Deduction in respect of profit and gains from undertakings engaged in Infrastructure Development etc. - Section 80-IA - Income Tax - Ready Reckoner - Income Tax

Background The old section 80-I of the Income-tax Act has been split up into two sections i.e., 80-IA and 80-IB and what-so-ever was available under the actual section 80-IA was now available under section 80-IB and the new section 80-IA was applicable to the profit gains from the industrial undertaking engaged in infrastructural development, whereas section 80-IB was applicable to industrial undertaking manufacturing and producing article or thing. Deduction in respect of profit and gains from undertakings engaged in Infrastructure Development etc. - Section 80-IA A. Eligible Assessee I. Any assessee carrying on the business of: i. developing, or ii. operating and maintaining or iii. developing, operating and maintaining any infrastructure facility. Note: Infrastructure facility means a road including toll road, a bridge or a rail system a highway Project including housing or other activities being an integral part of the highway project a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system a port, airport, inland waterway or inland port or navigational channel in the sea (from the A.Y. 2008-09). Requirements: The deduction for the infrastructure facilities is applicable to a company that is owned by an Indian company or a company that is owned by an authority/ board/ corporation/ institution that comes under the Central or State Act. For a new Infrastructure facility, there should be an agreement made to the Government or a local authority or statutory body for developmental purposes. II. Any assessee which starts providing telecommunication services whether basic or cellular, on or before 31 st March. Requirements: It is not developed by splitting up or reconstruction of a business that has already been in use. It is not developed by the transfer of machinery or plant that has already been in use. III. Any assessee which develops, develops and operates and maintain, or maintains and operates a Special Economic Zone and Industrial Parks. Requirements: The company operates according to the rules of the Central Government. The duration for the SEZ and Industrial Parks varies. For SEZ it is from 1st April 1999 to 31st March 2006 and for Industrial parks it. 1st April 1999 to 31st March 2011. IV. An assessee which sets up in any part of India, the business of generation or generation and distribution of power. Requirements: It is not developed by splitting up or reconstruction of a business that has already been in use. It is not developed by the transfer of machinery or plant that has already been in use. In case of recostruction of power plant, the Power Plant should have been developed before 30th November 2005 and should have been recognized by the Central Government before 31st December 2005. It should start to generate, transmit or distribute power before 31st March 2011. The deduction under section 80-IA shall be 100% of the profits and gains derived from the eligible business for a period of 10 consecutive assessment years . However, in case of telecommunication services, the deduction under section 80-IA shall be 100% of the profit and gains for the first 5 assessment years and thereafter 30% of such profits and gains for further 5 assessment years. i. The deduction may at the option of the assessee be claimed by him for any 10 consecutive assessment years out of 15 years beginning with the year in which assessee starts the above business. This is known as Period of Tax Holiday/concession. If the enterprise which developed an infrastructure facility transfers the operations and maintenance to another enterprise, then, deduction under section 80-IA shall be available to transferee enterprise for the balance number of years for which transferor enterprise could have claimed the deduction under section 80-IA . i. Provided further that nothing contained in this section shall apply to any enterprise which starts the development or operation and maintenance of the infrastructure facility on or after the 1st day of April, 2017. ii. No deduction shall be allowed under section 80-IA to any undertaking which is transferred in a scheme of amalgamation or demerger. Therefore, in case of demerger or amalgamation, the deduction under section 80-IA shall not be available to any company. Note:- The widening of an existing road by constructing additional lanes as a part of a highway project by an undertaking would be regarded as a new infrastructure facility for the purpose of section 80-IA. However, simply relaying of an existing road would not be classifiable as a new infrastructure facility for this purpose. B. Audit of Accounts i. The deduction shall be allowed to the undertaking only if the accounts of the undertaking for the relevant previous year have been audited by a chartered accountant and the assessee furnishes the audit report in the prescribed form, duly signed and verified by such accountant along with his return of income. [ Section 80-IA(7) ] ii. The report of the audit of the accounts of an assessee, which is required to be furnished u/s 80-IA(7) shall be in Form No. 10CCB. iii. A separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction under section 80-IA or 80-IB or 80-IC and shall be accompanied by the Profit and Loss Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. C. Limit of Deduction i. The deductions claimed and allowed under this section shall not exceed the profits and gains of the eligible business. ii. Further, where deduction is claimed and allowed under this section for any assessment year no deduction in respect of such profits will be allowed under any other section under this chapter under the heading Deductions in respect of certain incomes . D. No deduction to any business carrying on specified activities in the nature of a work contract.