Income Tax 2025

Appearance

Deductions in respect of profits and gainsby an undertaking or enterprise engaged in development of Special Economic Zone ​

139 ​

In respect of any tax year, where––

  • (a) the gross total income of an assessee, being a Developer, includes any profits and gains derived by an undertaking or an enterprise from any business of developing a Special Economic Zone, notified on or after the 1st April, 2005 under the Special Economic Zones Act, 2005 referred to in section 80-IAB of the Income-tax Act, 1961; and

  • (b) such assessee is eligible to claim a deduction from the profits and gains derived from such business for such tax year under the provisions of the said section, if the said Act had not been repealed, there shall be allowed, in computing the total income of the assessee, a deduction from the profits and gains derived from such business, subject to the conditions that—

    • (i) the amount of deduction is calculated as per the provisions of section 80-IAB of the Income-tax Act, 1961; and
    • (ii) the deduction under this Act shall be allowed only for such tax years, as would have been allowed under section 80-IAB of the Income-tax Act, 1961, if the said Act had not been repealed.
Explanation

Section Summary: ​

This section provides a deduction for profits and gains earned by developers or enterprises engaged in the development of Special Economic Zones (SEZs). The deduction is applicable to SEZs notified on or after April 1, 2005, under the Special Economic Zones Act, 2005. The deduction is calculated as per the provisions of Section 80-IAB of the Income-tax Act, 1961, and is allowed for the same tax years as would have been permitted under that section, even though the 1961 Act has been repealed.

Key Changes: ​

  • Continuity of Deduction: The new law ensures that developers of SEZs can continue to claim deductions under the same conditions and calculations as outlined in Section 80-IAB of the repealed Income-tax Act, 1961.
  • Applicability: The deduction is specifically tied to SEZs notified on or after April 1, 2005, under the Special Economic Zones Act, 2005.

Practical Implications: ​

  • For Developers: Developers of SEZs can continue to claim deductions on profits and gains from SEZ development, provided they meet the eligibility criteria under the repealed Section 80-IAB.
  • Tax Planning: Developers must ensure that their SEZ projects are notified under the Special Economic Zones Act, 2005, and that they comply with the conditions for claiming the deduction.
  • Compliance: Taxpayers must calculate the deduction amount as per the provisions of Section 80-IAB and ensure that the deduction is claimed only for the eligible tax years.

Critical Concepts: ​

  • Special Economic Zone (SEZ): A designated area with economic laws that are more business-friendly than the country's typical economic laws, aimed at attracting foreign investment and boosting exports.
  • Section 80-IAB: A provision in the repealed Income-tax Act, 1961, that allowed deductions for profits and gains from SEZ development. The new law references this section to determine the calculation and eligibility for deductions.

Compliance Steps: ​

  1. Verify Eligibility: Ensure that the SEZ project is notified under the Special Economic Zones Act, 2005, and that the profits and gains are derived from SEZ development.
  2. Calculate Deduction: Compute the deduction amount as per the provisions of Section 80-IAB of the Income-tax Act, 1961.
  3. Claim Deduction: Include the calculated deduction in the total income computation for the relevant tax years, ensuring that the deduction is claimed only for the eligible years.

Example: ​

Suppose a developer, ABC Developers Ltd., earns ₹10 crore in profits from developing an SEZ notified in 2006. Under this section, ABC Developers Ltd. can claim a deduction on these profits as per the provisions of Section 80-IAB. If Section 80-IAB allowed a 100% deduction for the first 5 years, ABC Developers Ltd. can claim a ₹10 crore deduction for each of the first 5 years, provided all conditions are met.

This section ensures that developers of SEZs continue to receive the tax benefits they were entitled to under the old law, promoting continued investment in SEZ development.