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  7. Section-80-IA: Deductions For Gains From Industrial Undertakings

Section-80-IA: Deductions For Gains From Industrial Undertakings

Updated on: 26 May, 2025 02:27 PM

Section 80IA of the Income Tax Act provides tax benefits to businesses operating in certain sectors. In other words, if your business maintains, creates, or operates, it can claim a deduction under section 80IA. Under this section, you can claim exemption from the tax levied on your business profits for a certain period of time, depending on the eligibility of the business. In this guide, we will understand section 80IA deductions, its applicability, eligibility, etc.

Contents

What is Section 80-IA of the Income Tax Act?

Tax holiday under section 80-IA is available to the assessees who are engaged in providing infrastructure development facilities. The main aim of this section is to encourage investment in specified sectors by providing tax exemptions to investors. Investing in these sectors fosters economic growth in the country and therefore, the government encourages exemptions in these sectors.

What is the Applicability of Section 80IA?

Section 80IA is applicable to the following businesses -

  • Power generation, distribution, and transmission.
  • Modernisation and renovation of the existing power undertaking.
  • Operate, develop, and maintain an infrastructure facility.
  • Industrial parks notified by the government.
  • Rendering telecommunication serevices

Section 80IA Deduction Limit

The eligibility criteria, conditions for availing Section 80IA deduction, and the amount of deduction are given in the table below:

Sector Conditions Validity Period Amount of Deduction
Infrastructure Facility Owned by an Indian Company or a Government body.
Agreement with Government or local authority for development.		 - 100% profits for 10 out of 15 years from commencement.
Telecommunication Services Not from splitting any business or reconstruction or used machinery. 1st April 1995 to 1st April 2005 100% profits for first 5 years, 30% for next 5 years, total of 15 years.
Industrial Parks and SEZ Operate under the rules provided by the Central Government. SEZ: 1st April 1999 to 31st March 2006.
Industrial Parks: 1st April 1999 to 31st March 2011		 100% profits for 10 out of 15 years from commencement.
Generation and Distribution of Power Not from splitting any business or reconstruction or used machinery. 1st April 1999 to 31st March 2011 100% profits for first 5 years, 30% for next 5 years, total of 15 years.
Reconstruction of Power Plant Should be recognized by the Central Government and developed before the specified dates. - 100% profits for 10 out of 15 years from commencement.
Distribution of Natural Gas Not from splitting any business or reconstruction, recognized by the Petroleum and Natural Gas Regulatory Board, ⅓ pipeline for common carriers. Functioning on or after 1st April 2007. 100% profits for 10 out of 15 years from commencement.

Conditions to Claim Deduction Under Section 80IA

The conditions for claiming deductions under section 80IA vary depending on the industries. Here are the conditions every industry should meet -

Infrastructure Facilities

  • It should be a single Indian company, a corporation, an authority, a board, or a consortium of Indian enterprises.
  • You should have a development agreement with the local authority, statutory body, or government for your new infrastructure facility.

Telecommunication Services

The telecommunications service should not have been developed by reconstructing or splitting up an existing business organization.

A telecommunication service that was developed by transferring plants and machinery from an existing organization will not be eligible to claim a deduction under section 80IA.

Industrial Park and SEZ

  • Business owners need to follow the rules of the Central Government while operating the industrial parks and SEZs.
  • You should adhere to the criteria for deduction mentioned under section 80TTB to claim income tax benefits.

Reconstruction of Power Plants

  • It should be recognized by the Central Government and must have acquired it before 31 December 2005.
  • The construction period should be before 30 November 2005.
  • The power plant should have initiated generation, transmission, and distribution of power before 31st March 2011.

Generation and Distribution of Power

  • Generate power at any time between 1st April 1993 and 31st March 2017.
  • Undertakes the renovation and modernization of the existing network of transmission and distribution lines at any time during the period starting on 1st April 2004 till 31st March 2017.
  • Starts distribution and transmission by laying a new network of new transmission at the time from 1st April 1999 to 31st March 2017.

Mistakes to Avoid While Claiming Section 80IA Deduction

Here are some common mistakes that you might make while claiming section 80IA deduction and how to avoid them -

  • Failing to meet the commencement deadline: Make sure you meet the project commencement deadline set by the Income Tax Department. If you fail to do so, you might not be able to qualify to claim this deduction.
  • Improper Documentation: It is important to maintain proper records of all the reports, financial transactions, and certificates that are needed for claiming the section 80IA deduction.
  • Claiming deduction for non-qualified projects: The projects specified under section 80IA are eligible for deductions. If you claim deductions for projects outside the purview of 80IA, you might have to face legal consequences.
  • Ignoring the lock-in period: Section 80IA deduction has a lock-in period of a maximum of 10 years. Any changes in the ownership structure or nature of the business during the lock-in might revoke the deduction claimed earlier.
  • Failing to file returns on time: It is important to file returns on time. Otherwise, you will not be able to claim the deduction under section 80IA.

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Frequently Asked Questions

Q- What is Section 80IA deduction?

Section 80IA offers tax benefits to taxpayers engaged in specific development and infrastructure projects. It provides a 100% deduction on book profits for 10 consecutive years.

Q- Who is eligible to claim the section 80IA deduction?

Section 80IA deduction allows corporations, individuals and partnership firms to claim deductions to develop, operate and manage the infrastructure projects eligible for it.

Q- Which projects are eligible under 80IA deduction?

Projects eligible under section 80IA deduction include projects related to highways, railways, bridges, sewage treatment plants, airports, ports, water supply projects, power generation, transmission, distribution, and telecommunication services.

Q- What is the time limit for claiming 80IA deduction?

The section 80IA deduction can be claimed for a consecutive 10 years. The taxpayer can start claiming the deduction from the year of commencement of operation by the undertaking.

Q- Can a new business claim 80IA deduction?

Yes. If the new business is eligible and is engaged in one of the specified businesses, it can claim the 80IA deduction from the year in which it starts operations.

Q- Can losses from eligible projects be carried forward?

Yes. Losses from eligible projects after claiming 80IA deduction can be carried forward to subsequent years.

Q- How does section 80IA deduction affect the MAT (Minimum Alternative Tax) calculation?

Section 80IA deduction impacts the book profit, which is crucial for the calculation of MAT under section 115JB. Therefore, section 80IA deduction also reduces the MAT liability.

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Kamal Murarka

Kamal Murarka
Director - Tax Research & Operations

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Kamal Murarka, a Chartered Accountant, is the Director- Tax Research & Operations at Tax2win. He has been with the company since its inception, contributing his expertise in national and international tax assignments. He is also a recognized speaker on tax-related topics, representing Tax2win at various industry forums. His deep knowledge and strategic insights have been crucial in shaping Tax2win’s approach to tax research, operations, and client solutions, driving the company’s continued success.