Section 80-ID of ITA, 1961 : Section 80-Id: Deduction In Respect Of Profits And Gains From Business Of Hotels And Convention Centres In Specified Area

Explanation using Example

Imagine a company, 'Heritage Hotels Pvt. Ltd.', decides to construct a new three-star hotel in Agra, Uttar Pradesh, which is a district with a World Heritage Site—the Taj Mahal. The construction of the hotel begins on April 1, 2009, and it starts operating on January 1, 2010. The total income of the company for the assessment year 2011-12 includes profits from the hotel business.

Under Section 80-ID of the Income-tax Act, 1961, Heritage Hotels Pvt. Ltd. can claim a deduction of 100% of the profits gained from this new hotel for five consecutive assessment years, starting from the initial assessment year, which is 2011-12 in this case, as the business started functioning in the previous year 2010-11.

However, to avail of this deduction, the company must ensure:

• The hotel business is newly established and not a result of splitting up or reconstruction of an existing business.
• The building used for the hotel was not previously used as a hotel or any other purpose.
• The machinery and plant used are new and were not previously used for any other purpose. (Exceptions as per Explanations to Section 80-IA apply)
• The company furnishes an audit report with its income tax return, certifying the eligibility and correctness of the deduction claimed.

If Heritage Hotels Pvt. Ltd. meets these conditions, it can significantly reduce its tax liability for five years, supporting the growth and development of new tourism infrastructure in areas with cultural significance like Agra.