To encourage infrastructure development as it plays an integral part in a country’s growth, the government through the Income Tax Act's Section 80 IA allows a tax deduction on the profits and gains of certain industrial undertakings participating in infrastructure development.
Overview:
It is important to know about the two types of taxes present in India, namely Direct and Indirect Taxation in India. Section 80IA allows income deductions for businesses that develop, operate, or maintain the following:
- Telecommunication services
- Infrastructure facilities
- Business parks and SEZs (Special Economic Zones)
- Power distribution or generation
- Power plant reconstruction
- Natural gas distribution
If you’re an individual who is trying to claim deductions while filing ITR, you should be aware of Sec 80DDB of Income Tax Act.
What is Section 80IA?
Section 80IA of the Income Tax Act, of 1961, provides tax benefits to businesses that operate in certain sectors. This section offers deductions to eligible businesses on their profits and gains from their operations in these sectors.
80IA Eligibility:
To be eligible for deductions under Section 80IA, a business must operate in certain sectors such as infrastructure development, power generation, telecommunication services, industrial parks, special economic zones, and hotels. The business must also fulfill certain conditions, which we will discuss later in this article.
80IA Exemption:
Under Section 80IA, eligible businesses can claim a deduction of 100% of their profits and gains for a specified period. The duration of the exemption period varies depending on the sector in which the business operates. For example, businesses in the power generation sector can claim the exemption for 10 consecutive assessment years.
80IA Applicability:
Business Incorporation: Your business must be incorporated in India and engaged in production, manufacture of goods, or development, operation, and maintenance of infrastructure facilities.
Regulatory Registration: You need to register with relevant regulatory authorities like the Central Electricity Regulatory Commission or Telecom Regulatory Authority of India.
Make every rupee count – our Income Tax Calculator maximizes your tax-saving potential.
Commencement Date: Your business should have commenced operations between 1 April 1995 and 1 April 2022.
80IA Deduction for AY 2022-23:
For the assessment year 2022-23, eligible businesses can claim 100% tax deduction on profits from the first five assessment years. Then, 50% deduction for the next five years.
Conditions to Claim Deductions Under Section 80IA
There are specific conditions outlined in the section to claim a tax holiday. Here are the key conditions:
Eligibility for Deduction: Enterprises owned by Indian companies engaged in providing specific infrastructure facilities are eligible for this deduction. Infrastructure facilities include:
- Roads, including toll roads, bridges, or rail systems
- Highway projects
- Water supply projects
- Ports, airports, inland waterways, inland ports, or navigational channels in the sea.
Conditions to Claim Deduction under Section 80-IA: There are specific conditions outlined in this section to claim a tax holiday. Here are the key conditions:
- Period of Commencement: The enterprise must commence providing infrastructure facilities on or after 1 April 1995. Notably, enterprises starting after April 1, 2017, are ineligible for the deduction
- Income Tax Return: The assessee must file their Income Tax Return and claim the deduction therein. The return must be filed on time as per Section 139(1). For instance, for the fiscal year 2018-19, companies were required to file their returns by 30 September 2019. If a company, such as A Ltd, files after this date (e.g., 5 October 2019), claiming deduction under Section 80-IA, it is not eligible
- Audit Report: This deduction requires that the assessee’s accounts be audited by a Chartered Accountant (CA). The audit report, duly signed and verified by the CA, must be furnished along with the income tax return in Form 10CCB.
Amount of Deduction Available under Section 80-IA: Under this section, the assessee can claim 100% of the profits as deduction for 10 consecutive Assessment Years. The Initial Assessment Year, from which the deduction can be claimed for 10 years, can be chosen by the assessee. However, this Initial Assessment Year must fall within the first 15 Assessment Years from the start of operating the infrastructure facility.
Other Points: If an eligible undertaking transfers an infrastructure facility to another enterprise, the transferee enterprise can claim the deduction for the remaining period of eligibility.
Conditions for Claiming Deduction under Section 80 IA
- The deduction applies to a company owned by a single Indian company or a consortium of Indian enterprises, or a board, corporation, authority, or other bodies created under any State or Central Act: https://incometaxindia.gov.in/Acts/Income-tax%20Act,%201961/2015/Others/section80ia.htm
- A development agreement should be formed with the government, local authority, or statutory body for a new infrastructure facility.
LLP income tax rates are the same as individual income tax rates, and they vary based on the total income earned during the financial year. Know more: LLP income tax rates
Deduction Amount
100% profits and gains obtained from the businesses for 10 consecutive years out of 15 years from the date of its commencement can be claimed as a deduction.
