Section 80-IAB of ITA, 1961 : Section 80-Iab: Deductions In Respect Of Profits And Gains By An Undertaking Or Enterprise Engaged In Development Of Special Economic Zone

Explanation using Example

Let's say there is a company, 'XYZ Infra Ltd.', which is in the business of developing infrastructure projects. In 2010, XYZ Infra Ltd. decided to venture into the development of a Special Economic Zone (SEZ) in the state of Telangana. The SEZ was notified by the Central Government under the Special Economic Zones Act, 2005, and the development was completed in 2012.

From 2012 onwards, XYZ Infra Ltd. started earning profits from its business operations within the SEZ. As per Section 80-IAB of the Income-tax Act, 1961, XYZ Infra Ltd. is eligible to claim a deduction of 100% of the profits and gains derived from the business of developing the SEZ for ten consecutive assessment years.

XYZ Infra Ltd. opts to claim this deduction from the assessment year 2013-14, which is the year they started generating profits. This means that they can enjoy tax-free income from the SEZ development business until the assessment year 2022-23. However, if the company had commenced the development of the SEZ on or after April 1, 2017, they would not be eligible for this deduction under the amended provisions.

Furthermore, if XYZ Infra Ltd. had transferred the operation and maintenance of the SEZ to another developer, 'ABC Operations Ltd.', in 2015, then ABC Operations Ltd. would be eligible to claim the deduction for the remaining period of the ten consecutive assessment years as if they were the original developers.

This section provides significant tax incentives to encourage the development of SEZs, aiming to boost economic growth, exports, and employment.