The Central Board of Direct Taxes (CBDT) has instructed income-tax officials to allow export-oriented units (EOUs) approved by development commissioners to claim tax exemption, ending the uncertainty over tax benefits to EOUs.

It has been decided that an approval granted by the development commissioner in the case of an export-oriented unit set up in an export processing zone will be considered valid, once such an approval is ratified by the board of approvals (BoA) for EOU scheme, said a CBDT communiqu send to income-tax officials.

The BoA has representatives from various ministries including commerce, revenue and home, among others.
Earlier, income-tax authorities had denied tax benefits to entities approved by development commissioners. Following this, the ministry of commerce and industry took up the issue with the revenue department. Industry organisations including the Export Promotion Council for EOUs and SEZs had also made representations to the revenue officials.

EOU is defined as hundred percent export-oriented undertaking approved by the board appointed by the central government under the Industries Development and Regulation Act, 1951.

EOUs are eligible for tax exemption under Section 10B of the Income-Tax Act. The exemption was first introduced in the Finance Act, 1981, and substituted by the Finance Act, 2000.

Subsequently, the power to approve EOUs was delegated to development commissioners who are administrative heads of export processing zones. The BoA could later ratify the EOUs approved by commissioners. However, tax authorities in same cases did not recognise the approval given by development commissioner and began denying tax benefits on this ground.

In some instances, tax authorities had not just demanded tax due but also imposed penalty on them. Exports from EOUs stood at Rs 1,42,211 crore, or 23% of the countrys total exports, in 2007-08. There are about 2,500 EOUs in the country.