Duction for businesses engaged incollecting and processing of bio-degradable waste

145(1)

If the gross total income of an assessee includes any profits and gains derived from the business of collecting and processing or treating of bio-degradable waste for,—

• (a) generating power; or
• (b) producing bio-fertilizers, bio-pesticides or biological agents; or
• (c) producing bio-gas; or
• (d) making pellets or briquettes for fuel or organic manure, there shall be allowed a deduction equal to the whole amount of such profits and gains for five consecutive tax years, beginning with the tax year in which such business commences.

Explanation

Section Summary:

Section 145(1) of the new income tax law provides a deduction for businesses engaged in the collection and processing of bio-degradable waste. The purpose of this section is to incentivize businesses that contribute to environmental sustainability by converting bio-degradable waste into useful products like power, bio-fertilizers, bio-gas, or fuel pellets. The deduction applies to the entire profit derived from such activities for five consecutive tax years, starting from the year the business commences.

Key Changes:

• New Deduction Introduced: This is a new provision aimed at promoting eco-friendly businesses. Previously, there was no specific deduction for profits from bio-degradable waste processing under the Income Tax Act.
• Scope of Activities Expanded: The deduction covers a wide range of activities, including power generation, production of bio-fertilizers, bio-pesticides, bio-gas, and fuel pellets or briquettes.

Practical Implications:

• For Businesses: Businesses involved in bio-degradable waste processing can now claim a 100% deduction on their profits for five consecutive years. This reduces their taxable income significantly, making such ventures more financially viable.
• For Compliance: Businesses must ensure their activities fall within the specified categories (e.g., power generation, bio-fertilizer production) to qualify for the deduction.
• Environmental Impact: This provision encourages businesses to adopt sustainable practices, contributing to waste management and renewable energy production.

Critical Concepts:

• Gross Total Income: This refers to the total income of the business before any deductions or exemptions.
• Profits and Gains: These are the earnings specifically derived from the eligible activities (e.g., processing bio-degradable waste).
• Five Consecutive Tax Years: The deduction is available for five years starting from the year the business begins operations in this sector.

Compliance Steps:

1. Identify Eligible Activities: Ensure the business activities fall under the categories listed in Section 145(1) (e.g., power generation, bio-fertilizer production).
2. Maintain Proper Records: Keep detailed records of income and expenses related to the bio-degradable waste processing business.
3. File Accurate Returns: Report the profits from eligible activities separately in the income tax return to claim the deduction.
4. Document Commencement Year: Clearly establish the year the business commenced operations to determine the five-year deduction period.

Example:

A company, GreenTech Ltd., starts operations in 2023-24, collecting and processing bio-degradable waste to produce bio-gas. In its first year, it earns a profit of ₹50 lakh from this activity. Under Section 145(1), GreenTech Ltd. can claim a deduction of ₹50 lakh, reducing its taxable income to zero for that year. This deduction will continue for the next four years (2024-25 to 2027-28), provided the business continues to earn profits from the same activity.

This section aligns with India’s broader environmental and renewable energy goals, offering a financial incentive for businesses to adopt sustainable practices.