Income Tax 2025

Appearance

Special provisions in respect of certain undertakings in North-Eastern States. ​

143(1) ​

Where the gross total income of an assessee includes any profits and gains derived by an undertaking, to which this section applies, from any business referred to in sub-section (2), there shall be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100% of the profits and gains derived from such business for ten consecutive tax years commencing with the initial tax year.

143(2) ​

This section applies to any undertaking which has, during the period beginning on the 1st April, 2007 and ending with the 1st April, 2017, begun or begins, in any of the North-Eastern States,—

  • (a) to manufacture or produce any eligible article or thing;
  • (b) to undertake substantial expansion to manufacture or produce any eligible article or thing; and
  • (c) to carry on any eligible business.

143(3) ​

This section applies to any undertaking which fulfils all the following conditions:—

  • (a) it is not formed by splitting up, or the reconstruction, of a business already in existence;
  • (b) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose;
  • (c) condition referred to in clause (a) shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 140(4),in the circumstances and within the period specified therein

143(4) ​

For the purposes of sub-section (3)(b), the provisions of section 140(5) and 143(6) shall apply.

143(5) ​

Irrespective of anything contained in any other provision of this Act, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in this Chapter in relation to the profits and gains of the undertaking.

143(6) ​

Irrespective of anything contained in this Act, no deduction shall be allowed to any undertaking under this section, where the total period of deduction inclusive of the period of deduction under this section or under second proviso to section 80-IB(4) of the Income-tax Act, 1961 exceeds ten tax years.

143(7) ​

The provisions contained in section 140(7) to (15) shall, so far as may be, apply to the eligible undertaking under this section.

143(8) ​

In this section,—

  • (a) “eligible article or thing” means the article or thing other than the following:—

    • (i) goods falling under Chapter 24 of the First Schedule to the Central Excise Tariff Act, 1985, which pertains to tobacco and manufactured tobacco substitutes;
    • (ii) pan masala as covered under Chapter 21 of the First Schedule to the Central Excise Tariff Act, 1985;
    • (iii) plastic carry bags of less than twenty microns as specified by the Ministry of Environment and Forests vide notification numbers S.O. 705(E), dated the 2nd September, 1999 and S.O. 698(E), dated the 17th June, 2003; and
    • (iv) goods falling under Chapter 27 of the First Schedule to the Central Excise Tariff Act, 1985, produced by petroleum oil or gas refineries;

  • (b) “eligible business” means the business of—

    • (i) hotel (not below two star category);
    • (ii) adventure and leisure sports including ropeways;
    • (iii) providing medical and health services in the nature of nursing home with a minimum capacity of twenty-five beds;
    • (iv) running an old-age home;
    • (v) operating vocational training institute for hotel management, catering and food craft, entrepreneurship development, nursing and para-medical, civil aviation related training, fashion designing and industrial training;
    • (vi) running information technology related training centre;
    • (vii) manufacturing of information technology hardware; and
    • (viii) bio-technolog;

  • (c) “initial tax year” means the tax year in which the undertaking begins to manufacture or produce articles or things, or completes substantial expansion;

  • (d) “North-Eastern States” means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura;

  • (e) “substantial expansion” means increase in the investment in the plant and machinery by at least 25% of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the tax year in which the substantial expansion is undertaken.

Explanation

Section Summary: ​

This section provides a 100% tax deduction on profits and gains for eligible businesses or undertakings in the North-Eastern States of India. The deduction is available for 10 consecutive tax years, starting from the year the business begins operations or completes substantial expansion. The aim is to promote industrial and economic growth in these regions by incentivizing new businesses and expansions in specific sectors.

Key Changes: ​

  1. Eligibility Period Extended: The section applies to undertakings that began operations or completed substantial expansion between 1st April 2007 and 1st April 2017. This is a specific window for eligibility.
  2. Exclusions Added: Certain goods and businesses (e.g., tobacco, pan masala, plastic carry bags below 20 microns, and petroleum refining) are explicitly excluded from the definition of "eligible article or thing."
  3. No Double Benefits: Taxpayers cannot claim deductions under this section and other sections of the Income Tax Act for the same profits and gains.
  4. Substantial Expansion Defined: A clear definition of "substantial expansion" is provided, requiring at least a 25% increase in investment in plant and machinery.

Practical Implications: ​

  1. For Businesses in North-Eastern States:

    • New businesses or those undergoing substantial expansion in eligible sectors (e.g., manufacturing, hotels, healthcare, IT, etc.) can benefit from a 100% tax deduction on profits for 10 years.
    • Businesses must ensure they meet the eligibility criteria, such as not being formed by splitting or reconstructing an existing business or transferring used machinery.

  2. For Tax Compliance:

    • Businesses must maintain detailed records of investments in plant and machinery, especially for proving "substantial expansion."
    • They must also ensure that their activities fall under the definition of "eligible article or thing" or "eligible business."

  3. Exclusions:

    • Businesses dealing in excluded goods (e.g., tobacco, pan masala) or operating in excluded sectors (e.g., petroleum refining) cannot claim this deduction.

Critical Concepts: ​

  1. Eligible Article or Thing: Refers to goods or products that qualify for the deduction, excluding specific items like tobacco, pan masala, and petroleum products.
  2. Eligible Business: Includes sectors like hotels (2-star and above), healthcare (nursing homes with 25+ beds), IT training, biotechnology, and adventure sports.
  3. Substantial Expansion: Requires a 25% increase in investment in plant and machinery compared to the book value at the start of the tax year.
  4. Initial Tax Year: The year in which the business begins manufacturing or completes substantial expansion.
  5. North-Eastern States: Includes Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, and Tripura.

Compliance Steps: ​

  1. Verify Eligibility:

    • Ensure the business or undertaking falls under the definition of "eligible article or thing" or "eligible business."
    • Confirm that the business began operations or completed substantial expansion between 1st April 2007 and 1st April 2017.

  2. Maintain Records:

    • Keep detailed records of investments in plant and machinery to prove "substantial expansion."
    • Document the start date of operations or completion of expansion.

  3. File Tax Returns:

    • Claim the 100% deduction on profits and gains in the tax return for the relevant years.
    • Ensure no other deductions are claimed for the same profits under other sections of the Income Tax Act.

  4. Avoid Exclusions:

    • Ensure the business does not deal in excluded goods or operate in excluded sectors.

Examples: ​

  1. New Manufacturing Unit:

    • A company sets up a new unit in Assam in 2015 to manufacture textiles (an eligible article). It can claim a 100% deduction on profits from this unit for 10 consecutive years, starting from 2015.

  2. Substantial Expansion:

    • A hotel in Meghalaya (rated 3-star) invests in new machinery in 2016, increasing its plant and machinery value by 30%. This qualifies as "substantial expansion," and the hotel can claim a 100% deduction on profits from 2016 for 10 years.

  3. Excluded Business:

    • A company in Nagaland begins producing pan masala in 2010. Since pan masala is an excluded item, the company cannot claim the 100% deduction under this section.

This section is designed to boost economic activity in the North-Eastern States by providing significant tax relief to eligible businesses. However, strict adherence to eligibility criteria and compliance requirements is essential to avail of the benefits.