Deductions Available to Telecommunication Services
All entities that provide telecommunication services, such as basic or cellular radio paging, domestic satellite service or network of trunking, broadband network, and internet services, are considered telecommunication services. The time limit for this consideration is from April 1, 1995, to April 1, 2005.
Conditions for Claiming Deduction under TT
- It should not be developed by splitting up or reconstructing a business that has already been in use.
- It should not be developed by the transfer of machinery or plant that has already been in use.
Deduction Amount
100% profits from the first 5 assessment years and 30% for the next 5 assessment years for a total of 15 years from the year of its commencement can be claimed as a deduction.
Conditions for Claiming Deduction under Section 80 IA
- The company must be operated according to the rules of the Central Government. One should also be aware of the 80TTB deduction to avail full benefits of income tax deductions.
Deduction Amount
100% profits and gains obtained from the businesses for 10 consecutive years out of 15 years from the date of its commencement can be claimed as a deduction.
Deductions Available to Those Engaged in the Generation and Distribution of Power
A Power Plant must have been established in India for the generation and distribution of power between 1st April 1999 to 31st March 2011.
Conditions for Claiming Deduction under Section 80 IA
- It should not be developed by splitting up or reconstructing of a business that has already been in use.
- It should not be developed by the transfer of machinery or plant that has already been in use.
Deduction Amount
100% profits from the first 5 assessment years and 30% for the next 5 assessment years for a total of 15 years from the year of its commencement can be claimed as a deduction.
Deductions Available to Those Engaged in Reconstruction of Power Plant
The reconstruction of a power plant should for the revival of a plant that is owned by an Indian company.
Conditions for Claiming Deduction under Section 80 IA
- The Power Plant should have been constructed before November 30, 2005.
- The Central Government should have recognized it before December 31, 2005.
- It should have also started generating, transmitting, or distributing power before March 31, 2011.
Deduction Allowed
100% profits and gains obtained from the businesses for 10 consecutive years out of 15 years from the date of its commencement can be claimed as a deduction.
Deductions Available to Those Engaged in the Distribution of Natural Gas
All entities engaged in the distribution of natural gas and the construction of pipelines that transport the gas across the country are covered under Section 80IA.
Conditions for Claiming Deduction under Section 80 IA
- It should not be developed by splitting up or reconstructing a business that has already been in use.
- It should not be developed by the transfer of machinery or plant that has already been in use.
- It should be recognized by the Petroleum and Natural Gas Regulatory Board.
- It should be maintained by an Indian company.
- 1/3 of the pipeline capacity should be ready for use on a common carrier basis by any common man.
- It should have been operational on or after 1st April 2007.
Deduction Allowed
100% profits and gains obtained from the businesses for 10 consecutive years out of 15 years from the date of its commencement can be claimed as a deduction.
FAQs
What is the exemption limit for 80IAC?
Under Section 80IAC, eligible businesses can claim a deduction of 100% of their profits and gains for a pre-determined tenure of consecutive assessment years.
How do I claim 80IAC deduction?
To claim deductions under Section 80IAC, a business must file its income tax return and provide the necessary details of its profits and gains.
What is Section 80IA 5 of Income Tax Act?
An extract of Section 80IA 5 of the Income Tax Act is produced hereunder - (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of subsection (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.
What are 80IA conditions?
The conditions to claim deductions under Section 80IA include operating in the eligible sectors mentioned in the Income Tax Act, not being formed by splitting up or reconstructing an existing business, not using any previously used building or land, and not transferring any machinery, plant, building, or land from an existing business.
What are 80IA rules?
The rules for claiming deductions under Section 80IA include fulfilling the conditions mentioned in the Income Tax Act, filing the income tax return, and providing the necessary details of profits and gains.
What are the benefits of 80IAC?
The benefits of Section 80IAC include a deduction of 100% of profits and gains for consecutive assessment years for eligible entities. This section aims to promote entrepreneurship and innovation in the country.
How do I claim deductions under Section 80IBA?
To claim deductions under Section 80IBA, a business must fulfil certain conditions. The business must also file its income tax return and provide the necessary details of its profits and gains.
Who is eligible for startup India scheme?
The Startup India scheme is open to all startups that are incorporated in India and fulfil certain conditions such as being registered with the Department for Promotion of Industry and Internal Trade (DPIIT), and having a yearly turnover of less than Rs. 25 crores.
