Deduction u/s 80IC of Income Tax Act
Section 80-IC: Deduction in respect of certain undertakings or enterprises in certain special category states
This Section was introduced by Finance Act, 2003, and will be applicable from A.Y. 2004-05. The Union Cabinet introduced concessions to undertaking in the states of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States with the intention to boost the economy of these states. Till now, the government has been successful in achieving what they intended.
As per Section 80-IC(2), this section is applicable to:-
All undertakings or enterprises which are set up, manufacture or begin to manufacture any article or things (other than specified in Thirteenth Schedule) or undertake substantial expansion, in industrial zones (but if the article or thing is mentioned in the fourteenth schedule, then it can be set up any area in the states mentioned below):
- Between 23rd December 2002 to 1st April 2007 in Sikkim
- Between 7th January 2003 to 1st April 2012 in Himachal Pradesh or Uttaranchal
- Between 24th December 1997 to 1st April 2007 in any North-Eastern states.
What are the ‘industrial zones’?
Following will be counted as industrial zones :
- Export Processing Unit
- Integrated Infrastructure Development Centre
- Industrial Growth Centre
- Industrial Estate
- Industrial park
- Software Technology Park
- Industrial Area
- Theme Park
The above-mentioned areas have been notified by way of notification.
- For Sikkim
- For Assam, Tripura, Mizoram, Meghalaya, Arunachal Pradesh, Nagaland, Manipur
- For Uttaranchal
- For Himachal Pradesh
What do you understand by substantial expansion?
- First, find out the value of plant and machinery as on the first day of the year in which substantial expansion takes place.
- Find out the amount of investment.
- (1) or (2)
- If it is more than 50% then it is a substantial expansion.
Further conditions that need to be fulfilled by an undertaking [Section 80-IC(4)]:-
- It is not formed by splitting up or by reconstruction of a business already in existence.
(The above condition is not applicable to business which is reconstructed or revived due to damage of plant, furniture, machinery, and building as a result of the flood, tycoon, cyclone etc., riot, accidental fire or explosion, any action by or against the enemy).
- It is not formed by the transfer of any plant or machinery not used previously for any purpose. (The above condition will be deemed to be satisfied if:-
⊗ The value of assets transferred does not exceed 20% of the total plant and machinery.
⊗ The plant or machinery is used outside India by any other assessee on which no depreciation will be allowed prior to the date of installation.)
How much deduction will be allowed? [Section 80-IC(3)]
- For Sikkim and North-Eastern States:-
100% profits for 10 years starting from the year in which undertaking starts manufacturing or commences operation or completes the substantial operation.
- For Himachal Pradesh and Uttaranchal:-
⊗ 100% profits for 5 years starting from the year in which undertaking starts manufacturing or commences operation or completes the substantial operation.
⊗ 25% (30% in case of a company) for the next 5 years.
Whether an audit is necessary for claiming the deduction?
Yes, it is mandatory to get books of accounts audited by a Chartered Accountant.
Form 10CCB needs to be uploaded along with the balance sheet and profit and loss account of that undertaking. Financials need to be prepared considering that it is a separate entity. [Rule 18BBB(2)]
Whether it is necessary to claim the deduction in Return of Income?
Yes, as per Section 80A(5), if the deduction Is not claimed in the Return of Income then, no deduction shall be allowed.
It is also mandatory to file the return of income before the due date of filing the Return for claiming the deduction. (Section 80AC).
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