Updated: 27 September 2026

Section 10B of Income Tax Act 1961: Special Provisions for 100% Export Oriented Undertakings

Section 10B provided a profit-linked deduction to qualifying hundred per cent export-oriented undertakings for export of articles, things or computer software. For present-day readers, the most important point is that the provision contains its own sunset: no deduction is allowable under Section 10B for the assessment year beginning on 1 April 2012 or any later assessment year.

Current legal position. Section 10B remains relevant for older assessment years, pending assessments, appeals, rectification issues and historical tax disputes. From 1 April 2026, the Income-tax Act, 2025 applies to new tax years, while matters relating to periods governed by the Income-tax Act, 1961 continue under the earlier law.

Meaning and scope of Section 10B

Section 10B was a special deduction provision for a qualifying hundred per cent export-oriented undertaking. Subject to the section, profits and gains derived from export of articles, things or computer software could be deducted for ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking began manufacture or production.

The old page reproduced the statutory rule that the deduction was linked to export profits and a ten-year period, together with the later statutory restriction ending the deduction from assessment year 2012-13 onward.

Main conditions for an undertaking

Section 10B(2) required the undertaking to satisfy the prescribed conditions. In substance:

it manufactured or produced articles, things or computer software;
it was not formed by splitting up or reconstruction of a business already in existence, subject to the statutory exception connected with Section 33B; and
it was not formed by transfer to a new business of machinery or plant previously used for any purpose, subject to the statutory rules governing used machinery.

Section 33B reference. The reconstruction restriction did not apply in the circumstances specified for re-establishment, reconstruction or revival of an undertaking covered by Section 33B.

Export proceeds and convertible foreign exchange

Under Section 10B(3), export sale proceeds had to be received in, or brought into, India in convertible foreign exchange within six months from the end of the previous year, or within a further period allowed by the competent authority. The section treated the Reserve Bank of India, or another legally authorised authority regulating foreign-exchange payments and dealings, as the competent authority.

The section also contained a deeming rule for sale proceeds credited to a separate overseas bank account maintained for the purpose with Reserve Bank of India approval.

Computation of export profits under Section 10B(4)

Section 10B used a proportionate formula linking the profits of the undertaking to its export turnover and total turnover:

Eligible export profits = Profits of the business of the undertaking x Export turnover / Total turnover of the business carried on by the undertaking

For this purpose, the statutory definition of export turnover excluded specified freight, telecommunication and insurance amounts attributable to delivery outside India, and specified foreign-exchange expenditure for technical services outside India.

Accountant report, return and option not to claim

Section 10B(5) required an accountant's report in the prescribed form certifying that the deduction had been correctly claimed. The section also contained a return-filing condition tied to the due date under Section 139(1). Under Section 10B(8), an assessee could furnish a written declaration by the due date under Section 139(1) so that Section 10B would not apply for the relevant assessment year.

Consequences for losses, depreciation and other deductions

Section 10B(6) contained special rules affecting allowances, losses, depreciation and overlapping deductions. Among other things, it restricted specified carry-forward or set-off connected with older relevant assessment years, prevented duplication of deductions under specified incentive provisions, and prescribed treatment of written down value. Section 10B(7) applied specified provisions of Section 80-IA to the undertaking, so far as applicable.

Amalgamation or demerger

Section 10B(7A) dealt with transfer of an eligible undertaking of an Indian company to another Indian company under a scheme of amalgamation or demerger. Broadly, the transferor could not claim the deduction for the previous year in which the restructuring occurred, while the provision could continue to apply to the amalgamated or resulting company as prescribed.

Important definitions in Section 10B

Computer software

The definition covered a computer programme recorded on a disc, tape, perforated media or other information-storage device and also covered customised electronic data or a notified product or service of a similar nature, when transmitted or exported from India.

Convertible foreign exchange

This meant foreign exchange treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 and the applicable rules or corresponding law.

Export turnover

Export turnover broadly meant qualifying consideration for export by the undertaking, received in or brought into India in convertible foreign exchange in accordance with Section 10B(3), after the exclusions specified in the definition.

Hundred per cent export-oriented undertaking

For Section 10B, this meant an undertaking approved as a hundred per cent export-oriented undertaking by the Board appointed by the Central Government under Section 14 of the Industries (Development and Regulation) Act, 1951 and the rules made under that Act.

On-site development and manufacture

Explanation 3 treated profits from on-site development of computer software, including software-development services outside India, as profits derived from export of computer software. Explanation 4 stated that manufacture or production included cutting and polishing precious and semi-precious stones.

Sunset of Section 10B deduction

The decisive proviso to Section 10B(1) states that no deduction under the section is allowed to any undertaking for the assessment year beginning on 1 April 2012 and subsequent years. Therefore, Section 10B should not be presented as a currently available tax holiday for a new export-oriented undertaking.

Its continuing practical relevance is mainly historical: older assessment years, pending litigation, reopening or rectification questions, and interpretation of claims made when the deduction was available. Section 155(11A) of the 1961 Act also contains a rectification mechanism for specified cases where deductions including Section 10B were earlier denied because qualifying foreign-exchange income had not yet been received or brought into India and was subsequently received or brought in as prescribed.

Official legal resources

For authoritative text and current compliance information, refer to the Income-tax Act, 1961 as amended and the Income Tax Department e-Filing portal. For tax years beginning on or after 1 April 2026, consult the Income-tax Act, 2025 and current rules, forms and official guidance.

This article is an explanatory guide. For an older assessment year, read the version of the statute applicable to that year together with relevant amendments, rules, notifications and judicial decisions.