable in convertible foreign exchange for exports from the SEZ unit, excluding freight, insurance and telecom charges paid in foreign exchange.

Suppose a SEZ unit in year 1 has export turnover of ₹80 lakh, total turnover of ₹1 crore and unit profit of ₹20 lakh. Deduction = (80 ÷ 100) × ₹20 lakh × 100% = ₹16 lakh excluded from taxable income. In years 6-10 the same working would give 50%, i.e. ₹8 lakh.

The profit of the eligible SEZ unit, not the total profit of the company. This is why separate books of accounts must be maintained for each SEZ unit; the deduction is computed on that unit's profit and its own export/total turnover ratio.

SEZRR is the reserve required to claim the 50% deduction in years 11-15. In those years the deduction equals the profit credited to the SEZRR account. The amount must be used within 3 years to acquire new plant and machinery for the SEZ unit (or other prescribed purposes). If it is not used properly, the deduction is reversed and taxed in the year of misuse.

If the amount credited to SEZRR is not used within the prescribed 3 years for the specified purposes, the deduction earlier allowed on that amount is withdrawn and becomes taxable in the year in which the misuse or non-utilisation occurs.

Yes. Section 10AA does not reduce book profit for MAT under Section 115JB. Even if a unit pays zero regular income tax on its export profit, it still pays MAT at 15% of book profit plus surcharge and cess. So the effective floor tax rate is roughly 15-16%, not zero.

Yes, through MAT credit. The MAT paid over and above regular tax can be carried forward (up to 15 years) and set off in later years when the unit's regular tax liability exceeds its MAT — for example after the deduction period tapers or ends.

No. Sections 10A and 10B (for STP/EOU units) were older export-oriented exemptions that have themselves sunset. Section 10AA is the current SEZ-specific deduction under the SEZ Act, 2005 regime, with its own 100%/50%/50% structure and the 31 March 2020 sunset.

No. Units in an International Financial Services Centre such as GIFT City are covered by separate exemptions — Sections 10(4D), 10(4E), 10(4F) and 10(4G) — which target financial-services income, capital gains on securities and fund management. Section 10AA does not apply to IFSC units.

Yes. From AY 2026-27 the SEZ deduction is contained in Section 144 of the Income-tax Act, 2025. It is a continuation provision — the eligible amount and the balance of the deduction period are still determined by the old Section 10AA, and no fresh 15-year cycle restarts. The familiar "Section 10AA" reference still describes the same benefit.