Section 44BBB of ITA, 1961 : Section 44Bbb: Special Provision For Computing Profits And Gains Of Foreign Companies Engaged In The Business Of Civil Construction, Etc, In Certain Turnkey Power Projects

Explanation using Example

Imagine a scenario where PowerGrid International, a foreign company, specializes in the construction of power plants. They secure a contract for a turnkey power project in India, which involves the civil construction and installation of turbines and generators, and is approved by the Central Government.

Under Section 44BBB of the Income-tax Act, 1961, when PowerGrid International receives payment for this project, regardless of whether the payment is made within or outside India, 10% of the amount received will be considered as their taxable income in India.

However, if PowerGrid International believes that their actual profits are lower than this 10% estimation, they have the option to maintain detailed books of account as per Section 44AA and get their accounts audited as per Section 44AB. If they do this and submit the required audit report, the Indian tax authorities will assess their actual profits and tax them accordingly, which could potentially be lower than the deemed 10%.