Conditions to be fulfilled, amount of deduction and period of deduction under Deductions in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings, etc. [Section 80-IB] :
The rate and period of deduction and the conditions required to be satisfied by the different categories of businesses are given below:
(1) Industrial undertakings [Sub-sections (2), (3), (4) and (5)]
Conditions: In order to be eligible to claim deduction under section 80-IB, an industrial undertaking must fulfill the following conditions:
(i) It is not formed by splitting up, or the reconstruction of, an existing business.
(ii) It is not formed by the transfer to a new business of any plant or machinery previously used for any other purpose.
In order to satisfy this condition, the total value of the plant or machinery so transferred should not exceed 20% of the value of the total plant or machinery used in the new business.
For the purpose of this condition, machinery or plant would not be regarded as previously used if it had been used by any person other than the assessee provided the following conditions are satisfied:
(a) such plant or machinery was not used in India at any time prior to the date of its installation by the assessee;
(b) the plant or machinery was imported into India from a foreign country;
(c) no deduction in respect of depreciation of such plant or machinery has been allowed to any person at any time prior to the date of installation by the assessee.
(iii) It manufactures or produces any article or thing (except those specified in the Eleventh Schedule) or operates a cold storage plant, in any part of India. However, in the case of an SSI, restriction regarding goods specified in the Eleventh Schedule shall not apply.
(iv) In case of a manufacturing industrial unit, it should employ 10 or more workers (if manufacture is carried on with the aid of power), or 20 or more workers (if manufacture is carried on without the use of power).
Rate and period of deduction: The rate and period of deduction for different categories of industrial undertakings are given below:
(i) The amount of deduction for an industrial undertaking will be 25% of the profits and gains derived from such industrial undertaking for a period of 10 consecutive assessment years starting with the initial assessment year, i.e. the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things. In the case of a company, the rate of deduction will be 30%. Again, where the assessee is a co-operative society, the period of 10 consecutive years will become 12 consecutive assessment years.
However, in order to claim the amount of deduction specified here, the assessee must fulfil the following conditions:
(a) It must have begun to manufacture or produce articles or things or operate the plants at any time between 1-4-1991 and 31-3-1995, or such further period as specified by the Central Government in the Official Gazette with respect to such class of industries.
(b) In case of an SSI, the period specified for the above purpose is 1-4-1995 and 31-3-2002.
“Small-scale industrial undertaking” means an industrial undertaking which is, as on the last day of the previous year, regarded as a small-scale industrial undertaking under section 11B of the Industrial (Development and Regulation) Act, 1951.
(ii) In case of the following categories of industrial undertakings, the amount and period of deduction will be 100% of the profits and gains derived from the industrial undertaking for the initial 5 assessment years and thereafter 25% of such profits and gains (in case of a company, the rate is 30%):
(a) an industrial undertaking located in an industrially backward State specified in the Eighth Schedule. In this case, the total period of deduction should not exceed 10 consecutive assessment years provided the industrial undertaking begins manufacture or production of articles or things or operation of cold storage plant between 1-4-1993 and 31-3-2004. Where the industrial undertaking is a co-operative society, the deduction will be available for 12 assessment years (instead of 10), including the initial assessment year [Subsection (4)]
However, the terminal date for setting up of industrial undertakings in the State of Jammu and Kashmir is 31.3.2012. A negative list has also been provided in Part C of the Thirteenth Schedule to specify the commodities which should not be manufactured or produced by such undertakings. The list includes Cigarettes/cigars of tobacco, manufactured tobacco and substitutes, distilled/brewed alcoholic drinks and aerated branded beverages and their concentrates.
The Eighth Schedule specifies the following to be industrially backward States and Union Territories: (1) Arunachal Pradesh (2) Assam (3) Goa (4) Himachal Pradesh (5) Jammu & Kashmir (6) Manipur (7) Meghalaya (8) Mizoram (9) Nagaland (10) Sikkim (11) Tripura (12) Andaman and Nicobar Islands (13) Dadra and Nagar Haveli (14) Daman & Diu (15) Lakshadweep (16) Pondicherry.
In case of notified industries in the North-eastern region of India, the amount of deduction will be 100% of the profits and gains for 10 consecutive assessment years. However, no such deduction shall be allowed to any undertaking or enterprise which is eligible for claiming benefit under section 80-IC.
“North-eastern region” means the region comprising the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura.
(b) an industrial undertaking located in such industrially backward districts of Category A or B, as the Central Government may, having regard to the prescribed guidelines, specify in the Official Gazette.
In case of Category A industries, the total period of deduction is 10 consecutive assessment years (except in case of a co-operative society where it is 12 years) provided the undertaking begins manufacture or production of articles or things or operation of cold storage plant between 1-10-1994 and 31-3-2004.
