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Deduction u/s 80IC of Income Tax Act

Deduction u/s 80IC of Income Tax Act
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Deduction u/s 80IC of Income Tax Act

Section 80-IC: Deduction in respect of certain undertakings or enterprises in certain special category states

History

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.

Applicability

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 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
[Notification No. SO 169(E), dated 6-2-2004 corrected by Notification No. 55/2004 {F. No. 142/35/2003-TPL}, dated 19-2-2004]
  •  For Assam, Tripura, Mizoram, Meghalaya, Arunachal Pradesh, Nagaland, Manipur
[Notification No. 116/2004 {F. No. 142/49/2003-TPL}, dated 26-3-2004]
  • For Uttaranchal
[Notification No. SO 741(E), dated 28-6-2004 amended by Notification No.283/2006 {F. No. 142/30/2005 -TPL}, dated 3-10-2006]

  • For Himachal Pradesh
[Notification No. SO 1269(E), dated 4-11-2003 amended by Notification No. SO 2215(E), dated 27-8-2008].

What do you understand by substantial expansion?

  1.  First, find out the value of plant and machinery as on the first day of the year in which substantial expansion takes place.
  2. Find out the amount of investment.
  3. (1) or (2)
  4. 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 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 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 substantial operation.

25% (30% in case of company) for next 5 years.

Whether 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 needs 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 deduction. (Section 80AC).

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The author of the article is CA Mehul Gupta. If you have any queries concerning the above article. Please write to us either in the comments section below or email us on info.financepost@gmail.com.

Disclaimer: The views expressed in the above article is exclusive to the author. Anyone relying on it is expected to take adequate professional care before using/implementing the content of the article. The website/author will in no case be liable for any damages incurred by relying on the content without adequate consultation.

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Disclaimer: The views expressed in the above article is exclusive to the author. Anyone relying on it is expected to take adequate professional care before using/implementing the content of the article. The website/author will in no case be liable for any damages incurred by relying on the content without adequate consultation.
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