Certain industrial companies engaged in infrastructure development are eligible for tax deductions under the Income Tax Act's Section 80 IA deduction. Businesses engaged in the development, operation, or maintenance of the following is eligible for income deductions under Section 80IA:

  • Infrastructure Facilities
  • SEZ
  • Generation, Transmission and distribution of power
  • Eligible start up.

Infrastructure Facilities

Toll roads, bridges, rail systems, housing, and other operations associated with highway construction are included in the infrastructural facilities. This deduction is also available for water projects like water treatment systems, irrigation projects, sanitation and sewage systems, or solid waste management systems, as well as travel facilities like ports, airports, inland waterways, inland ports, and navigational channel in the sea.

Essential condition for enterprises carrying on the business of infrastructure facility [section 80-IA(4)(i)]

  1. The enterprise should carry on the business of-
    1. Developing,
    2. Operating and maintaining, or
    3. Developing, operating and maintaining, any infrastructure facility.
  2. The enterprise is owned by an Indian company or a consortium of such companies or by an authority or a Board or a Corporation or any other body established or constituted under any Central or State Act.
  3. The enterprise has entered into an agreement with Central/State Government or a local authority or any other statutory body for (a) developing, (b) operating and maintaining or (c) developing, operating and maintaining, a new infrastructural facility.
  4. The enterprise has started or starts operating and maintaining the infrastructural facilities on or after 1.4.1995.

Deduction Amount

100% profits and gains obtained from the businesses for a time period of 10 consecutive years out of 15 years from the date of its commencement.

Note: Provisions of section 80-IA shall not apply to any enterprise which starts the development or operation and maintenance of the infrastructure facility on or after 1.4.2017 as such enterprise shall be eligible for 100% deduction of capital expenditure under section 35AD.

Generation and Distribution of Power

It is an undertaking which:-

  1. Is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on 1.4.1993 and ending on 31.3.2017;
  2. Starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on 1.4.1999 and ending on 31.3.2017. However, the deduction in this case shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution;
  3. Undertakes substantial renovation and modernization of the existing network of transmission or distribution lines at any time during the period 1.4.2004 to 31.3.2017. "Substantial renovation and modernization" shall mean an increase of plant and machinery by at least 50% of the book value of such plant and machinery as on 1.4.2004.

Other conditions for undertaking referred above :

  1. Such enterprise shouldn't be created by splitting or rebuilding an already existing company. However, in the situations described in Section 33B, this condition shall not apply to an undertaking that is formed as a result of the re-establishment or revival of an undertaking.

  2. It should not be formed by the transfer to a new business of machinery or plant previously used for any purpose.

    However, plant and machinery, already used for any purpose, can be transferred to the new industrial undertaking, provided value of such plant and machinery does not exceed 20% of the total value of plant and machinery of the new industrial undertaking. It may be noted that it is not essential that the building in which the undertaking carries on the business should also be new. Deduction u/s 80-IA will be available even if the industrial undertaking is set up in an old building.

Conditions applicable to all undertakings/enterprises mentioned above:

  1. Audit of accounts: The deduction under section 80-IA from profits and gains derived from an undertaking shall not be admissible unless the accounts of the undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by a chartered accountant and the assessee furnishes, at least 1 month before the due date of furnishing the return of income, the report of such audit in Form No. 10CCB duly signed and verified by such accountant.

  2. Inter-unit transfer of goods or services: Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date:

    However, where in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit.

  3. Double deduction not allowed: Where any amount of profits and gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under the heading "deductions in respect of certain incomes", and shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be.

  4. Restriction of excessive profits : Where it appears to the Assessing Officer that, owing to the

    • close connection between the assessee carrying on the eligible business to which this section applies and any other person, or
    • for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall , in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived there from.
  5. Power of Central Government to declare that the section shall not apply : The Central Govt. may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section shall not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification.
  6. Deduction not to be allowed in cases where return is not filed within the specified time limit: No deduction shall be allowed to the assessee under this section unless he furnishes a return of his income of the relevant assessment year on or before the due date specified u/s 139(1).

Quantum and period of deduction in case of all above undertaking/enterprises

100% profits and gains obtained from the businesses for a period of 10 consecutive years out of 15 years from the date of its commencement, begins to operate any infrastructure facility or generates power or commences transmission or distribution of power or undertakes substantial renovation or modernization

However, in case of enterprises engaged in developing, etc of any infrastructure facility other than port, airport , inland waterways or inland port or navigational channel in the sea, the period of 15 years shall be substituted by 20 years.

SEZ

The deduction under the new section is available where the gross total income of an assessee, being a Developer, includes any profits and gains derived by an undertaking or an enterprise from any business of developing a Special Economic Zone, notified on or after 1.4.2005 under the Special Economic Zones Act, 2005:

Provided that the provisions of this section shall not apply to an assessee, being a developer, where the development of Special Economic Zone begins on or after 1.4.2017.

Deduction Amount

100% profits and gains obtained from the businesses for a period of 10 consecutive years out of 15 years from the beginning from the year in which a special a special economic zone has been notified by the central government.

Conditions Prescribed under section 80 –IA(7) to (12) to be applicable to undertaking for claiming deduction under section 80-IAB : the provision contained in section section 80-IA (7) to (12) shall so far as may be , apply to the eligible business under the section. These provision relate to the following :-

  1. Audit of Accounts
  2. Inter Unit Transfer of Goods or services
  3. Restriction of double deduction
  4. Restriction of excessive profits
  5. Power of Central Government to notify undertakings to which sections 80-IAB shall not apply
  6. Deduction not to be allowed in cases where return is not filed within the specified time limit

Special provision in respect of eligible business of eligible start up (Section 80-IAC)

  1. 100% deduction of profit from eligible business [Section 80-1AC(1)]:

    Where the gross total income of an assessee, being an eligible start-up, includes any profits and gains derived from eligible business, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100% of the profits and gains derived from such business for 3 consecutive assessment years.

  2. Deduction to be allowed for any three consecutive assessment years out of 10 years [Section 80-IAC(2)]:

    The deduction specified in section 80-IAC(1) may, at the option of the assessee, be claimed by him for any three consecutive assessment years out of 10 years beginning from the year in which the eligible start-up is incorporated.

  3. Conditions to be satisfied to claim exemption under section 80-IAC(1) [Section 80- IAC(3)]:

    This section applies to a start-up which fulfils the following conditions, namely:-

    • it is not formed by splitting up, or the reconstruction, of a business already in existence:

      Provided that this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in that section;

    • it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
  4. Further conditions applicable for an assessee claiming deduction under section 80-LAC [Section 80-LAC(4)]: The provisions contained in section 80-IA(5) and 80-IA(7) to (12) shall, so far as may be, apply to the eligible business under this section. These provisions relate to the following:-
    • Computation of profits of eligible business [Section 80-IA(5)]
    • Audit of accounts [Section 80-IA(7)]
    • Inter-unit transfer of goods [Section 80-IA(8)]
    • Restriction on double deduction [section 80- IA(9)]
    • Restriction on excessive profits [section 80- IA(10)]
    • Power of Central Government to notify undertakings to which section 80-IB will not apply [section 80- IA(11)]