In case of Category B industries, the total period of deduction is 8 consecutive assessment years (except in case of a co-operative society where it is 12 years) provided the undertaking begins manufacture or production of articles or things or ope ration of cold storage plant between 1-10-1994 and 31-3-2004.
(2) Companies carrying on scientific research and development [Sub-section (8A)] Sub-section (8A) provides for deduction in case of a company carrying on scientific research and development if such company fulfils the following conditions:
(i) It is registered in India.
(ii) It has the main object of scientific and industrial research and development.
(iii) It is for the time being approved by the prescribed authority at any time after 31.3.200 0 but before 1.4.2007.
(iv) It fulfils such other conditions as may be prescribed.
The amount of deduction shall be 100% of the profits and gains of such business.
The deduction will be available for a period of 10 consecutive assessment years starting wit h the initial assessment year i.e. the assessment year relevant to the previous year in which the company is approved by the prescribed authority.
(3) Undertakings engaged in commercial production or refining of mineral oil or commercial production of natural gas in licensed blocks [Sub-section (9)]
Conditions: In order to claim deduction under the section, the undertaking should be engaged in commercial production or refining of mineral oil or commercial production of natural gas in licensed blocks.
The following further conditions should be fulfilled –
(1) In case of an undertaking engaged in commercial production of mineral oil –
(i) Where such operations are carried out in the North Eastern Region, it has begun commercial production before 1.4.1997.
(ii) Where such operations are carried out in any part of India, it begins commercial production on or after 1.4.1997.
A sunset clause for tax holiday in respect of certain undertakings engaged in commercial production of mineral oil has now been inserted. Accordingly, the above deduction for commercial production of mineral oil will not be available for blocks licensed under a contract awarded after 31.3.2011 under the New Exploration Licensing Policy or in pursuance of any law for the time being in force or by the Central or a State Government in any other manner.
(2) In case of an undertaking engaged in refining of mineral oil, it begins refining of mineral oil on or after 1-10-1998 but not later than 31.3.2012.
(3) In case of an undertaking engaged in commercial production of natural gas in licensed blocks –
(1) the blocks are licensed under the VIII Round of bidding for award of exploration contracts (“NELP-VIII”) under the New Exploration Licensing Policy announced by the Government of India vide Resolution No.O-19018/22/95-ONG.DO.VL, dated 10th February, 1999; or
(2) the blocks are licensed under the IV Round of bidding for award of exploration contracts for Coal Bed Methane blocks
and begins commercial production of natural gas on or after 1st April, 2009.
Note – All blocks licensed under a single contract to be treated as a single “undertaking”
For the purposes of claiming deduction under sub-section (9), all blocks licensed under a single contract, which has been awarded –
(1) under the New Exploration Licencing Policy announced by the Government of India vide Resolution No.O-19018/22/95-ONG.DO.VL, dated 10.2.1999 or
(2) in pursuance of any law for the time being in force or
(3) by Central or a State Government in any other manner
shall be treated as a single “undertaking”.
This definition of “undertaking” will be applicable both in relation to mineral oil and natural gas.
Rate and period of deduction: The deduction will be allowed at 100% of the profits and gains from such business for 7 consecutive assessment years including the initial assessment year i.e. the assessment year relevant to the previous year in which the undertaking commences the commercial production or refining of mineral oil.
(4) Housing projects [Sub-section (10)]
Conditions: In order to be eligible to claim deduction under section 80-IB, an undertaking developing and building housing projects must fulfil the following conditions:
(i) The undertaking has commenced or commences development and construction of the housing project on or after 1.10.1998. The housing project should be completed within 4 years from the end of the financial year in which the project is approved by the local authority. In respect of projects approved by the local authority before 1.4.2004, the construct ion should be completed on or before 31.3.2008. On account of the large scale widespread downturn and the consequent slump in the housing sector, the period for completion of housing projects to qualify for tax benefit under section 80-IB has been extended from 4 years to 5 years from the end of the financial year in which the housing project is approved by the local authority, in case of housing projects approved on or after 1.4.2005. For this purpose, the date of approval would be the date on which the building plan is first approved by the local authority and the date of completion of the housing project would be the date on which the completion certificate is issued by such authority.
(ii) The projects must be approved before 31.3.2008 by a local author ity.
(iii) The project is on a plot of land which is at least one acre.
In order to encourage the reconstruction and redevelopment of slum dwellings, the conditions that the construction should be completed within 4 years and that the minimum plot size should be one acre have been relaxed. The relaxation is in respect of housing projects carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas. Such a scheme should be notified by the Board in this behalf.
(iv) The residential unit has a maximum built-up area of 1000 sq.ft. (if such residential unit is situated in Delhi or Mumbai or within 25 km from the municipal limits of these cities) or 1500 sq.ft. at any other place.
