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What is section 80-IC?

Deduction under this section is available to undertakings established in specified states. Under this section, eligible assessee will get tax deduction on profits under business head for specified period of time.In this blog, we will discuss the list of states covered who are eligible to claim deduction, conditions and amount of deduction etc. This section was inserted from the assessment year 2004-05.


Which are the states covered under section 80-IC?

S.No. Name of state
1. Sikkim
2. Himachal Pradesh
3. Uttranchal
4. North Estern States ( Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura )

What are the conditions to claim deduction u/s 80-IC ?

  1. New Enterprise : It should be a new undertaking. The undertaking should not be formed by splitting up or reconstruction or a business already in existence.

    Exception : Any undertaking discontinued due to extensive damage or destruction(any building, machinery, plant or furniture owned and used for such business) due to any natural calamity or other unforeseen circumstances such as:-

    1. Flood, typhoon, hurricane, cyclone, earthquake or other natural calamity, or
    2. Riot or civil disturbance, or
    3. Accidental fire or explosion, or
    4. Enemy action or action taken in combat
  2. New plants & Machineries : It should not be formed by transferring old plant & machinery which was previously used for any other purpose. Exception :
    1. Value of old plant & machineries is allowed upto 20% of the total value of plant & machineries.
    2. Second hand imported machine will also be treated as new plant & machine under this section provided :
      1. Such plant or machinery was not used in India prior to installation for this purpose.
      2. Plant or machinery is imported in India.
      3. Deduction of depreciation on such plant or machinery will not be allowed for prior period of installation.
  3. Period of commencement : The undertaking must start its operation or substantial expansion** as given in table :
    Name of state Time limit
    Sikkim 23 December, 2002 - 31 March, 2007
    Himachal Pradesh or Uttaranchal 07 January 2003 - 31 March, 2012
    North Estern States ( Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagalnd and Tripura ) 24 December, 1997 - 31 March, 2007

    ** Substantial expansion here means :

    Amount of investment in Plant & Machinery for expansion
    _______________________________________________
    Book value of plant & machinery as on the 1st day of PY in which substantial expansion is taken
    

    If the proportion of investment comes 50% or more, then it’s substantial expansion.

    Example : Given below is data : A ltd completed 1 expansion in two year. Proportion of amount of investment to book values of plant and machineries 51% (calculated as per the formula given above) B ltd completed 2 expansion in two years. Proportion of amount of investment to book values of plant and machineries for first year is 28% and for second year is 23% which is in total 51%

    In the above example, expansion by A Ltd will be termed as substantial expansion to claim deduction under this section because one expansion is completed in two years. However, in the case of B Ltd, two expansion was made in two years and both of the expansions will not qualify as substantial expansion as individually expansion is less than 50%.

  4. Audit Report : This deduction is allowed if accounts of the assessee has been audited by a CA as per the requirement. The audit report duly signed & verified by CA and furnished audit report along with the return of income. Audit report to be submitted in Form 10CCB.
  5. Production of specified goods :
    State Article to be produced by undertaking in the Industrial Zone** Article to be produced by undertaking in any area
    Sikkim Any article but other than those given in the thirteenth schedule (Part A) Any article given in Fourteenth Schedule (Part B)
    Himachal Pradesh or Uttaranchal Any article but other than those given in the thirteenth schedule (Part B) Any article given in Fourteenth Schedule (Part C)
    North Estern States ( Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagalnd and Tripura ) Any article but other than those given in the thirteenth schedule Any article given in Fourteenth Schedule (Part A)
    **List of Industrial zones
    1. Export processing Zone
    2. Integrated Infrastructure Development Centre
    3. Industrial Growth Centre
    4. Industrial Estate
    5. Industrial Park
    6. Software Technology Park
    7. Industrial Area
    8. Theme Park
  6. Income Tax Return :- One of the conditions given in this section is that assessee needs to file his Income Tax Return on time and should also claim the amount of deduction in return. You cannot claim deduction in case belated return.

What is the amount of deduction available under section 80-IC?

State Amount of deduction
Sikkim or North Estern States ( Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagalnd and Tripura ) 100% of profit for 10 years commencing from the initial assessment year**
Himachal Pradesh or Uttaranchal First 5 year :100% of profit commencing from the initial assessment year
Next 5 year : 25% (30% in case of the company) of profit

** Initial Assessment Year :In which undertaking starts to manufacture or produce articles or things or commence operation or completes substantial expansion.


Frequently Asked Questions (FAQs)

Q - Deduction under this section for a block of 10 years is one time or we claim deduction again after substantial expansion after 10 years.

No deduction shall be allowed in excess of 10 years to any enterprise or undertaking.


Q - While calculating substantial expansion, book value of plant or machinery to be taken after depreciation or before depreciation.

Book value of plant or machinery to be taken before depreciation.


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CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.