SEZ & Startups – Section 10AA Now Available Under the New Tax Regime
From FY 2026‑27, SEZ units can claim Section 10AA deduction even while opting for the new concessional tax regime, removing a major trade‑off between lower tax rates and export incentives. This is a significant opportunity for SEZ‑based IT/ITES, manufacturing and startup ecosystems in Delhi NCR.
Section 10AA – What It Offers Today
Section 10AA provides a phased tax holiday to eligible units operating in Special Economic Zones (SEZs). Broadly, the deduction is:
- 100% of export profits for the first 5 consecutive years
- 50% of export profits for the next 5 years
- Up to 50% of export profits for the subsequent 5 years, subject to reinvestment conditions
This deduction applies at the unit level and is restricted to profits derived from export of goods or services from the SEZ.
Old Position – Forced Choice Between Old Regime and 10AA
Until Finance Bill 2026:
- Taxpayers opting for the new tax regime were not permitted to claim Section 10AA.
- SEZ units had to choose between:
- Old regime with 10AA deduction, but higher headline tax rates, or
- New regime with lower tax rates, but without 10AA.
For many SEZ startups, especially those with fluctuating profits, this made long‑term tax planning difficult.
Budget 2026 – 10AA Meets New Tax Regime
Finance Bill 2026 removes this structural restriction.
Key Amendment
- Section 10AA is now allowed even if the taxpayer opts for the new concessional tax regime (under the new code framework).
- This change applies from FY 2026‑27 onwards.
In simple terms, an eligible SEZ unit in Noida, Greater Noida, Gurugram or elsewhere can now:
- Remain in the new tax regime, and
- Continue to claim export profit deduction under Section 10AA, subject to the usual conditions.
Snapshot – Old vs New Position
| Aspect | Earlier Position | From FY 2026‑27 Onwards |
|---|---|---|
| Section 10AA available under old regime | Yes | Yes |
| Section 10AA available under new regime | No | Yes |
| Need to choose between concessional rate and 10AA | Yes | No (can combine, subject to conditions) |
Why This Matters for SEZ Startups in Delhi NCR
1. Better Alignment of Cash Flows and Tax Outgo
Many SEZ units in NCR (IT, ITES, R&D, export‑oriented manufacturing) are capital‑intensive and investor‑funded. Earlier, giving up 10AA to shift to the new regime could mean higher effective tax during the tax holiday period.
Now:
- You can retain lower headline tax rates and enjoy 10AA relief.
- This smoothens effective tax incidence over the life cycle of the SEZ unit.
2. Stronger Business Case for SEZ Structures
Founders and investors often questioned whether an SEZ set‑up still made sense once the new regime was introduced. With 10AA now compatible with the new regime, the tax arbitrage from SEZs becomes more attractive again, especially for:
- IT/ITES hubs in Noida SEZ and Manesar/Gurugram
- Export‑driven product companies and R&D units
3. Improved Long‑Term Tax Planning
SEZ units typically have staggered profitability:
- Initial years: lower profits (or losses) due to set‑up costs
- Mid‑years: scale‑up and higher margins
- Later years: stabilisation
The ability to combine new‑regime rates with 10AA allows more nuanced planning of:
- Loss utilisation
- Interplay with MAT/MAT credit (where relevant)
- Group structuring and profit allocations
Illustrative Example – Noida SEZ IT Startup
Consider a Noida SEZ‑based SaaS startup:
- Eligible export profits: ₹8 crore in FY 2027‑28 (within first 5 years)
- Under Section 10AA: 100% of export profits eligible for deduction.
Earlier (assuming new regime rate, but no 10AA):
- New regime corporate tax (illustrative): say 22% on ₹8 crore
- Tax = ₹1.76 crore
Now (new regime + 10AA):
- 10AA deduction: 100% of ₹8 crore = ₹8 crore
- Taxable income (simplified, ignoring other adjustments): negligible
- Effective tax outgo significantly reduced during holiday period.
Exact numbers will depend on interactions with other income, expenses and tax code provisions, but the directional benefit is clear.
Compliance and Documentation – What SEZ Units Must Do
For SEZs and startups in Delhi NCR, the legal sign‑off is only the first step. Implementation requires discipline.
Key Action Points
- Eligibility review:
- Regime impact study:
- Run comparative tax computations for FY 2026‑27 and forward years – old regime vs new regime with 10AA.
- Unit‑level profitability analysis:
- Model 15‑year horizon of 10AA deductions against projected export profits to decide group‑level planning.
- Invest in documentation:
- Maintain robust documentation for export turnover, foreign exchange realisations, invoices, SOFTEX forms (where applicable), and SEZ approvals to withstand scrutiny during assessments.
FAQs – SEZ & Section 10AA under New Regime
1. Does every company with an SEZ unit automatically benefit?
Only eligible SEZ units that meet Section 10AA conditions can claim the deduction.
If conditions are not satisfied (e.g., delayed commencement beyond permitted timelines), the benefit may not be available.
2. Can we switch between old and new regimes frequently?
Regime‑switching is governed by specific rules and may be restricted or allowed only once in certain cases under the code framework. Each switch should be evaluated carefully considering MAT, brought‑forward losses and 10AA runway.
3. Will MAT still apply to SEZ units?
MAT rules have been restructured separately in the Finance Bill 2026, including treatment of MAT as final tax in some cases and restrictive credit utilisation. SEZ units should evaluate MAT impact separately along with 10AA and regime choice.
4. Does this change anything for non‑SEZ exporters?
No. Section 10AA is SEZ‑specific. Non‑SEZ exporters remain governed by the general provisions and any other applicable incentives.
Call‑to‑Action
If your company or startup operates from an SEZ in Noida, Greater Noida, Gurugram or the wider Delhi NCR region, Budget 2026 could significantly change your long‑term effective tax rate. The combination of 10AA and the new regime is too important to leave to rough estimates.
Our Chartered Accountant team can:
- Model 10–15 year tax projections under different regimes
- Evaluate MAT, group consolidation and promoter objectives
- Help you document and sustain 10AA claims during assessments
Connect with us for a structured SEZ and 10AA planning session tailored to your business.
Disclaimer
This blog is a general informational update based on the Finance Bill, 2026 and publicly available material and does not constitute professional advice. The actual tax position may change with subsequent amendments, rules, notifications or judicial precedents. Readers should seek specific advice from their Chartered Accountant or tax advisor before acting on any information contained herein