(v) the built-up area of the shops and other commercial establishments included in the housing project should not exceed five percent. of the aggregate built -up area of the housing project or 2000 sq. ft., whichever is less.
The expression built-up area” has been defined to mean the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but not including the common areas shared with other residential units.
The above restrictions regarding built-up area of shops and other commercial establishments have been relaxed in respect of housing projects approved on or after 1.4.2005. The permissible builtup area of shops and other commercial establishments included in the housing project has been increased from 5% of the aggregate built-up area or 2,000 sq. feet, whichever is lower, to 3% of the aggregate built-up area of the housing project or 5,000 sq. ft., whichever is higher.
However, these benefits are not available in respect of a housing project approved by the local authority before 1st April, 2005.
(vi) The undertaking which develops and builds the housing project shall not be allowed to allot more than one residential unit in the housing project to the same person, not being an individual. Where the person is an individual, no other residential unit in such housing project should be allotted to any of the following persons: –
(1) the individual himself or spouse or minor children of such individual;
(2) the Hindu undivided family in which such individual is the karta
(3) any person representing such individual, the spouse or minor children of such individual or the Hindu undivided family in which such individual is the karta.
Rate and period of deduction: The deduction will be allowed at 100% of the profits derived from such project in any previous year relevant to any assessment year.
Note – The main aim of the tax concession under section 80-IB(10) is to provide tax benefit to the person undertaking the investment risk i.e. the actual developer. However, any person undertaking pure contract risk is not entitled to the tax benefit. Accordingly, the benefit under sub-section (10) would not be available to any undertaking which executes the housing project as a works contract awarded by any other person (including the Central or State Government).
(5) Cold chain facilities for agricultural produce [Sub-section (11)]
Conditions: In order to claim deduction under this section, the assessee must fulfil the following conditions:
(i) The industrial undertaking should be deriving profit from the business of setting up and operating a cold chain facility for agricultural produce.
(ii) The undertaking must begin to operate such facility on or after 1-4-1999 but before 1-4-2004.
For the purposes of this section, “cold chain facility” means a chain of facilities for storage or transportation of agricultural produce under scientifically controlled conditions including refrigeration and other facilities necessary for the preservation of such produce.
Rate and period of deduction: The amount of deduction will be 100% of the profits and gains derived from such industrial undertaking for a period of 5 consecutive assessment years starting with the initial assessment year i.e. the assessment year relevant to the previous year in which the industrial undertaking begins to operate the cold chain facility. Thereafter, the deduction allowable is 25% of such profits and gains (30% in case of a company) for the next 5 assessment years.
Where the assessee is a co-operative society, the period of 10 consecutive years will become 12 consecutive assessment years.
For A.Y.2016-17, only a co-operative society which has begun to operate its cold storage plant in P.Y.2003-04 would be entitled to deduction@25%.
(6) Undertakings engaged in handling of foodgrains etc. [Sub-section (11A)]
Conditions: In order to claim deduction, the undertaking should fulfill the following conditions:
(i) It should be deriving profits from the business of processing, preservation and packaging of fruits or vegetables or from the integrated business of handling, storage and transportation of foodgrains.
(ii) It should begin to operate such business on or after 1.4.2001.
(iii) The benefit of deduction under sub-section (11A) has now been extended to an undertaking deriving profit from the business of processing, preservation and packaging of meat or meat products or poultry or marine or dairy products, if it begins to operate such business on or after 1.4.2009.
Rate and period of deduction: The amount of deduction shall be 100% of the profits and gains derived from such business for 5 assessment years beginning with the initial assessment year i.e. the assessment year relevant to the previous year in which the undertaking begins such business. Thereafter, the deduction allowable is 25%. In the case of a company, the rate of 25% shall be substituted by 30%. The total period of deduction should not exceed 10 consecutive assessment years.
(7) Undertakings operating and maintaining a hospital located anywhere in India, other than the excluded area [Sub-section (11C)]
(i) Sub-section (11C) provides a five year tax holiday to hospitals set up in other than the excluded areas. Excluded area means the area comprising the urban agglomerations of Greater Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bangalore and Ahmedabad, the districts of Faridabad, Gurgaon, Ghaziabad, Gautam Budh Nagar and Gandhi Nagar and the city of Secunderabad.
(ii) To be eligible for this benefit, the hospital should be constructed and should start functioning between 1.4.08 to 31.3.2013. Further, it should have at least 100 beds for patients. For claiming this benefit, it is necessary that the audit report signed and verified by a Chartered Accountant certifying that deduction has been correctly claimed should be filed along with the company‘s return of income.
(iii) The construction of the hospital should be in accordance with the regulations or bye-laws of the local authority. The hospital shall be deemed to have been constructed on the date on which a completion certificate in respect of such construction is issued by the local authority concerned.