feasability of moving from stpi or indian company to sez

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Proposal:Moving from STPI to SEZ

Contents

• Moving to SEZ – Snapshot of SEZ Benefits• Evaluation• Comparison• Benefits• Obligations

• Exhibit 1• Cost


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SNAPSHOT OF SEZ BENEFITS - UNIT

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Approach SEZ developer

Obtaining the Willingness Letter from developer to allocate space

Furnishing the application form to allot Space in SEZ Unit

Discussion /Briefing sessionDetails of

the form to be

examined by the

developer

Procedures for Setting up a Unit in SEZ


Submission of Proposal* to the Development Commissioner with Five Copies of Form F along with required documents

Online registration with SEZ Development Commissioner

Development Commissioner to scrutinize the proposal and

call for a meeting

After obtaining willingness letter from SEZ developer/ Co- developer for allocating space

Time - Working days

7- 15 days based on availability of information

15 – 45 days of receiving proposal

Proposal Approved or rejected by Approval Committee


Letter of Approval (LOA) issued by Development Commissioner** in Form G

Lease Agreement between the developer & Entrepreneur (Form H) has to registered with sub registrar

Furnish copy of Registered Lease to the DC

If proposal Approved

15 days of meeting

7 days of obtaining LOA

Send acceptance letter along with Bond cum Legal Undertaking to development commissioner

6 months time allowed

Total ~ 60 days

** Development commissioner sits in Kochi


Evaluation

For shifting or opening a new unit in SEZ, things to be considered: The Company has to make a thorough analysis of cost involved in setting up of new

unit and forecasted revenues. If new unit setup involved procurement of Capital Goods in high number then SEZ

or STPI option is preferable since cost will be low as no duty payable thereon. If the intention is to save income tax on high margin contracts, the only option

preferred is SEZ. If the company intends to reduce statutory procedures, then a regular unit (Non-

SEZ/Non –STPI) is preferable however no tax concessions shall be available.


Capital gains tax incidence on disposal of STP unit

Slump Sale Normal Sale

In Case of transfer agreementWhole of unit is sold/ transferred. Individual value not known

In Case of transfer agreementIndividual value of assets to be considered

Valuation of Assets: In case of depreciable assets- WDV of the assets Others -book value of the assets

Valuation of Assets: Revalued amount of assets

No Indexation benefit will be available Indexation benefit will be available only on land

LTCG if unit was held for more than 36 months irrespective of individual assets

LTCG or STCG is computed for individual assets

Note :• For Sec 50 C computation is applicable to Land & Building • 54EC and 54F exemption is available on LTCG


Comparison between schemes: BenefitsBenefits Normal scheme STPI SEZ

Eligible entity Any Having export and local sales (allowed 50% of exports

Mainly into exports

Income Tax exemption

No No Yes (15 years tax holiday, But MAT @ 18.5% applicable

Service Tax input exemption

No. If export business then can obtain refund. But will take 3 years. So cash is stuck

Yes. However refund of tax will take 3 years, so cash is stuck

Exempted. So cash is freely available

Central sales tax exempted: inputs

No No, reimbursement available

Yes

Customs duty exempted: inputs

No Yes Yes


Comparison between schemes: Benefits

Benefits Normal scheme STPI SEZ

FDI investment Restriction applicable 100% FDI allowed 100% FDI allowed

Single window clearance from all govt departments

No Yes Yes

Free External commercial borrowings

No No Yes upto $500 mn


Comparison between schemes: ObligationsObligations Normal scheme STPI SEZ

Achieve positive Net Foreign exchange earning

Not applicable Yes Yes

Separate books of accounts to be maintained

Not required Yes Yes

Periodical reports submission Not required Yes. To STPI

Yes. To SEZ department

Execute bonds as guarantee against duty benefits

Not required Yes Yes


Major Indirect Benefits of Business Structuring for SEZ

External commercial borrowing to USD 500 million in a year without any maturity restriction through recognized banking channels

100% FDI/NRI investment allowed under automatic route

100% retention of export proceeds in Foreign Currency account


Exhibit 1: Particulars Normal

schemeUnder STPI

SchemeUnder SEZ

schemeSavings from SEZ vis-a-vis

normal scheme

Savings from SEZ vis-avis

STPI

a) Sales 100 Lakhs 100 Lakhs 100 Lakhs

b) Profit @ 20 % of sales 20 Lakhs 20 Lakhs 20 Lakhs

b) Income Tax rate 32.445% 32.445% 20%

c) Income Tax Payable 6.5 Lakhs 6.5 Lakhs 4 Lakhs 2.5 Lakhs 2.5 Lakhse) Input services (assuming 30% of sales)

30 Lakhs 30 Lakhs 30 Lakhs

f) Input Service Tax @ 12.36% of e

3. 71 Lakhs

3. 71 Lakhs NIL as Service Tax is exempt

3.71 Lakhs

g) Interest on delayed refund of ST @ 18% of as there is 3 years delay in obtaining refund

2.00 Lakhs NIL 2.00 Lakhs

Total savings per annum 6.21 Lakhs 4.50 Lakhs

Amount in INR


Exhibit 1: contd. Particulars 2013-14 2014-15 2015-16 2016-17 2017-18

a) Savings in Tax assuming 20% increase in sales every year

4.50 Lakhs 5.40 Lakhs 7.77 Lakhs 9.33 Lakhs 11.19 Lakhs

b) Fixed Asset investment 20 Lakhs

c) Shifting of old asset allowed upto 20%

4 Lakhs

d)Net Cash flow from operations (a-b+c)

(11.50 Lakhs)

5.40 Lakhs 7.77 Lakhs 9.33 Lakhs 11.19 Lakhs

e) Net cash flow at end of 5 years

28.68 lakhs

f) Difference in Rent from STPI to SEZ

Amount in INR


Cost We provide end to end compliance services for SEZ units. Cost of

SEZ registration is:Particulars Fees (In INR)SEZ Registration with Cochin SEZ and obtaining Letter of Approval

2,00,000

Terms & Conditions

•Unless a shorter period is established in the invoice, Client will promptly pay not later than 30 days from the relevant invoice date failing which interest will become due at a rate of 1.5% per month from the Due Date up to date payment is actually received.

•As fees quoted to the Client are based on the information provided by the Client and are applicable to the time of submitting the fee quotation, the Firm reserves the right to increase its charges if the Client’s instructions are found to be not in accordance with the initial details supplied or used for the purpose of obtaining a fee quotation. Clients will be notified of any increase in fees.

•Additional fees shall be charged for (i) operations that are not included in the Contract and / or (ii) rush orders, cancellation or rescheduling of services or any partial or full repeats which will be payable at the Firm’s prevailing charging rates.

•Unless otherwise stated all fees quoted are exclusive of travelling and subsistence costs (which will be charged to the Client at cost). All fees and additional charges are exclusive of any applicable Service Tax.


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