Infrastructure development plays an integral part in a country’s growth. To encourage such developments, the IT laws have provisions for offering tax benefits to certain businesses involved in such activities. Under Section 80IA of the Income Tax Act, there are tax deductions available for businesses involved in developing, maintaining, or operating-
  • Telecommunication services
  • Infrastructure facilities
  • Business parks and SEZs (Special Economic Zones)
  • Power distribution or generation
  • Power plant reconstruction
  • Natural gas distribution

What are the Conditions for Claiming Deduction Under Section 80IA?

There are certain conditions for industrial undertakings to claim tax deduction under Section 80IA. They are as follows-

1. The owner of the industrial undertaking should be-
  • A single Indian company or a consortium of Indian companies; or
  • A board, corporation, authority, or other bodies established as per any State or Central Act
2. A statutory body, local authority, or the government should approve the development of the new infrastructure facility

3. Maintenance or operation of such a facility should have commenced after April 1, 1995

Apart from these basic conditions, there are additional conditions for specific infrastructure development like telecommunication, power generation, etc.

What is the Maximum Deduction Amount under Section 80IA?

Gains and profits of up to 100% generated from such businesses are eligible for a tax deduction as per Section 80IA. But gains and profits of only 10 consecutive years from the last 20 years are eligible for this deduction.

For airports, ports, inland ports, inland waterways, and navigational channels, gains or profits of 10 consecutive years from the last 15 years are eligible for deductions under Section 80IA. Note that there are also additional exceptions for specific businesses.

Importance of Initial Assessment Year for Claiming Tax Deductions Under Section 80IA

As mentioned above, Section 80IA allows certain industrial undertakings to claim a tax deduction on the profits and gains generated for any 10 consecutive years from the last 20 or 15 years. Generally, the initial assessment year is considered to be the year when a business begins its operations.

But under Section 80IA, the initial assessment year is the initial year from when the assessee begins claiming a tax deduction and not the year when the operations were initiated.

Other Important Points About Section 80IA

The deduction computation date should be the date from when the project started and not when it received approval. Also, the deduction is only available from when the assessee starts commercial production. The duration when the assessee was producing only on a trial basis should not be considered while computing the deduction.

As Section 80IA has several conditions, exclusions, and eligibility requirements, an assessee should consult a tax expert for more clarity.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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