Section 80IA Of The Income Tax Act: Tax Benefits For Industrial Undertakings And Infrastructure Development

Section 80IA of the Income Tax Act allows tax deductions for industrial undertakings and infrastructure development projects. It applies to projects that deal with developing, maintaining and operating development projects. This section of the Income Tax Act lays down the principles, requirements and limitations of the tax deduction. Through this tax deduction, the Government of India Tax aims to boost the country’s growth. All eligible assesses can enjoy tax benefits subject to different conditions and eligibility criteria. Check the requirements and deduction amount for different types of developmental projects. Read on!

What is Section 80IA Of Income Tax?

Section 80IA of th Income Tax Act discusses tax deductions for developmental projects. The areas of interest include

• Telecommunication and infrastructure facilities. 
• Business parks and special economic zones
• Power generation and distribution.
• Reconstruction projects, including power plants and natural gas refineries, etc.

What is Infrastructure Development under Section 80IA?

This includes constructing and maintaining infrastructure projects like roads, railways, bridges, etc. The section also includes water treatment/irrigation projects, sewerage, solid waste management, ports, airways, inland waterways, etc. 

Requirements and Deduction Amount

Section 80IA states that organisations working for the above-mentioned infrastructure projects are eligible for a 100% tax deduction. The minimum time for tax deduction is 10 years. However, there are two essential requirements for the same. These include:

• The applicant company should be based in India or be owned by an Indian company legally bound to a central/state mandate. 
• The applicant company must produce an agreement of purpose to the government or local authority.

Also Read: Income Tax Deductions: Salaried Employees’ Income Tax Exemptions & Allowances

Who Can Claim Tax Deductions Under Section 80IA?

1. Telecommunication Services 

Section 80IA states that telecommunication providers are also eligible for tax deductions. This includes satellite services, broadband networks and internet service providers. 

Requirements and Deduction Amount

Eligibility for tax deduction is subject to two factors, namely

• The applicant should not be a reconstruction of an existing business venture or have emerged from a split-up. 
• Applicants using plant or machinery in use by another company are not eligible. 

The time limit for this clause was from 1995 to 2005.

Under Section 80IA of the Income Tax Act, Deduction was 100% for the first 5 years and 30% for the next 5 assessment years.

2. Business Parks and SEZs (Special Economic Zones) 

Business parks and SEZs are essential instruments of industrialisation. While business parks are primarily meant for manufacturing, SEZs deal with exports/imports. The latter covers a broader range of further sub-zones, including free trade areas, economic and technology parks, enterprise zones, etc.

Requirements and deduction amount

The central government lays down specific rules and regulations for SEZs and industrial parks to be eligible for tax deductions. For example, SEZs could use tax deductions from 1999 to 2006, while industrial parks could, from 1999 to 2011.

The maximum deduction amount was 100% of profits and gains for 10 years. 

3. Power Distribution or Generation

Section 80IAholds good for power plants responsible for generating and distributing power.This was valid for plants constructed from 1999 to 2011 and those that worked to restore and improve the existing network from 2004 to 2011.

Requirements and deduction amount

Section 80IA of Income Tax states that power plants eligible for tax deductions should not be a reconstruction of a previous venture or not developed from the transfer of machinery already in use. The maximum deduction amount was 100% for the first 5 years and 30% for the next 5 years. 

4. Power Plant Reconstruction 

Power generating plants undergoing reconstruction are also eligible for tax deductions. The company should essentially be of Indian origin. 

Requirements and deduction amount

The Central government should own the power plant undergoing reconstruction and operation before 2005. Additionally, it should be able to generate power by 2011. The IT department allows reconstructed power plants to enjoy a 100% reduction in taxes for 10 years. 

5. Natural Gas Distribution 

Companies owning natural gas production facilities are eligible for tax deductions. As a result, they should be able to distribute natural gas through pipelines across the country. 

Requirements and deduction amount

There are specific requirements and limitations for obtaining tax deductions for natural gas production facilities. They are as below:

• The business enterprise should not develop from a split up or reconstructing an already functioning venture. It should not also be using machinery from another plant to be eligible.
• The petroleum and Natural gas regulatory Board should recognise the company, which should be of Indian origin.
• More than 30% of the pipeline capacity should be readily available on a common carrier basis. 
• It should be functioning on or after 2007.

A maximum of 100% tax deduction is obtainable for 10 years from its origination date. 

Also Read: Section 80GG – Eligibility & Steps To Claim Deduction For Rent Paid Under Section 80GG

Final Word

Section 80IA 10 of the Income Tax Act 1961 allows infrastructure projects to continue their operations without being taxed significantly.This promotes a sustainable future and creates a base for development projects.

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